TECHNICAL COMMUNICATIONS CORPORATION
100 Domino Drive
Concord, MA 01742
Annual Meeting of Shareholders
February 13, 2023
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN
PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary proxy statement
Confidential, for use of the Commission only (as permitted by Rule 14a-6(e)(2))
Definitive proxy statement
Definitive additional materials
Soliciting material under §240.14a-12
TECHNICAL COMMUNICATIONS CORPORATION
(Name of Registrant as Specified in Its Charter)
______________________________________________________________
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
No fee required
Fee paid previously with preliminary materials.
Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-(6)(i)(1) and
0-11.
TECHNICAL COMMUNICATIONS CORPORATION
Notice Of Annual Meeting Of Stockholders
To Be Held February 13, 2023
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the 2023 Annual Meeting of Stockholders (the
“Meeting”) of Technical Communications Corporation, a Massachusetts corporation (the
“Company”), will be held at 10:00 a.m. (local time) on Monday, February 13, 2023, at the offices
of the Company located at 100 Domino Drive, Concord, Massachusetts 01742, to:
1. Elect one Class II Director to serve on the Board of Directors for a term of three years
expiring at the 2026 Annual Meeting of Stockholders;
2. Hold a stockholder advisory vote on the compensation of the Company’s named
executive officers as disclosed in the proxy statement for the Meeting;
3. Hold a stockholder advisory vote to determine the frequency of voting by stockholders on
the compensation of our named executive officers;
4. Ratify the appointment of Stowe & Degon LLC as the independent registered public
accounting firm of the Company for the fiscal year ending September 30, 2023; and
5. Consider and act upon such other business and matters as may properly come before the
Meeting or any adjournments thereof.
The Board of Directors knows of no other matters to be presented at the Meeting. Only
stockholders of record of the Company at the close of business on the record date of December
16, 2022 are entitled to notice of and to vote at the Meeting or any adjournments thereof.
All stockholders are cordially invited to attend the Meeting. Whether or not you expect
to attend the Meeting, please complete, sign, date and return the enclosed proxy card in the
envelope provided at your earliest convenience. If you return your proxy, you may nevertheless
attend the Meeting and vote your shares in person.
A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended
September 24, 2022, which contains financial statements and other information of interest to
stockholders, accompanies this Notice and the attached Proxy Statement.
By Order of the Board of Directors,
Thomas J. Conte, Secretary
Concord, Massachusetts
January 11, 2023
It is important that your shares be represented at the Meeting. Whether or not you plan to
attend the Meeting, please promptly complete, sign, date and mail the enclosed proxy card in
the envelope provided, which requires no postage if mailed in the United States.
Important Notice Regarding the Availability of Proxy Materials
for the Annual Shareholder Meeting to be Held on February 13, 2023
This Proxy Statement and related materials are available at the Company’s website at
https://www.tccsecure.com/Investors.aspx.
This Proxy Statement relates to the Company’s 2023 Annual Meeting of Stockholders to
be held on Monday, February 13, 2023 at 10:00 a.m. (local time) at the Company’s offices
located at 100 Domino Drive, Concord, Massachusetts 01742.
The matters to be voted upon at such meeting are:
(1)
the election of one Class II Director to serve on the Board of Directors for a term
of three years expiring at the 2026 Annual Meeting of Stockholders;
(2)
a stockholder advisory vote on the compensation of the Company’s named
executive officers as disclosed in the proxy statement for the meeting; and
(3)
a stockholder advisory vote to determine the frequency of voting by stockholders
on the compensation of our named executive officers;
(4)
the ratification of Stowe & Degon LLC as the independent registered public
accounting firm of the Company for the fiscal year ending September 30, 2023.
Stockholders will also consider and act upon such other business and matters as may
properly come before such meeting or any adjournments thereof.
Only stockholders of record at the close of business on December 16, 2022 are entitled to
notice of and to vote at the meeting and any adjournments thereof.
Materials that will be available electronically at the website identified above include:
the Notice of Annual Meeting of Stockholders;
the Proxy Statement for the meeting;
the form of proxy card; and
the Company’s Annual Report on Form 10-K for the fiscal year ended September
24, 2022.
If you wish to attend the meeting in person and need directions, please contact TCC Investor
Relations at (978) 287-5100. Instructions on how to complete, sign, date and return the proxy
card are provided on the card, as well as a stockholder’s control/identification number(s).
TECHNICAL COMMUNICATIONS CORPORATION
100 Domino Drive
Concord, MA 01742
PROXY STATEMENT
for the
2023 Annual Meeting of Stockholders
February 13, 2023
This Proxy Statement is being furnished in connection with the solicitation of proxies by
the Board of Directors of Technical Communications Corporation, a Massachusetts corporation
(“TCC” or the “Company”), for use at the Company’s 2023 Annual Meeting of Stockholders and
any adjournments thereof (the “Meeting”), being held at 10:00 a.m. (local time) on Monday,
February 13, 2023 at the offices of the Company, 100 Domino Drive, Concord, Massachusetts
01742.
It is expected that the Notice of Meeting, this Proxy Statement and the accompanying
proxy card, and an Annual Report on Form 10-K for the fiscal year ended September 24, 2022
containing financial statements and other information of interest to stockholders, will be mailed to
stockholders on or about January 11, 2023.
Record Date and Outstanding Shares
Only record holders of shares of the common stock, par value $0.10 per share, of the
Company (the “Common Stock”) as of the close of business on December 16, 2022 (the “Record
Date”) are entitled to notice of and to vote at the Meeting.
As of the Record Date, there were 1,854,403 shares of the Company’s Common Stock
outstanding and entitled to vote. The shares of Common Stock are the only voting securities of
the Company. Stockholders are entitled to cast one vote for each share held of record.
Proxies
If the enclosed proxy card is properly marked, signed, and returned in time to be voted at
the Meeting, and is not subsequently revoked, the shares represented will be voted in accordance
with the instructions marked thereon. SIGNED PROXIES RETURNED TO THE COMPANY
AND NOT MARKED TO THE CONTRARY WILL BE VOTED AS RECOMMENDED BY
THE BOARD OF DIRECTORS. Thus, proxies not marked to the contrary will be voted:
in favor of the nominee for election to the Board,
in favor of the compensation of our named executive officers as disclosed in this
Proxy Statement; and
in favor of ratification of the Company’s independent registered public
accounting firm.
Any stockholder may revoke a proxy at any time prior to its exercise by signing and
delivering a later-dated proxy or a written notice of revocation to the Secretary of the Company.
Stockholders attending the Meeting may also revoke their proxies by voting in person at the
Meeting. Attendance at the Meeting will not itself be deemed to revoke a proxy unless a
stockholder gives affirmative notice at the Meeting that such stockholder intends to revoke the
proxy and vote in person.
Quorum and Approval
The presence in person or by proxy of the holders of a majority in interest of the shares of
Common Stock issued and outstanding on the Record Date and entitled to vote is required to
constitute a quorum at the Meeting. The stockholders entitled to vote that are present in person or
by proxy at the Meeting may adjourn the Meeting without additional notice unless a new record
date is or must be fixed. At any adjourned Meeting at which a quorum is present, any business
may be transacted that might have been transacted at the Meeting as originally scheduled.
Abstentions and broker non-votes will count in determining whether a quorum is present
at the Meeting and any adjourned Meeting. A broker non-vote occurs if the broker or other
nominee who holds shares represented by a proxy has not received instructions with respect to a
particular proposal and does not have discretionary authority with respect to such proposal.
Matters as to which brokers do not have discretionary authority include the election of directors,
even in uncontested elections, and the “say on pay” proposal.
The affirmative vote of a plurality of the votes cast at the Meeting by the shares entitled to
vote thereon is required to elect a director. Abstentions, broker non-votes and votes withheld will
not be included in the totals for director elections, and will have no effect on the outcome of the
vote.
The affirmative vote of the holders of a majority of the shares of Common Stock voting on
the matter shall be required for the stockholder advisory vote on the compensation of the
Company’s named executive officers as disclosed in the Compensation section (including the
tables therein) of this Proxy Statement. Abstentions and broker non-votes will not be included in
the totals for the proposal, and will have no effect on the outcome of the vote.
Lastly, the affirmative vote of the holders of a majority of the shares of Common Stock
voting on the matter is required for the ratification of the selection of the Company’s independent
registered public accounting firm. Abstentions and broker non-votes will not be included in the
totals for the proposal, and will have no effect on the outcome of the vote.
Other Matters
The Board of Directors knows of no matters to be presented for consideration at the
Meeting other than as set forth in this Proxy Statement. If any other matter should be presented at
the Meeting upon which a vote may be properly taken, shares represented by all proxies received
by the Company will be voted with respect thereto in accordance with the judgment of the
persons named as proxies and consistent with applicable law.
No director, executive officer or nominee for director, nor any associate of any of the
foregoing, has any substantial interest, direct or indirect, by security holdings or otherwise, in any
matter to be acted upon at the Meeting.
PROPOSAL I. ELECTION OF DIRECTORS
The business corporation statute of Massachusetts requires, unless a company opts out,
that the terms of directors of public companies be staggered by dividing the number of directors
into three groups, as nearly equal in number as possible, with the number of directors subject to
such requirement being fixed by a vote of the board. Pursuant to the statute and the Company’s
By-laws, the members of the Company’s Board of Directors are divided into three classes,
designated Class I, Class II and Class III, each serving staggered three-year terms. The term of
the Class II director to be elected at the Meeting expires at the 2026 annual meeting of
stockholders; the term of the Class I director expires at the 2025 annual meeting of stockholders;
and the term of the Class III director expires at the 2024 annual meeting of stockholders.
Directors elected by the stockholders at an annual meeting to succeed those whose terms
expire are of the same class as the directors they succeed and are elected for a term to expire at
the third annual meeting of stockholders after their election and until their successors are duly
elected and qualified. Vacancies on the Board, including a vacancy resulting from an
enlargement of the Board of Directors, shall be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum. Any director so elected holds
office for the remainder of the full term of the class of directors in which the vacancy occurred or
the new directorship was created and until the director’s successor shall have been elected and
qualified.
Nominee for Director
One director is to be elected at the Meeting as the Class II director. The Board of
Directors, as recommended by its Compensation, Nominating and Governance Committee, has
nominated Francisco F. Blanco for election as the Company’s Class II Director. Mr. Blanco is
currently and has been a director of the Company since 2011 and has consented to being named
in this Proxy Statement and to serve if elected. If elected, the nominee will hold office until the
2026 Annual Meeting of Stockholders and until his successor is duly elected and qualified. The
Board of Directors knows of no reason why such nominee should be unable or unwilling to serve,
but, if such should be the case, proxies may be voted for the election of some other person.
The affirmative vote of a plurality of the votes cast at the Meeting by the shares entitled
to vote thereon is required to elect a director. Thus, abstentions, broker non-votes and votes
withheld will not be included in the totals and will have no effect on the outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”
THE ELECTION OF THE NOMINEE.
Members of the Board of Directors, Nominees and Executive Officers
The following table sets forth the name and address of each director, nominee and
executive officer of the Company, the year each current director first became a director, and the
age and positions currently held by each such individual with the Company. The following table
is as of December 16, 2022.
Name and Address(1)
Year First Became
a Director
Age
Positions and Offices
with the Company
Ralph M. Norwood
2019
79
Class I Director
Francisco F. Blanco
2011
80
Class II Director
Carl H. Guild, Jr.
1997
78
Class III Director, Chairman of
the
Board,
Chief
Executive
Officer and President
Thomas E. Peoples
1998
74
Class III Director
Non-Director
Executive Officers
Michael P. Malone
--
63
Chief Financial Officer, Treasurer
and Assistant Secretary
(1)
The address of Messrs. Norwood, Blanco, Guild, Peoples and Malone is c/o Technical
Communications Corporation, 100 Domino Drive, Concord, Massachusetts 01742.
Directors and Nominees
Ralph M. Norwood. Mr. Norwood served as Chief Financial Officer of CPS Technologies Corp.
(“CPS”), a Nasdaq-listed manufacturer of electronic components, from 2011 until his retirement
in May 2019; in August 2019, Mr. Norwood was elected to the Board of Directors of CPS. He
joined CPS from Navigator Capital Advisors, LLC, a financial consulting company, where he had
served as President since he founded the firm in 2006. From 2002 until 2005 he served as Vice
President and Chief Financial Officer of SatCon Technology Corporation, a clean energy
company headquartered in Boston, MA. Previously, he served for over 20 years at Polaroid
Corporation in various capacities including Vice President and Treasurer, Vice President and
Controller, and Worldwide Manufacturing Controller. Mr. Norwood is also a veteran having
served on active duty for 1968-70 as a U.S. Army officer. Mr. Norwood is a CPA and earned a
B.S. from the University of New Hampshire and an M.B.A from the Darden School at the
University of Virginia.
Mr. Norwood’s qualifications for election to and service on the Board of Directors
include his significant financial expertise and experience, as well as his experience in
international business. Mr. Norwood’s experience as a financial executive also enhances the
ability and functioning of the Board and in particular the Audit Committee in discharging its
responsibilities to assist the Board with overseeing management’s conduct of TCC’s financial
reporting processes.
Francisco F. Blanco. Mr. Blanco is President and CEO of The Pola Group, LLC, a
consulting firm focused on providing advice and assistance, strategic direction and creative
business development solutions for commercial and government clients, where he has worked
since 2010. From 2001 to 2010, Mr. Blanco was Executive Vice President of the Intelligence and
National Security Alliance (“INSA”), a member-based non-profit, non-partisan, public-private
organization that works to promote and recognize the highest standards within the national
security and intelligence communities. Prior to joining INSA, Mr. Blanco was employed in a
variety of senior management and leadership positions during his 30-year tenure at the U.S.
Department of Defense.
Mr. Blanco’s qualifications for election to and service on the Board of Directors include
his industry experience, his government experience and relationships with government leaders
and agencies, his management and business development skills, and his in-depth understanding of
the Company’s products and their markets.
Carl H. Guild, Jr. Mr. Guild has been President and Chief Executive Officer of the
Company since 1998 and Chairman of the Board of Directors since 2001. He was also Vice-
Chairman of the Board from 1998 to 2001 and Chairman in 1998, and was an independent
consultant to the Company from 1997 to 1998. From 1993 to 1997, he was a Senior Vice
President with Raytheon Engineers and Constructors, Inc., a former unit of Raytheon Company, a
defense, homeland security and aerospace technology company. Mr. Guild serves as President
and Chief Executive Officer of the Company pursuant to an Employment Agreement (as
amended) with the Company, which agreement is summarized under “Employment Agreements”
in the Compensation section below.
Mr. Guild’s qualifications for election to and service on the Board of Directors include
his management and leadership experience and financial acumen, his deep understanding of the
Company’s products, business and industry, including its international operations and customers,
and his demonstrated commitment to TCC and its stockholders.
Thomas E. Peoples. Mr. Peoples served as President of International Executive
Counselors, LLC, a consulting company he established in Virginia between 2005 and 2019. Mr.
Peoples was Vice President and Managing Director of The SPECTRUM Group, a Washington,
DC area-based consulting firm, from 2004 to February 2015. Between 2001 and 2004, Mr.
Peoples was retired. From 1999 to 2001, Mr. Peoples was the Senior Vice President for
International and Washington Operations of Gencorp, Inc., a publicly-held manufacturer of
automotive, polymer, aerospace, and defense products. From 1992 to 1999, Mr. Peoples was a
Vice President of Aerojet, a privately-held aerospace and defense contractor. Prior to 1992, Mr.
Peoples served as Manager of Business Development for Smart Munitions Programs at Raytheon
Company. He served in the U.S. Army between August 1966 and February 1987, retiring from
service as a Lieutenant Colonel. He is also a former Board member and Treasurer of the National
Guard Youth Foundation and was an appointed member of the U.S. Department of Defense
Science Board from 2000 to 2002.
Mr. Peoples’s qualifications for election to and service on the Board of Directors include
his management and business experience, his government experience and relationships with
government leaders and agencies, his business development skills and engineering expertise, and
his in-depth understanding of the Company’s products and their markets.
Officers
Michael P. Malone. Mr. Malone, Chief Financial Officer, Treasurer and Assistant
Secretary, joined the Company in 1998 as Director of Finance and Treasurer and became Chief
Financial Officer in 2000. From 1997 to 1998, he was the Controller at Vasca, Inc., a privately-
held medical device company. Prior to 1997, Mr. Malone was with ZOLL Medical Corporation,
a publicly-traded medical device and software solutions company, for five years as its Controller
and Treasurer. Mr. Malone and the Company are parties to an Employment Agreement, which
agreement is summarized under “Employment Agreements” in the Compensation section below.
Corporate Governance
Board Composition and Independence; Meetings
The size of the Board of Directors is set at four directors. The Board has determined that
each current director other than Mr. Guild is an “independent” director as that term is defined in
the rules and regulations of The Nasdaq Stock Market (“Nasdaq”), including Listing Rule 5605,
and Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The
Company does not utilize any other definition or criteria for determining the independence of a
director or nominee, and no other transactions, relationships, or arrangements exist to the Board’s
knowledge or were considered by the Board in determining any director’s or nominee’s
independence.
The Board of Directors held four meetings during the fiscal year ended September 24,
2022. Each director attended 100% of the aggregate of (a) the total number of meetings of the
Board of Directors he was eligible to attend, and (b) the total number of meetings of all
committees of the Board of Directors on which he served that were held during the Company’s
2022 fiscal year.
Board Structure; Role in Risk Oversight
The Board currently combines the role of Chairman of the Board with the role of Chief
Executive Officer, with Carl H. Guild, Jr. serving in both capacities since 2001. The Board
believes that combining these roles fosters clear accountability, effective decision-making and
alignment on corporate strategy. The structure allows one person to speak for and lead the
Company and avoids duplication of work and confusion about who is in charge. Given the
Company’s historic size and financial results, and the requirement that members of the Board
serve staggered terms, the Board has determined that neither dividing these roles nor designating
a lead independent director is necessary or would result in significant benefits to the Company.
The Board believes that its composition and membership – with 75% of its members considered
independent - contribute to, and are currently sufficient for, effective independent oversight and
minimize any potential conflicts that may result from the combination of the CEO and Chairman
roles.
The Board of Directors oversees the business of the Company, including management
performance and risk management, to assure that the long-term interests of TCC’s stockholders
are being served. The process to identify, analyze, report and manage risks has been developed
informally over time and involves managers reporting to the Chief Executive Officer and Chief
Financial Officer, who in turn report to the Board on the significant risks facing the Company.
Each risk is discussed and quantified when possible and a plan is developed to address and
mitigate identified risks. Each committee of the Board is also responsible for reviewing the risk
exposure of the Company related to the committee’s areas of responsibility and providing input to
management and the Board on such risks. The Audit Committee is especially critical in this
process, and such committee’s responsibilities include reviewing risk management and
compliance programs and consulting with management and the Board on risk identification,
measurement and mitigation.
Committees
The Board of Directors currently has two committees, the Audit Committee and the
Compensation, Nominating and Governance Committee, each as described below.
Audit Committee
The Audit Committee of the Board, which currently consists of Messrs. Peoples
(Chairman), Blanco and Norwood, held four meetings during fiscal year 2022.
The Audit Committee’s primary function is to assist the Board of Directors in fulfilling
its oversight responsibilities by:
reviewing the financial reports and other financial information of the Company,
reviewing the Company’s system of internal controls regarding finance and
accounting and the Company’s auditing, accounting and financial reporting
processes,
serving as an independent and objective party to monitor the Company’s
financial reporting processes and internal control systems,
reviewing and appraising the audit efforts of the Company’s independent
registered public accounting firm,
reviewing, approving and/or ratifying related person transactions, and
providing an open avenue of communication among the independent accountants,
financial and senior management, and the Board of Directors.
The Audit Committee acts pursuant to an Audit Committee Charter, a copy of which is
posted on the Company’s website at https://www.tccsecure.com/Investors.aspx. The Audit
Committee’s charter requires that the committee review and update the charter periodically as
conditions dictate. In August 2022, the Audit Committee’s charter was reviewed and affirmed
without change.
The Board of Directors has determined that Mr. Peoples satisfies the definition of “audit
committee financial expert” as promulgated by the Securities and Exchange Commission (the
“Commission”) by virtue of his educational and work experience as described above. The Board
of Directors also has determined that Messrs. Peoples, Blanco and Norwood are independent
under Nasdaq’s listing standards for directors and Audit Committee members under Rules
5605(b) and (c).
Compensation, Nominating and Governance Committee
The Company’s Compensation, Nominating and Governance Committee (the
“Governance Committee”) currently consists of Messrs. Blanco (Chairman), Peoples and
Norwood, and held four meetings during the 2022 fiscal year. As noted above, the Board has
determined that each of these individuals satisfies applicable independence requirements for
directors as well as members of such committee under Nasdaq Rules 5605(d) and (e).
The primary function of the Governance Committee is to assist the Board of Directors in
discharging its responsibilities with respect to the Company’s compensation and benefit
programs, the organization and membership of the Board, and corporate governance matters. The
Governance Committee’s goal is to assure that the composition, practices and operation of the
Board contribute to value creation and effective representation of the Company’s stockholders,
and to play a leadership role in shaping the Company’s corporate governance.
The Governance Committee acts pursuant to the Compensation, Nominating and
Governance Committee Charter, a copy of which is posted on the Company’s website at
https://www.tccsecure.com/Investors.aspx. The Governance Committee’s charter requires that
the committee review and reassess the adequacy of the charter annually and recommend any
proposed changes to the Board for approval. In August 2022, the Governance Committee’s
charter was reviewed and affirmed without change. The Governance Committee must also
annually evaluate its own performance.
The Board has approved policies and procedures for the Governance Committee with
respect to the nomination of candidates to the Board and any committees thereof. These policies
and
procedures
are
available
on
the
Company’s
website
at
https://www.tccsecure.com/Investors.aspx and are summarized below, and have not been
materially changed since adoption.
Nomination Policies and Procedures
The Governance Committee will accept for consideration any candidate properly
recommended by a stockholder; acceptance of a recommendation for consideration does not
imply the committee will nominate or recommend for nomination the proposed candidate.
Stockholders who wish to nominate qualified candidates to serve as directors must notify
the Company in writing, by notice delivered to the attention of the Secretary of the Company at
the address of the Company’s executive offices as set forth in the Company’s periodic reports as
filed with the Commission, of a proposed nominee. Submissions may be by mail, courier or
personal delivery. E-mail submissions will not be considered. In order to ensure meaningful
consideration of such candidates, notice must be received not later than 120 calendar days prior to
the first anniversary of the date of the proxy statement for the prior year’s annual meeting of
stockholders.
The notice must set forth as to each proposed nominee:
the nominee’s name, age, business address and, if known, residence address,
his or her principal occupation or employment and business experience,
the number of shares of stock of the Company, if any, which are beneficially
owned by such nominee, and
any other information concerning the nominee that must be disclosed as to
nominees in proxy solicitations pursuant to applicable law, including but not
limited to any arrangements or agreements regarding the proposed candidate’s
nomination, all relationships between the proposed nominee and the
recommending stockholder and the Company, and all transactions between such
parties.
The notice must also set forth with respect to the stockholder making the nomination the
name and address, as they appear on the Company’s books, of such stockholder, the number of
shares of the Company that are owned beneficially or of record by such stockholder, and the time
period such shares have been held.
Submissions received through this process will be forwarded to the Governance
Committee for review. Only those submissions that comply with these procedures and those
nominees who satisfy the qualifications determined by the Governance Committee for directors
of the Company will be considered.
When considering candidates, the Governance Committee strives to achieve a balance of
knowledge, experience and accomplishment such that the Board reflects a diversity of talent, age,
skill, expertise and perspective. While there are no set minimum requirements, a candidate
should:
be intelligent, thoughtful and analytical,
possess superior business-related knowledge, skills and experience,
reflect the highest integrity, ethics and character, and value such qualities in
others,
have excelled in both academic and professional settings,
demonstrate achievement in his or her chosen field,
be free of actual or potential conflicts of interest,
be familiar with regulatory and governance matters,
have the ability to devote sufficient time to the business and affairs of the
Company, and
demonstrate the capacity and desire to represent, fairly and equally, the best
interests of the Company’s stockholders as a whole.
In addition to the above criteria (which may be modified from time to time), the
Governance Committee may consider such other factors as it deems in the best interests of the
Company and its stockholders, including a candidate’s independence, financial sophistication and
special competencies. The Governance Committee does not have a formal policy with regard to
the consideration of diversity when identifying and evaluating nominees but diversity may be
considered when making nominations, including racial and ethnic diversity, gender, and diversity
of personal and professional experiences, backgrounds, skills and qualifications.
The Governance Committee identifies potential candidates through referrals and
recommendations, including by incumbent directors, management and stockholders, as well as
through business and other organizational networks. The Governance Committee may retain and
compensate third parties, including executive search firms, to identify or evaluate, or assist in
identifying or evaluating, potential director nominees.
Current members of the Board with the requisite skills and experience are considered for
re-nomination, balancing the value of the member’s continuity of service and familiarity with the
Company with that of obtaining a new perspective, and considering each individual’s
contributions, performance and level of participation, the current composition of the Board, and
the Company’s needs. If any existing members do not want to continue in service or if it is
decided not to re-nominate a director, new candidates are identified in accordance with those
skills, experience and characteristics deemed necessary for new nominees, and are evaluated
based on the qualifications set forth above. In every case, the Governance Committee meets (in
person or telephonically) to discuss each candidate, and may require personal interviews before
final approval. Once a slate is selected, the Governance Committee presents it to the full Board.
The Governance Committee does not currently, and does not intend in the future, to
differentiate between or alter the manner in which it evaluates candidates based on the
constituency (including stockholders) that proposed the candidate.
For a description of the Governance Committee’s role in evaluating and establishing
compensation programs, policies and levels for the Company, see the Compensation Discussion
and Analysis and Compensation sections below.
Stockholder Communications and Director Attendance at Annual Stockholder Meetings
The Board welcomes communications from stockholders and has adopted a procedure for
receiving and addressing such communications. Stockholders may send written communications
to the entire Board or individual directors, addressing them to Technical Communications
Corporation, 100 Domino Drive, Concord, MA 01742, Attention: Chief Financial Officer. All
such communications will be forwarded to the full Board of Directors or to any individual
director or directors to whom the communication is directed unless the communication is clearly
junk mail or a mass mailing, a business solicitation, advertisement or job inquiry, or is unduly
hostile, threatening, illegal, or similarly inappropriate, in which case the Company has the
authority to discard or take appropriate legal action regarding the communication.
Recognizing that director attendance at the Company’s annual meetings of stockholders
can provide stockholders with an opportunity to communicate with members of the Board of
Directors, it is the policy of the Board of Directors to strongly encourage, but not require, the
members of the Board to attend such meetings. All members of the Board attended the 2022
Annual Meeting of Stockholders.
TCC’s policies regarding stockholder communications and director attendance (which
may be modified from time to time) can be found on the Company’s website at
https://www.tccsecure.com/Investors.aspx.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires the Company’s officers, directors, and
persons who beneficially own more than 10% of a registered class of the Company’s equity
securities to file reports of ownership and changes in ownership with the Commission.
Certain Relationships and Related Person Transactions; Legal Proceedings
Thomas J. Conte, the Company’s Secretary, is a member of a law firm that provided
legal services to the Company. Fees paid to Mr. Conte’s law firm during the Company’s 2022
fiscal year were approximately $53,000. David A. White, the Company’s Former Secretary, is a
member of a law firm that provided legal services to the Company. Fees paid to Mr. White’s law
firm during the Company’s 2021 fiscal year were approximately $72,000.
On August 4, 2022, Carl H. Guild, Jr., the Company’s CEO, President and Chairman of
the Board, made a revolving loan to the Company of up to $1,000,000 to provide working capital,
which loan was evidenced by a demand promissory note bearing interest at a rate of 7.5%. This
loan is still outstanding.
On April 7, 2022, Carl H. Guild, Jr., the Company’s CEO, President and Chairman of the
Board, made a revolving loan to the Company of up to $1,000,000 to provide working capital,
which loan was evidenced by a demand promissory note bearing interest at a rate of 7.5%. This
loan is still outstanding.
On November 29, 2021, Carl H. Guild, Jr., the Company’s CEO, President and Chairman
of the Board, made a revolving loan to the Company of up to $1,000,000 to provide working
capital, which loan was evidenced by a demand promissory note bearing interest at a rate of
7.5%. This loan is still outstanding.
On May 6, 2021, Carl H. Guild, Jr., the Company’s CEO, President and Chairman of the
Board, made a revolving loan to the Company of $1,000,000 to provide working capital, which
loan was evidenced by a demand promissory note bearing interest at a rate of 6%. This loan is
still outstanding.
These four outstanding loans have an accrued interest balance of $106,490 as of
September 24, 2022.
On July 15, 2021 the Company sold 4,000 shares of unregistered shares of the
Company’s common stock at $4.00 per share to Ralph M. Norwood, a member of the Board of
Directors.
There were no other transactions during fiscal years 2022 or 2021, and there are no
currently proposed transactions, to which the Company was or is to be a participant and in which
any related person had or will have a direct or indirect material interest. There are no family
relationships among the directors, executive officers or any nominee therefor, and to the
Company’s knowledge no arrangements or understandings exist between any director or nominee
and any other person pursuant to which such director or nominee was or is to be selected as a
director or executive officer.
There are no material proceedings to which a director, executive officer or nominee is a
party adverse to the Company or its subsidiary or has a material interest adverse to the Company
or its subsidiary, nor to the Company’s knowledge are there any proceedings or events material to
an evaluation of the ability or integrity of the Company’s directors, nominees or executive
officers.
Hedging Policies and Procedures
The Company has not adopted practices or policies regarding the ability of employees
(including officers) or directors, or any of their designees, to purchase financial instruments or
otherwise engage in transactions that hedge or offset (or are designed to hedge or offset) any
decrease in the market value of the Company’s Common Stock or other equity securities.
Code of Ethics
The Company has a Code of Business Conduct and Ethics, which applies to all of its
employees, officers and directors. A copy of this code can be found on the Company’s website at
https://www.tccsecure.com/Investors.aspx.
REPORT OF THE AUDIT COMMITTEE
The following is the report of the Audit Committee with respect to the Company’s
audited financial statements for the fiscal year ended September 24, 2022.
The Audit Committee has reviewed and discussed the 2022 fiscal year audited financial
statements with management. The Audit Committee has also discussed with the Company’s
independent registered public accounting firm for fiscal 2022, Stowe & Degon LLC, the matters
required to be discussed by the applicable requirements of the Public Company Accounting
Oversight Board and the U.S. Securities and Exchange Commission; received and reviewed the
written disclosures and the letter from the independent registered public accounting firm required
by applicable requirements of the Public Company Accounting Oversight Board regarding the
independent registered public accounting firm’s communications with the Audit Committee
concerning independence; and discussed with the independent registered public accounting firm
its independence and any relationships that may impact its objectivity and independence.
Based upon the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements for the fiscal year
ended September 24, 2022 be included in the Company’s Annual Report on Form 10-K for filing
with the Securities and Exchange Commission.
Audit Committee
Thomas E. Peoples (Chair)
Ralph M. Norwood
Francisco F. Blanco
COMPENSATION DISCUSSION AND ANALYSIS
As noted above, one role of the Compensation, Nominating and Governance Committee
of the Board of Directors, comprised solely of non-employee, “independent” directors, is to assist
the Board with discharging its responsibilities relating to the compensation of TCC’s employees,
officers and directors, and the development and administration of the Company’s compensation
and benefit programs.
The Governance Committee operates under a written charter, which is available at
https://www.tccsecure.com/Investors.aspx. As set forth in the charter, the committee’s authority
and responsibilities with respect to compensation include:
For executives, to assist with the development of an executive compensation program
supportive of the achievement of the Company’s strategic goals and objectives, to
review and approve the goals and objectives relevant to the compensation of the
Chief Executive Officer of the Company, including an annual evaluation of the
CEO’s performance and the establishment of the CEO’s compensation and other
material terms of employment, and to review and approve senior management team
member compensation;
For directors, to annually evaluate the appropriate level and form of compensation
for members of the Board and its committees, and to recommend changes to the
Board when appropriate; and
For employees generally, to monitor and review all general compensation strategies
and programs of the Company, including equity incentive and benefit programs.
The following discussion provides information about the Company’s compensation plans
and programs generally, as well as compensation awarded to, earned by or paid to our “named
executive officers” pursuant to applicable Commission rules and regulations. For additional
information, please see the Compensation section that follows this discussion and analysis.
Compensation Philosophy and Objectives
The philosophy underlying the Company’s compensation plans is to provide
compensation that rewards both individual and organizational performance and align such
compensation with stockholder interests. The Company aims to make executive compensation
sensitive to and reflective of the financial condition and performance of the Company, which is
defined in terms of revenue growth and profitability. Compensation also must be competitive,
thereby enabling the Company to attract, retain and motivate highly-qualified individuals who
contribute to the Company’s success.
Procedure
Compensation decisions are made annually and are tied to the Company’s fiscal year-
end. For each employee, a performance evaluation is conducted by his or her supervisor, the
results of which are shared with the employee. The evaluation encompasses a review of the
employee’s individual performance over the course of the fiscal year, and includes recognition of
the achievement by TCC of its strategic objectives and priorities. Compensation decisions for
non-officer employees are made after the results of the performance evaluations have been
considered and an informal analysis is completed that considers the goals of market
competitiveness and enhancement of stockholder value. No upward adjustment is made to an
employee’s compensation if the individual’s performance does not merit, or if the Company’s
financial condition and performance do not support, such an adjustment.
The Governance Committee does not make individual compensation decisions for non-
officer employees. Rather, our Chief Executive Officer sets compensation levels and presents the
aggregate information to the Governance Committee for its information. Bonuses are typically
paid in December, and salary increases are effective October 1 and paid retroactively before the
end of the calendar year.
Compensation packages for our named executive officers are analyzed and discussed
individually by the Governance Committee, and decisions are made once the Governance
Committee has obtained all of the information it deems necessary. Information that is considered
in making named executive officer compensation decisions includes information provided to the
Governance Committee via presentations made to the committee by the named executive officers
themselves. Such presentations include highlights of achievements and milestones met by the
officers in the fiscal year and the results of each individual’s performance self-evaluation. The
Governance Committee also considers the Company’s financial condition and performance.
The accounting and tax treatment of compensation decisions generally have not been
material factors in determining the amount and type of compensation given to executive officers,
other than to balance the potential cost to the Company with the benefit or value to the executive.
The tax and accounting treatment of different compensation arrangements may play a greater role
in the decision-making process in the future. The effects on Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”) also would be considered when applicable.
The Governance Committee has not to date employed any compensation consultants to
assist it with compensation decisions, although it is authorized by its charter to do so and reserves
the right to engage such consultants when and if deemed necessary or advisable. The Governance
Committee also has the authority to form, and delegate any of its responsibilities to,
subcommittees as it deems appropriate, although to date it has not done so.
Compensation Components
The components of compensation provided to named executive officers (as well as non-
officer employees) typically include base salary, annual discretionary bonuses and equity
incentives. Bonuses and equity incentives have historically been granted in periods during which
the Company’s financial performance have supported such awards. Executive officers have not
received these components of compensation when the Company’s operating results have not been
positive and/or the recipients have not achieved specified performance milestones. No bonuses
were paid with respect to fiscal year 2022 or 2021 to any named executive officer due to the
financial performance of the Company.
The Company also has in place retirement and change of control arrangements with its
two named executive officers, who participate in the group benefits offered to all employees, such
as medical and life insurance.
Base Salary
Base salary levels for the Company’s named executive officers are based on an informal
review of compensation for competitive positions in the market and reflect job responsibilities
and skills, level of experience, individual performance, judgments as to past and future
contributions to the Company, and the Company’s compensation budget. Specific weight is not
given to any particular factor when establishing base salaries, although most weight is typically
given to individual performance. The Company’s practice has been to review base salaries at the
fiscal year-end as noted above, although salaries may be reviewed more frequently if
circumstances dictate.
Annual Bonuses
Bonuses, when paid, are designed to tie awards to individual performance and motivate
and reward employees for their contributions to the Company. A number of factors are
considered in determining whether annual bonuses should be paid, most importantly the
achievement by the Company of specified financial objectives and the achievement by the
employees of individual objectives. Recognition of individual performance and accomplishment
is based on a subjective analysis of each individual’s performance; recognition of Company
performance is based on an evaluation of specified measures of corporate performance, such as
corporate profits and sales order activity.
The Company has an Executive Bonus Program for the benefit of key management
employees – traditionally the Chief Executive Officer and Chief Financial Officer – and an
informal bonus program for all other employees. For named executive officers, an initial plan is
set and approved by the Governance Committee at the beginning of the fiscal year and bonus
awards are determined out of such plan at year-end based on Company and individual
performance. For non-officer employees, the budget is established by management, subject to
review by the Governance Committee, at year-end based on the Company’s financial
performance during the year, and individual awards are determined through a consultative
process involving an employee’s supervisor and our Chief Executive Officer.
Equity Incentives
As with base salary and bonus determinations, equity compensation awards are
determined on an informal, annual basis. An important objective of this component of
compensation is to strengthen the relationship between the long-term value of the Company’s
stock price and the potential financial gain for employees, as well as retention of personnel.
Historically the Company has awarded stock options to its employees and directors as the equity
component of compensation, which provide recipients the opportunity to purchase shares of our
Common Stock upon vesting and become valuable only if the trading price of the Common Stock
increases. The recipient is therefore motivated to remain with the Company until the options vest
and motivated to improve individual performance in support of improved Company performance.
In selecting employees eligible to receive equity compensation grants (whether at the
initial hire date or through periodic grants) and determining the size of such grants, a variety of
factors are considered, including the job and responsibility level and past, current and prospective
services rendered, or to be rendered, to the Company by the employee. Determination of the
employees eligible to receive awards and the size of such awards is based on a subjective analysis
by the Governance Committee, with input and recommendations from Mr. Guild, of each
individual’s position within the Company, his or her performance, and his or her growth potential
and that of the Company.
Equity Plans
The Company currently administers three plans that provide for the grant of equity
incentive compensation to officers, directors and employees.
The Technical Communications Corporation 2005 Non-Statutory Stock Option Plan, as
amended (the “2005 Plan”), was adopted by the Board of Directors in May 2005 and permitted
the grant of non-statutory stock options to purchase up to 200,000 shares of Common Stock to
employees, directors and consultants. The stated purpose of the 2005 Plan was to promote the
success and interests of the Company and its stockholders by permitting and encouraging
employees, directors and consultants of the Company to obtain a proprietary interest in the
Company or its subsidiaries through the grant of non-statutory options to purchase shares of the
Company. Determinations as to recipients of awards, option term, vesting period and exercise
price were made by the Governance Committee in its discretion. As of December 16, 2022, the
Company had issued a total of 208,500 options pursuant to the 2005 Plan. The 2005 Plan expired
on May 5, 2015 and no further awards were permitted as of such date. As of December 16, 2022,
options to purchase 17,500 shares granted under the 2005 Plan remained outstanding.
The Technical Communications Corporation 2010 Equity Incentive Plan (as amended,
the “2010 Plan”), which was adopted in July 2010 and expired in July 2020, provided for the
issuance of up to 400,000 shares of Common Stock pursuant to awards of stock options (incentive
and non-qualified), stock appreciation rights, and restricted stock to employees, directors and
consultants to the Company. The stated purpose of the 2010 Plan was to promote the success and
interests of the Company and its stockholders by permitting and encouraging participants to
obtain a proprietary interest in the Company through the grant of awards that are consistent with
the Company’s goals and that link the personal interests of participants to those of the Company’s
stockholders. The 2010 Plan was further intended to enable the Company to attract, retain and
motivate those whose services were deemed critical to the success of the Company and align the
interests of such individuals with those of the Company. Determinations as to award recipients,
duration, price, vesting and performance requirements and other material terms were made by the
Governance Committee, although there were specific requirements as to the price and term of
certain awards depending on the award type and recipient. Following its expiration in July 2020,
awards were not able to be granted under the 2010 Plan, although as of December 16, 2022,
options to purchase 119,400 shares granted under the 2010 Plan remained outstanding.
In May 2021, the Board of Directors approved and adopted the Technical
Communications Corporation 2021 Equity Incentive Plan, which was amended and restated in
December 2021 (as amended and restated, the “2021 Equity Plan”), which plan was approved by
shareholders at the 2022 Meeting, as amended. The 2021 Equity Plan currently provides for the
issuance of up to 400,000 shares of Common Stock pursuant to awards of stock options (non-
qualified), stock appreciation rights, and restricted stock to employees, directors and consultants
to the Company.
The stated purpose of the 2021 Equity Plan is to promote the success and interests of the
Company and its stockholders by permitting and encouraging participants to obtain a proprietary
interest in the Company through the grant of awards that are consistent with the Company’s goals
and that link the personal interests of participants to those of the Company’s stockholders. The
2021 Equity Plan is further intended to enable the Company to attract, retain and motivate those
whose services are deemed critical to the success of the Company and align the interests of such
individuals with those of the Company. Determinations as to award recipients, duration, price,
vesting and performance requirements and other material terms are made by the Governance
Committee, although there are specific requirements as to the price and term of certain awards
depending on the award type and recipient. If any award under the 2021 Equity Plan is canceled,
terminates, expires or lapses for any reason without having been exercised in full, any shares
subject to such award that remain unpurchased are available for future grant. In addition, any
shares retained by the Company upon exercise of an award in order to satisfy the exercise price of
such award, or any withholding taxes due with respect to such exercise, are treated as not issued
and shall continue to be available. At the same time, shares issued under the 2021 Equity Plan
and later repurchased by the Company are not available for future grant or sale. As of December
16, 2022, there were 28,000 outstanding options to purchase shares pursuant to the 2021 Equity
Plan.
Retirement, Severance, Change in Control and Similar Compensation
The Company does not offer or have in place any formal retirement, severance or similar
compensation programs other than its 401(k) plan. Rather, the Company individually negotiates
with those employees for whom retirement, severance or similar compensation is deemed
necessary. A description of the severance arrangements with the Company’s named executive
officers follows.
Carl H. Guild, Jr., President and Chief Executive Officer
Pursuant to his employment agreement, upon termination of his employment without
“cause” by the Company or upon his death or disability, Mr. Guild is entitled to receive severance
pay in an amount equal to the greater of six months’ base salary at the then-current level or the
balance of the term of the agreement, less applicable taxes and other required withholdings and
amounts owed to the Company, and including all health and other benefits to which he had been
entitled while employed by the Company at the Company’s expense for at least six months. If the
Company determines not to renew Mr. Guild’s employment agreement, he is entitled to an
amount equal to six months’ base salary at the then-current level, less applicable taxes and other
required withholdings and amounts owed to the Company, and the continuation of all health and
other benefits to which he had been entitled while employed by the Company at the Company’s
expense for at least six months.
“Cause” is defined as Mr. Guild’s failure or refusal to perform the services specified in
his employment agreement or to carry out any lawful directions of the Board; conviction of a
felony; fraud or embezzlement involving the assets of the Company, its customers, suppliers or
affiliates; gross negligence or willful misconduct; or breach of any term of his employment
agreement.
Mr. Guild may terminate his employment agreement upon prior written notice to the
Company. Upon his voluntary termination, he is entitled to severance pay – defined as his base
salary at the then-current level, less applicable taxes and other required withholdings and amounts
owed to the Company – equal to six months if the termination date is on the renewal date of the
agreement or the lesser of six months or the balance of the term of the agreement if the
termination date is before such renewal date.
In the event of a change in control of the Company where Mr. Guild resigns or is
terminated without cause by the Company within 24 months after such an event, any unvested
options held shall automatically vest and become immediately exercisable. In addition, Mr. Guild
would be entitled to receive severance pay in an amount equal to 24 months’ base salary at the
then-current level, less applicable taxes and other withholdings and amounts due and plus all
accrued and unpaid expenses and vacation time. In the event that any payment to be received
pursuant to such change in control or the value of any acceleration right in any Company stock
options held in connection with the change in control of the Company would be subject to an
excise tax pursuant to Section 4999 of the Code, whether in whole or in part as a result of being
an “excess parachute payment” within the meaning of such terms in Section 280G(b) of the Code,
the amount payable will be increased (grossed up) to cover the excise tax liability due under
Section 4999 of the Code, if otherwise permitted under the Code.
“Change in control” is defined as the occurrence of any one of the following: (a) any
person or entity, including a “group” as defined in Section 13(d) of the Exchange Act (other than
the Company, a wholly-owned subsidiary of the Company, or any employee benefit plan of the
Company or its subsidiaries), becoming the beneficial owner of the Company’s securities having
51% or more of the combined voting power of the then-outstanding securities of the Company
that may be cast for the election of directors of the Company; or (b) as the result of, or in
connection with, any cash tender or exchange offer, merger or other business combination, sale of
assets or contested election or any combination of the foregoing transactions, less than a majority
of the combined voting power of the then-outstanding securities of the Company or any successor
corporation or entity entitled to vote generally in the election of directors of the Company or such
other corporation or entity after such transaction, are held in the aggregate by holders of the
Company’s securities entitled to vote generally in the election of directors of the Company
immediately prior to such transaction; or (c) the approval of the stockholders of the Company of a
plan of liquidation.
Michael P. Malone, Treasurer and Chief Financial Officer
Under Mr. Malone’s employment agreement, the Company has the right, upon written
notice, to terminate his employment (a) immediately at any time for “cause” or (b) at any time
without “cause”. Cause is defined as his failure or refusal to perform the services specified in his
employment agreement or to carry out any lawful directions of the Board; conviction of a felony;
fraud or embezzlement involving the assets of the Company, its customers, suppliers or affiliates;
gross negligence or willful misconduct; inability for a continuous period of at least 180 days in
the aggregate during any 360-day period to perform his duties due to a physical or mental
disability incapable of reasonable accommodation under applicable law; or breach of any term of
his employment agreement.
Upon termination of employment without cause by the Company, Mr. Malone is entitled
to receive severance pay in an amount equal to the greater of six months’ base salary at the then-
current level or his base salary for the balance of the term of the agreement. If the Company
determines not to renew Mr. Malone’s employment agreement, he is guaranteed, at the
Company’s option, at will employment for six months or severance pay in an amount equal to six
months’ base salary at the then-current level. In either case, such amounts shall be less applicable
taxes and other required withholdings and amounts owed to the Company, plus all accrued but
unpaid expenses and vacation time.
In the event of a change in control of the Company where Mr. Malone resigns or is
terminated without cause by the Company within six months after such an event, any unvested
options held shall automatically vest and become immediately exercisable. In addition, Mr.
Malone would be entitled to receive severance pay in an amount equal to six months’ base salary
at the then-current level, less applicable taxes and other withholdings and amounts due and plus
all accrued and unpaid expenses and vacation time. In the event that any payment to be received
pursuant to such change in control or the value of any acceleration right in any Company stock
options held in connection with the change in control of the Company would be subject to an
excise tax pursuant to Section 4999 of the Code, whether in whole or in part as a result of being
an “excess parachute payment” within the meaning of such terms in Section 280G(b) of the Code,
the amount payable to Mr. Malone will be increased (grossed up) to cover the excise tax liability
due under Section 4999 of the Code, if otherwise permitted under the Code. “Change in control”
in Mr. Malone’s employment agreement has the same definition as that found in Mr. Guild’s
agreement, provided above.
No other employees receive or are entitled to receive any retirement, severance or similar
compensation.
Perquisites and Other Benefits
The Company generally does not provide its officers with “perks” or similar types of
benefits. Messrs. Guild and Malone have life insurance policies for which the Company pays the
premium, and the Company also typically matches up to a certain percentage of their
contributions to the Company’s 401(k) plan. Both of these benefits are generally available to all
Company employees, subject to certain limitations and restrictions. Messrs. Guild and Malone,
like other employees, also are entitled to participate in TCC’s employee benefit plans offering
group disability insurance, group medical and hospitalization plans, and retirement and profit-
sharing plans.
Chief Executive Officer Compensation
Mr. Guild has been President and Chief Executive Officer of the Company since 1998
and Chairman of the Board of Directors since 2001. His base salary for each of fiscal years 2022
and 2021 was $285,000.
Mr. Guild did not receive a bonus with respect to the fiscal years ended September 24,
2021 or September 25, 2021 due to the Company’s financial condition at year-end and the lack of
achievement by the Company and Mr. Guild of specified performance milestones for the periods.
In fiscal 2022, the Board awarded Mr. Guild an option to purchase 7,000 shares of
Common Stock for his service as a director, as it did for all other directors. These non-qualified
options were granted on May 13, 2022 under the 2021 Plan at an exercise price of $1.75 per share
with a term of 10 years, and vest over a five year period. Mr. Guild did not receive any stock
options in fiscal 2021. See “Director Compensation” in the Compensation section below for
more information regarding such director option grants.
See “Retirement, Severance, Change in Control and Similar Compensation” above for a
discussion of the severance payments payable to Mr. Guild under the terms of his employment
agreement.
Chief Financial Officer Compensation
Mr. Malone has been Chief Financial Officer of the Company since 2000 and Treasurer
since 1998. His base salary for each of fiscal years 2022 and 2021 was $160,000.
Mr. Malone did not receive a bonus with respect to the fiscal years ended September 24,
2022 or September 25, 2021 due to the Company’s financial condition at year-end and the lack of
achievement by the Company and Mr. Malone of specified performance milestones for the
periods. Mr. Malone also was not awarded any stock options or other equity incentives during
fiscal years 2022 or 2021.
See “Retirement, Severance, Change in Control and Similar Compensation” above for a
discussion of the severance payments payable to Mr. Malone under the terms of his employment
agreement.
Tax Considerations
Section 162(m) of the Code generally disallows a tax deduction to public companies for
compensation over $1,000,000 paid to certain employees, generally the Chief Executive Officer
and the four other most highly compensated executive officers. Qualifying performance-based
compensation is not subject to the deduction limit if certain requirements are met. In fiscal 2022,
no compensation paid by the Company was nondeductible as a result of the $1,000,000
limitation. Furthermore, the Board of Directors believes that, given the general range of salaries
and bonuses for executive officers of the Company, the $1,000,000 threshold of Section 162(m)
will not be reached by any executive officer of the Company in the foreseeable future.
Accordingly, the Board has not formulated a policy to address non-qualifying compensation.
Say on Pay Proposal and Vote
As discussed under Proposal II below, stockholders will have the opportunity to cast their
vote on the compensation of TCC’s named executive officers as described in this Proxy
Statement at the Meeting. The advisory vote will not be binding on the Governance Committee or
the Board of Directors. However, the Governance Committee and the Board will review the
voting results and any concerns raised by stockholders will be considered when determining
future compensation arrangements and making decisions about future compensation programs
and practices. The Board and Governance Committee also may consult directly with
stockholders to better understand any issues and concerns. Stockholders (not including broker
non-votes) have voted in favor of the compensation of the Company’s named executive officers
every year since being given the opportunity to do so. At the Company’s 2011 annual meeting of
stockholders and again at the 2017 annual meeting of stockholders, stockholders voted in favor of
including an advisory vote on executive compensation in the Company’s proxy materials every
year as recommended by the Board, which annual vote the Board implemented.
COMPENSATION
Named Executive Officers
The following tables set forth all plan and non-plan compensation awarded to, earned by
or paid to the Chief Executive Officer and Chief Financial Officer of the Company, who were the
only “named executive officers” of the Company during its 2022 fiscal year, for all services
rendered by such officers to the Company and its subsidiary in all capacities for the periods
presented.
Summary Compensation Table
Name
and
Principal Position
Year
Salary
($)
Bonus
($)
Option
Awards
($)
All
Other
Compensation
($)
Total
($)
Carl H. Guild, Jr.
President, Chief
Executive Officer
and Chairman
2022
$285,006(1)
--
$10,755(2)
$7,096(3)
$302,857
2021
$254,313(1)
--
-
$7,169(3)
$261,482
Michael P. Malone
Chief Financial Officer,
Treasurer and Assistant
Secretary
2022
$152,245(4)
--
--
$7,549(5)
$159,794
2021
$142,782(4)
--
--
$4,989(5)
$147,771
(1)
Mr. Guild’s annual base salary was set at $285,000 effective March 1, 2012. As a
result of a company wide furlough between December 2020 and March of 2021 Mr.
Guild’s salary was reduced by 40% during that period.
(2)
Amount represents an award on May 13, 2022 of a non-qualified option to purchase
7,000 shares of Common Stock at $1.75 per share, which vests over a five year
period and has a 10 year term. Such award was made to Mr. Guild for his service as
a director of the Company. The dollar amount presented includes the aggregate fair
value of the award on the date of grant. The fair value of the option was estimated on
the date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions: dividend yield of 0%, expected volatility of 118%,
risk-free interest rate of 2.65%, and expected life of 6.5 years.
(3)
Includes the Company’s 25% match on the first 6%, and 30% match on the second
6%, of Mr. Guild’s 401(k) contributions for fiscal 2022 and 2021. Also includes life
insurance premiums paid by the Company of $504 for each of fiscal years 2022 and
2021, respectively.
(4)
Mr. Malone’s annual base salary was set at $160,000 effective March 1, 2012. As a
result of a company wide furlough between December 2020 and March of 2021 Mr.
Malone’s salary was reduced by 40% during that period.
(5)
Includes the Company’s 25% match on the first 6%, and 30% match on the second
6%, of Mr. Malone’s 401(k) contributions for fiscal 2022 and 2021. Also includes
life insurance premiums paid by the Company of $1,008 for each of fiscal years 2022
and 2021, respectively.
For further information on equity incentive awards granted to our named executive
officers, see the disclosure below. For more information on compensation generally and
information on severance and change of control rights, see the Compensation Discussion and
Analysis section above.
Employment Agreements
Carl H. Guild, Jr.
The Company entered into an employment agreement with Carl H. Guild, Jr., its
President and Chief Executive Officer, effective as of November 19, 1998 and amended
November 8, 2001. The original term of the agreement expired September 30, 2000; the
agreement renews automatically thereafter for successive periods of one year unless earlier
terminated or not renewed. Mr. Guild’s agreement contains provisions specifying his annual
compensation, subject to an annual merit review by the Board of Directors. The agreement also
provides for performance awards to be paid at the discretion of the Company’s Board of
Directors, based on an assessment of exceptional performance. Mr. Guild’s base salary was set at
$285,000 effective March 1, 2012 and has not changed since such date. No performance awards
were earned with respect to fiscal 2022 or 2021.
For a more in-depth discussion of Mr. Guild’s right to receive annual performance
bonuses and his right to severance and change in control payments, see the Compensation
Discussion and Analysis section above. For information on stock options granted to Mr. Guild,
see “Outstanding Equity Awards at Fiscal Year-End” below.
Michael P. Malone
The Company entered into an employment agreement with Michael P. Malone, its Chief
Financial Officer, effective as of February 12, 2001. The original term of the agreement was 12
months, and the agreement renews automatically for successive periods of one year unless earlier
terminated or not renewed. Mr. Malone’s agreement contains provisions specifying his annual
base salary, subject to an annual merit review by the Board of Directors. The agreement also
provides for performance awards to be paid at the discretion of the Company’s Board of
Directors, based on an exceptional performance assessment. Mr. Malone’s base salary was set at
$160,000 effective March 1, 2012 and has not changed since such date. No performance awards
were earned with respect to fiscal 2022 or 2021.
For a more in-depth discussion of Mr. Malone’s right to receive annual performance
bonuses and his right to severance and change in control payments, see the Compensation
Discussion and Analysis section above. For information on stock options granted to Mr. Malone,
see “Outstanding Equity Awards at Fiscal Year-End” below.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth certain information regarding unexercised options held by
our named executive officers outstanding as of the end of the Company’s 2022 fiscal year, which
date was September 24, 2022.
Option Awards
Name
Number of
Securities
Underlying
Unexercised
Options
(#) Exercisable
Number of
Securities
Underlying
Unexercised
Options
(#) Unexercisable
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Option
Exercise
Price
($)
Option
Expiration
Date
Carl H. Guild, Jr.
3,500 (1)
--
--
4.67
02/11/23
3,500 (2)
--
--
7.65
02/12/24
3,500 (3)
--
--
4.05
05/07/25
3,500 (4)
--
--
2.90
02/08/26
3,500 (5)
--
--
2.50
02/13/27
2,800 (6)
700 (6)
--
7.25
02/12/28
2,100 (7)
1,400 (7)
--
3.58
05/15/29
1,400 (8)
2,100 (8)
--
2.48
05/07/30
-- (9)
7,000 (9)
--
1.75
04/13/32
(1)
Granted on February 11, 2013 under the 2005 Plan; options have 10 year term and
were fully vested as of February 11, 2013.
(2)
Granted on February 12, 2014 under the 2005 Plan; options have 10 year term and
were fully vested as of February 12, 2014.
(3)
Granted on May 7, 2015 under the 2010 Plan; options have 10 year term and vest as
to 20% of the shares on each of the first five anniversaries of the date of grant.
(4)
Granted on February 8, 2016 under the 2010 Plan; options have 10 year term and vest
as to 20% of the shares on each of the first five anniversaries of the date of grant.
(5)
Granted on February 13, 2017 under the 2010 Plan; options have 10 year term and
vest as to 20% of the shares on each of the first five anniversaries of the date of grant.
(6)
Granted on February 12, 2018 under the 2010 Plan; options have 10 year term and
vest as to 20% of the shares on each of the first five anniversaries of the date of grant.
(7)
Granted on May 15, 2019 under the 2010 Plan; options have 10 year term and vest as
to 20% of the shares on each of the first five anniversaries of the date of grant.
(8)
Granted on May 7, 2020 under the 2010 Plan; options have 10 year term and vest as
to 20% of the shares on each of the first five anniversaries of the date of grant.
(9)
Granted on April 13, 2022 under the 2021 Plan; options have 10 year term and vest
as to 20% of the shares on each of the first five anniversaries of the date of grant.
Equity Incentive Plans
The Company currently administers three plans that provided for the grant of equity
incentive compensation to officers, directors and employees: the Technical Communications
Corporation 2021 Equity Incentive Plan, the Technical Communications Corporation 2010 Equity
Incentive Plan and the Technical Communications Corporation 2005 Non-Statutory Stock Option
Plan. On July 29, 2020, the 2010 Plan expired; the 2005 Plan expired in May 2015. As of
December 16, 2022, although awards were no longer able to be granted under either of the 2010
Plan and the 2005 Plan, options to purchase 119,400 and 17,500 shares granted under the 2010
Plan and 2005 Plan, respectively, remained outstanding.
In May 2021 the Board adopted the 2021 Equity Plan, which plan was approved by
stockholders at the 2022 Meeting. The 2021 Plan provides for the issuance of awards with
respect to 400,000 shares of Common Stock. As of December 16, 2022, there were 28,000
outstanding options to purchase shares pursuant to the 2021 Equity Plan.
Generally, these plans provided for the grant of equity awards to employees, officers,
directors and consultants of the Company, in each case in amounts, at prices and subject to such
restrictions and limitations as determined by the Board of Directors or a committee thereof and in
compliance with applicable law, including the Code. For more information about each plan, see
“Equity Incentives” in the Compensation Discussion and Analysis section above.
Grants in Fiscal 2022
There were 28,000 grants to members of the Board of Directors during fiscal 2022.
Included in this grant were the options deferred by the directors in fiscal 2021.
Retirement, Severance and Similar Compensation
No retirement, severance or similar compensation was paid to any employee during the
2022 fiscal year. For a description of the amounts that may be payable to our named executive
officers upon their resignation, retirement, termination or a change in control, please see
“Retirement, Severance, Change in Control and Similar Compensation” above in the
Compensation Discussion and Analysis section. The Company also provides to all employees a
401(k) tax qualified plan.
Compensation of Directors
The following table sets forth all compensation paid to the Company’s directors for the
fiscal year ended September 24, 2022. Mr. Guild, our President, CEO and Chairman of the Board
of Directors, did not receive any compensation for his service as a director during the 2022 fiscal
year other than the option grant discussed above.
Name
Fees Earned or
Paid in Cash
($)
Option Awards
($)
All Other
Compensation
($)
Total
($)
Thomas E. Peoples
$30,100(1)
-(2)
-
$30,100
Francisco F. Blanco
$24,500(1)
-(2)
-
$24,500
Ralph M. Norwood
$24,500(1)
-(2)
-
$24,500
(1) Includes quarterly stipend and fees paid for Board of Directors and committee meetings
attended during the fiscal year. For Mr. Peoples, also includes quarterly stipend received
for serving as Chairman of the Audit Committee. These amounts include unpaid fees as a
result of the members of the Board of Directors electing to defer the fees due for the four
quarters of fiscal 2022 and the third and fourth quarters of 2021 fiscal year. Unpaid fees
amount to $37,500 for Mr. Peoples and $30,500 for both Mr. Blanco and Mr. Norwood.
(2) Mr. Peoples had 32,900 options outstanding at the 2022 fiscal year-end, of which 21,700
were fully vested and exercisable. Mr. Blanco had 35,000 options outstanding at the 2022
fiscal year-end, of which 23,800 were fully vested and exercisable. Mr. Norwood had
10,500 options outstanding at the 2022 fiscal year-end, of which 1,400 were fully vested
and exercisable. The Board of Directors elected to defer their annual stock option grant
for fiscal year 2021. These options were granted to the directors in conjunction with the
Fiscal 2022 grant.
Board members are entitled to receive a Board meeting fee of $2,500 per meeting
attended (whether in person or via telephone conference, so long as the duration of the meeting
attended exceeds 30 minutes), which fee can be waived. Board members also receive a quarterly
stipend of $3,500 for their service. Members of the Audit Committee are paid $1,000 for each
Audit Committee meeting that is not held in connection with a regularly scheduled Board
meeting, and the Audit Committee Chairman receives a quarterly stipend of $1,400 in addition to
the stipend he receives as a director of the Company. Members of the Governance Committee
receive $500 for each meeting that is held other than in connection with a regularly scheduled
meeting of the Board of Directors. The Board of Directors elected to defer their fees due for the
four quarters of fiscal 2022 and the third and fourth quarters of the 2021 fiscal year. Unpaid fees
amount to $37,300 for Mr. Peoples and $30,300 for both Mr. Blanco and Mr. Norwood.
Directors are annually granted options to purchase 3,500 shares of Common Stock at an
exercise price equal to the closing price of the Common Stock on the date of grant. Stock options
granted to directors are considered non-qualified and, beginning in fiscal year 2015, vest 20% per
year commencing on the first anniversary of the date of grant; prior director option grants vested
immediately. Each grant expires 10 years after the date of grant, except that if a director ceases
to be a director, the option terminates at the earlier of 10 years from the date of grant or three
years from the last day as a director. The Board of Directors elected to defer their annual stock
option grant for the fiscal year 2021. These options were granted to the directors in conjunction
with the fiscal 2022 grant.
TCC reimburses members of the Board of Directors for their reasonable out-of-pocket
expenses incurred in attending Board and committee meetings. The Company believes that
members of the Board of Directors received compensation during fiscal year 2022 commensurate
with their responsibilities to the Company and appropriate for a company of TCC’s size and
revenues.
PROPOSAL II. STOCKHOLDER ADVISORY VOTE
ON EXECUTIVE COMPENSATION
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”)
and Section 14A of the Exchange Act entitle stockholders to cast a non-binding, advisory vote on
the compensation of executives as described in a company’s proxy statement, otherwise known as
“say on pay” proposals. The legislation makes clear that these votes do not overrule a Board’s
compensation decisions, impose additional fiduciary duties on the Board, or limit stockholders’
ability to make other compensation-related proposals.
The Company’s guiding compensation philosophy, as discussed above in Compensation
Discussion and Analysis, is to provide compensation that rewards individual and organizational
performance and align such compensation with the interests of long-term stockholders. The
Company aims to make executive compensation sensitive to Company performance, which is
defined in terms of revenue growth and profitability. Compensation also must be competitive,
thereby enabling the Company to attract, retain and motivate highly-qualified individuals who
contribute to the Company’s success.
We believe that the Company’s executive compensation programs have been effective at
providing appropriate incentives for the achievement of targeted results, aligning pay and
performance, creating an ownership culture in which award recipients think and act like
stockholders, and enabling TCC to attract and retain some of the most talented executives in the
communications security device and system industry.
Revenues for the Company’s 2022 fiscal year were $1,304,000 with a net loss of
$2,331,000 or $(1.26) per share. The continued delays in the receipt of certain foreign and
domestic contracts due to the COVID-19 pandemic resulted in lower than expected revenue for
fiscal 2022. Major domestic and international contracts also did not materialize during the fiscal
year as expected due to the pandemic and responses thereto, including restrictions imposed on
individuals and businesses by foreign and domestic federal and state governments.
Compensation actions taken with respect to fiscal 2022 for TCC’s named executive
officers reflected the Company’s current and historical results. Specifically, in recognition of both
the Company’s disappointing financial performance and poor individual achievement of
performance milestones, no annual performance bonuses related to company performance were
awarded to our CEO or CFO. Stockholders are encouraged to read the Compensation Discussion
and Analysis and Compensation sections of this Proxy Statement for a more detailed discussion
of how the Company’s compensation programs reflect our overarching compensation philosophy
and core principles and how such philosophy and principles were implemented when making
compensation decisions for the 2022 fiscal year.
Our Board values constructive dialogue on compensation and other governance topics,
and recognizes the interest that investors have in executive compensation. In response to the
passage of the Reform Act and in recognition of growing support for advisory votes on
compensation and our stockholders’ say-on-pay and say-when-on-pay votes, stockholders
currently have the opportunity to vote on an advisory resolution concerning the compensation of
our executives on an annual basis.
At the Meeting, stockholders are being asked to vote on the following resolution:
RESOLVED, that the compensation paid to the Company’s named executive
officers as disclosed in the Compensation section (including the tables and
narrative discussion therein) of this Proxy Statement be hereby APPROVED.
Stockholders will have the opportunity to vote for or against such resolution, or abstain
from voting. The affirmative vote of the holders of a majority of the shares of Common Stock
voting on the matter shall be required to approve the stockholder advisory vote on executive
compensation as disclosed in this Proxy Statement. Abstentions and broker non-votes will not be
included in the totals for the proposal, and will have no effect on the outcome of the vote.
The advisory vote will not be binding on the Governance Committee or the Board of
Directors. However, the Governance Committee and the Board will review the voting results and
any concerns raised by stockholders will be considered when determining future compensation
arrangements and making decisions about future compensation programs and practices. The
Board and Governance Committee also may consult directly with stockholders to better
understand any issues and concerns.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”
THE ADVISORY RESOLUTION APPROVING EXECUTIVE COMPENSATION.
PROPOSAL III. STOCKHOLDER ADVISORY VOTE TO DETERMINE
FREQUENCY OF VOTING ON EXECUTIVE COMPENSATION
The Reform Act also enables our stockholders to vote, on a non-binding, advisory basis,
on the frequency of the Company’s say on pay proposals. These proposals, often referred to as
“say when on pay”, permit stockholders to select whether say on pay advisory votes occur every
year, every two years or every three years. Shareholders also must be given the opportunity, at
least once every six years, to have a separate vote to re-determine the frequency of the say on pay
vote. At our annual meeting of stockholders in 2011 and again in 2017, shareholders voted to
approve executive compensation on an annual basis. Shareholders are being given the
opportunity at the Meeting to select the frequency of future votes.
TCC’s Board of Directors and the Governance Committee have considered carefully the
advantages and disadvantages of each frequency option, and have determined to again
recommend to stockholders that they vote for an annual vote on executive compensation. The
Board believes that having an annual vote makes compensation more responsive to and reflective
of stockholders’ interests and concerns, and decreases the chance that poor compensation
decisions in one year will have a continuing, long-term effect.
Stockholders will have the opportunity to vote for one of three options with respect to this
say when on pay proposal: one year, two years or three years. The option that receives the
plurality of the votes cast at the Meeting shall be considered when determining the frequency of
voting by stockholders on the compensation of our named executive officers. Abstentions and
broker non-votes will not be included in the totals for the proposal, and will have no effect on the
outcome of the vote.
The advisory vote will not be binding on the Governance Committee or the Board of
Directors. However, the Governance Committee and the Board will review the voting results
when determining the frequency with which stockholders will vote on executive compensation.
To be clear, stockholders are choosing the frequency with which stockholders will cast
their non-binding, advisory votes on the Company’s executive compensation. The choices
provided to stockholders are one year, two years and three years. Stockholders are voting on the
actual frequency of the vote, not voting to approve or disapprove the Board of Directors’
recommendation as discussed above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
ONE YEAR FOR THE FREQUENCY OF THE SAY ON PAY VOTE.
PROPOSAL IV. RATIFICATION OF SELECTION OF
INDEPENDENT REGISTERED PUBIC ACCOUNTING FIRM
The Audit Committee has selected the firm of Stowe & Degon LLC (“Stowe & Degon”),
independent certified public accountants, to serve as the Company’s independent registered
public accounting firm for the fiscal year ending September 30, 2023. Stowe & Degon acted as
the Company’s independent registered public accounting firm for the Company’s 2022 and 2021
fiscal years.
It is expected that a member of Stowe & Degon will be present at the Meeting and will be
available to respond to appropriate questions and make a statement if he or she so desires.
Fees
Audit Fees. The aggregate fees billed by Stowe & Degon for professional services
rendered for the audit of the Company’s annual financial statements for fiscal year 2022 and for
the reviews of the financial statements included in the Company’s quarterly reports during fiscal
year 2022 were approximately $36,000. There are unbilled audit fees of approximately $75,000
for fiscal year 2022. The aggregate fees billed by Stowe & Degon for professional services
rendered for the audit of the Company’s annual financial statements for fiscal year 2021 and for
the reviews of the financial statements included in the Company’s quarterly reports during fiscal
year 2021 were approximately $111,000.
Audit-Related Fees. No fees were billed by Stowe & Degon for assurance and related
services that were reasonably related to the performance of such firm’s audit or review of the
Company’s financial statements for fiscal years 2022 and 2021.
Tax Fees. The aggregate fees billed by Verdolino & Lowey, P.C. for professional
services rendered for tax compliance, tax advice and tax planning for the Company for the fiscal
years 2022 and 2021 were approximately $18,000 and $9,000, respectively.
All Other Fees. No fees were billed by Stowe & Degon for products or services
provided other than those otherwise described above for fiscal years 2022 and 2021.
Pre-Approval Policies
It is the policy of the Audit Committee to pre-approve the audit and permissible non-audit
services performed by the Company’s independent registered public accounting firm in order to
ensure that the provision of such services does not impair such firm’s independence, in
appearance or fact. In fiscal year 2022, the Audit Committee pre-approved all such services
performed by Stowe & Degon.
Ratification
Stockholder ratification of the appointment of the Company’s independent registered
public accounting firm is not required by the Company’s By-laws or otherwise, but is being done
as a matter of good corporate governance. If stockholders fail to ratify the selection, the Audit
Committee will reconsider this selection. Even if the selection is ratified, the Audit Committee in
its discretion may direct the appointment of a different independent registered public accounting
firm at any time during the year if it determines that such a change would be in the best interests
of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares of Common Stock voting on
the matter is required for the ratification of the selection of the independent registered public
accounting firm. Abstentions and broker non-votes will not be included in the totals for the
proposal, and will have no effect on the outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION
OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR FISCAL YEAR 2023.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table shows, as of December 16, 2022, the beneficial ownership of
Common Stock of the Company by (i) any person or group who is known to the Company to be
the beneficial owner of more than 5% of the Company’s Common Stock, (ii) each of TCC’s
current directors and nominees, (iii) each of the Company’s named executive officers, and (iv) all
current directors and executive officers of the Company as a group. As of December 16, 2022,
there were 1,854,403 shares of Common Stock outstanding.
Name and Address of
Beneficial Owner(1)
Amount and Nature of
Beneficial Ownership(1)
Percent of Class
Francisco F. Blanco
23,800(2)
1.3%
Carl H. Guild, Jr.
322,459(3)
17.2%
Thomas E. Peoples
26,490(4)
1.4%
Ralph M. Norwood
5,400(5)
0.3%
Michael P. Malone
40,127
2.2%
All current directors, executive
officers and 5% holders as a group
(5 persons)
418,276(6)
21.7%
(1) Unless otherwise indicated, each of the persons named in the table has sole voting
and investment power with respect to the shares set forth opposite such person’s
name. With respect to each person or group, percentages are calculated based on the
number of shares beneficially owned, including shares that may be acquired by such
person or group, within 60 days of December 16, 2022, upon the exercise of stock
options or other purchase rights, but not the exercise of options or warrants held by
any other person. The address of Messrs. Blanco, Guild, Peoples, Norwood and
Malone is c/o Technical Communications Corporation, 100 Domino Drive, Concord,
Massachusetts 01742.
(2) Represents 23,800 shares issuable upon the exercise of stock options.
(3) Includes 24,500 shares issuable upon the exercise of stock options, and 297,959
shares held jointly by Mr. Guild and his wife.
(4) Includes 21,700 shares issuable upon the exercise of stock options.
(5) Includes 1,400 shares issuable upon the exercise of stock options.
(6) Includes an aggregate 71,400 shares issuable upon the exercise of stock options.
Change in Control
The Company knows of no arrangements (including any pledge by any person of
securities of TCC) that may result or have resulted in a change in control of the Company.
ADDITIONAL INFORMATION
Other Matters
The Board of Directors of the Company is not aware of any matter, other than those
described above, that may come before the Meeting. However, if any other matters are properly
presented to the Meeting for action, it is intended that the persons named in the enclosed proxy
card will vote on such matters in accordance with their best judgment and applicable law.
Stockholder Proposals for 2024 Annual Meeting
Proposals of stockholders for inclusion in the Proxy Statement and form of proxy,
including director nominees, for the Company’s 2024 Annual Meeting of Stockholders (which is
expected to be held on Monday, February 12, 2024) must be received by the Company at its
principal executive offices no later than September 13, 2023, and must comply with the
applicable requirements of federal securities laws and the Company’s nomination procedures as
discussed herein. Stockholder proposals received outside this process will be considered
untimely if the Company is not provided written notice thereof at least 45 days prior to the first
anniversary of the date of mailing of this year’s proxy materials, as set forth on the first page of
this Proxy Statement, or November 26, 2023. In order to curtail controversy as to the date on
which the Company received a proposal, it is suggested that proponents submit their proposals by
certified mail, return receipt requested.
Expenses and Solicitations
The cost of the solicitation of proxies will be borne by the Company. Proxies will be
solicited principally through the mail. Further solicitation of proxies from some stockholders
may be personally made by directors, officers and regular employees of the Company, by
telephone, electronic mail, facsimile or special letter. No additional compensation, except for
reimbursement of reasonable out-of-pocket expenses, will be paid for any such further solicitation
by such individuals.
In addition, the Company may request banks, brokers, custodians, nominees, and
fiduciaries to forward copies of the Company’s proxy materials to those persons for whom they
hold shares to request instructions for voting the proxies. The Company will reimburse any such
persons for their reasonable out-of-pocket costs.
Householding
Certain stockholders who share the same address may receive only one copy of this
Proxy Statement (which includes the Notice of Internet Availability of Proxy Materials) and the
2022 Annual Report on Form 10-K in accordance with a notice delivered from such stockholders’
bank, broker or other holder of record, unless the applicable bank, broker or other holder of
record received contrary instructions. This practice, known as “householding,” is designed to
reduce printing and postage costs. If you own your shares through a bank, broker or other holder
of record and wish to either stop or begin householding, you may do so, or you may request a
separate copy of this Proxy Statement (which includes the Notice of Internet Availability of
Proxy Materials) or the Annual Report, either by contacting your bank, broker or other holder of
record at the telephone number or address provided in the above referenced notice, or by
contacting TCC via telephone at (978) 287-5100 or in writing at Technical Communications
Corporation, 100 Domino Drive, Concord, Massachusetts, 01742, Attention: Investor Relations.
The Company will promptly provide separate copies of the requested materials. If you request to
begin or stop householding, you should provide your name, the name of your broker, bank or
other record holder, and your account information.
Annual Report on Form 10-K
The Company will provide, promptly upon written request and without charge to each
stockholder entitled to vote at the Meeting, a copy of the Company’s Annual Report on Form 10-
K as filed with the Commission for the fiscal year ended September 24, 2022. A request for
copies of such report should be addressed to the Company at 100 Domino Drive, Concord,
Massachusetts 01742, Attention: Investor Relations.
U.S. 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 September 24, 2022
( )
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 001-34816
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 Identification
No.)
or organization)
100 Domino Drive, Concord, MA
01742-2892
(Address of principal executive
offices)
(Zip code)
(978) 287-5100
(Registrant’s telephone number, including
area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. YES ☐ NO ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Exchange Act. YES ☐ NO ☒
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 ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File
required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-
accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s
assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-
Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
YES ☐ NO ☒
Based on the closing price as of March 25, 2022, the aggregate market value of the registrant’s common
stock held by non-affiliates of the registrant was $2,261,291.
The number of shares of the registrant’s common stock, par value $0.10 per share, outstanding as of
December 16, 2022 was 1,854,403.
Portions of the Company’s Definitive Proxy Statement to be delivered to shareholders in connection with
the Company’s 2023 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.
TECHNICAL COMMUNICATIONS CORPORATION
Annual Report on Form 10-K
For the Year Ended September 24, 2022
Table of Contents
Part I
Item 1.
Business
1
Item 1A. Risk Factors
9
Item 1B. Unresolved Staff Comments
16
Item 2.
Properties
16
Item 3.
Legal Proceedings
16
Item 4.
Mine Safety Disclosures
16
Part II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
17
Item 6.
Reserved
17
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
24
Item 8.
Financial Statements and Supplementary Data
24
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
24
Item 9A. Controls and Procedures
24
Item 9B. Other Information
26
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
26
Part III
Item 10. Directors, Executive Officers and Corporate Governance
26
Item 11. Executive Compensation
26
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
26
Item 13. Certain Relationships and Related Transactions, and Director Independence
26
Item 14. Principal Accountant Fees and Services
26
Part IV
Item 15. Exhibits and Financial Statement Schedules
27
Item 16. Form 10-K Summary
28
Signatures
29
1
This Annual Report on Form 10-K contains or incorporates by reference not only historical information, but also
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 “Exchange Act”), and are subject to the safe
harbors created by those sections. We refer you to the disclosure under the heading “Forward-Looking Statements."
As used in this Annual Report on Form 10-K, references to the "Company," “TCC,” "we," "our" or "us," unless the
context otherwise requires, refer to Technical Communications Corporation and our subsidiary. All trademarks or
trade names referred to in this report are the property of their respective owners.
PART I
Item 1.
BUSINESS
Technical Communications Corporation was organized in 1961 as a Massachusetts corporation to engage
primarily in consulting activities. Since the late 1960s, the business has consisted entirely of the design,
development, manufacture, distribution, marketing and sale of communications security devices, systems and
services. The secure communications solutions provided by TCC protect vital information transmitted over a wide
range of data, video, fax and voice networks. TCC’s products have been sold into over 115 countries to
governments, military agencies, telecommunications carriers, financial institutions and multinational corporations.
The Company’s business consists of one industry segment, which is the design, development, manufacture,
distribution, marketing and sale of communications security devices, systems and services.
Overview
The Company’s products consist of sophisticated electronic devices that enable users to transmit
information in an encrypted format and permit recipients to reconstitute the information in a deciphered format if the
recipient possesses the right decryption “key.” The Company’s products can be used to protect confidentiality in
communications between radios, landline telephones, mobile phones, facsimile machines and data network
equipment over wires, fiber optic cables, radio waves, and microwave and satellite links. The principal markets for
the Company’s products are foreign and domestic governmental entities, law enforcement and military agencies,
telecommunications carriers, financial institutions, and multinational companies requiring protection of mission-
critical information.
TCC historically and presently designs and develops its own equipment and software to meet the
requirements of general secure communications applications, as well as the custom-tailored requirements of specific
users. A customer may order equipment that is specially programmed to encrypt transmissions in accordance with a
code to which only the customer has access. Management believes the coordinated development of cryptographic
software and associated hardware allows TCC to provide high-strength encryption security products with efficient
processing and transmission. Both criteria, the Company believes, are essential to customer satisfaction.
TCC manufactures most of its products using third-party vendors for the supply of components and
selected processing. Final assembly, software loading, testing and quality assurance are performed by TCC at its
factory. This manufacturing approach allows TCC to competitively procure the components from multiple suppliers
while maintaining control of the manufacture and performance of the final product.
TCC’s products are sold worldwide through a variety of channels depending on the country and the
customer. Generally, TCC does not use stocking distributors because the Company’s products are required to be
sold under an applicable U.S. government license, which generally requires end-user information. Rather, the
Company sells directly to customers, original equipment manufacturers, or OEMs, and value-added resellers using
its in-house sales force as well as domestic and international representatives, consultants and distributors. The
marketing and selling approach varies with each country and often involves extensive test and demonstration
activity prior to the consummation of a sale. TCC has a network of in-country representatives and consultants who
conduct performance demonstrations, market the products and close the sale, and who handle on behalf of TCC
many of the ancillary requirements pertaining to importation duties, taxes, registration fees, and product receipt and
acceptance. After-sale, in-country support by the representatives maintains customer satisfaction and provides a
liaison for the Company’s customer support services.
2
Providing secure communications systems and services for government and military markets worldwide
remains a principal focus for TCC, as the Company believes continued concerns over security will sustain demand
for increased protection of both voice and data networks. Our focus in the government market also now includes law
enforcement special operations customers. Additionally, we see increased interest for secure communications in the
corporate industrial sector. The Company is pursuing selected, evolutionary upgrades and product derivatives of our
government/military products both to provide entry into these markets and meet new requirements of our existing
customers.
Products and Services
Described below is TCC’s portfolio of communications security solutions for mission-critical voice, data,
fax and video networks for military, government and corporate/industrial applications.
The Government Systems product line has traditionally been the Company’s core product base and
typically generates the majority of the Company’s revenue. During fiscal 2022, 18% of revenue was generated from
our Government Systems product line and 76% was generated by our engineering services. During fiscal 2021, 40%
of revenue was generated from our Government Systems product line and 59% was generated by our engineering
services. Although we expect engineering services to remain strong, we also expect that revenue from our
Government Systems products will constitute the majority of our revenue in the future. These products, such as the
internet protocol data encryption systems and the DSP 9000/HSE 6000 radio encryption system, have proven to be
highly durable, and have led to significant repeat business from our government customers. The Company believes
that these products and their derivatives will continue to be the Company’s most significant source of near-term
future revenues.
With the availability of our next-generation IP encryptors and the ability to integrate customer-specific
national algorithms, the Company believes that its Network Security Systems are competitive for a growing niche of
mission-critical government and industrial/corporate network applications worldwide. TCC expects that future
derivatives of its IP encryptor and KEYNET IP Manager system will expand the market opportunity for these
products.
The Company’s Secure Office Systems product line had primarily consisted of products that were
originally acquired through an asset and rights purchase from a subsidiary of AT&T in 1995. These products are no
longer being marketed although several are still available and will continue to be offered as inventory permits. TCC
also continues to offer CipherTalk® secure mobile phone communication solutions. The Cipher Talk 8500, a secure
mobile IP-based phone that targets the high-end secure wireless mobile phone market, is competitive but product
demand has not developed as expected. We will continue to market this product with reduced expectations.
The Company also provides customized tools, products and training upon a customer’s request, as well as
design solutions for OEM requirements. In addition, the Company actively sells its engineering services in support
of funded research and system development. These services are typically billed to a customer on a time and
materials basis and can run for several months to several years depending on the scope of the project. Fiscal year
2019 was a significant year for sales of our engineering services, with more modest revenue generated from services
during fiscal 2022, 2021 and 2020; we expect demand for such services to remain strong in the future.
Government Systems
The Company’s DSP 9000 and HSE 6000 secure radio product lines offer strategic-level security for voice
and data communications sent over High Frequency, or HF, Very High Frequency, or VHF, and Ultra High
Frequency, or UHF, channels. Designed for military environments, the Company believes these products provide
high voice quality over poor line connections, making them an attractive security solution for military aircraft, naval,
base station and man-pack radio applications. These products provide automated key distribution for security and
ease of use. They are also radio independent because software programmable interfaces allow radio interface levels
to be changed without configuring the hardware. Base station, handset and embedded board configurations are
available options. All versions interoperate with TCC’s HSE 6000 Squad Radio Headset and Telephone Encryptor
3
for cross-network secure voice conferencing. The DSP 9000 base station model also interoperates with the
Company’s CSD 3324 SE secure telephone system to enable “office-to-field” communications.
TCC’s HSE 6000 Squad Radio Headset and Telephone Encryptor is designed for public safety special
operations, land mobile radio applications, as well as military applications. With the optional telephone interconnect
kit, the HSE 6000 connects to corded handset telephones for secure voice communications and radio-to-telephone
conferencing over Voice over IP, digital, and analog telephone networks. It is also interoperable with the DSP 9000
radio security product family, enabling secure voice communications and cross-network conferencing across and
between air, land, sea and office.
The Company’s CSD 3324 SE Secure Telephone, Fax and Data system provides strategic-level
communications security for voice, fax and data encryption in a telephone package designed for government
applications needing high reliability. The product has a fallback mode, which was originally developed for poor HF
channels. As a result, secure communications are possible even over poor line conditions. TCC's high-level
encryption and automated key distribution system protect sensitive information, and internal storage of 800 keys
provides hands-off security.
The Company’s CSD 3324 SP telephone and fax system provides integrated secure voice and fax security
in a telephone package designed for government and corporate applications. The CSD 3324 SPV secure telephone
secures voice communications over the public switched telephone network and interoperates with the CSD 3324 SP
system.
Government customers can also utilize the Company’s Cipher X family of Cyber Security Appliances,
described below, to achieve superior-grade network encryption and secure communications.
The Government Systems product line also includes the Company’s DSD 72A-SP Military Bulk Ciphering
System, a rugged military system that provides a high level of cryptographic security for military data networks
operating at up to 34 million bits per second. The product supports a wide variety of interfaces and is designed to
integrate into existing networks. Due to diminished demand in recent years, this product is no longer being
marketed. However, we continue to support a large installed base of such equipment still in use with our customers,
as there remains a demand for spare parts and small network upgrades. Foreign military requirements for the DSD
72A-SP are expected to transition over time to the data encryption systems product line using the Internet Protocol,
described below.
Network Security Systems
TCC offers network encryption systems with centralized key and device management for Internet protocol,
or IP, Synchronous Optical Network & Synchronous Digital Hierarchy, or SONET/SDH, and frame relay networks
to secure data in transit from local area network to local area network and across wide area networks. TCC’s
KEYNET IP Manager is designed to centrally configure and manage a network of encryption appliances for secure
communications and can be used globally. The Company also offers KEYNET Lite, a version of KEYNET for small
networks.
The Company supports the industry standard Advanced Encryption Standard, or AES, 256-bit
cryptographic algorithm and can integrate customer-specific national algorithms to meet customer-specific needs.
All of TCC’s encryption systems are designed to seamlessly overlay onto existing networks without requiring
infrastructure changes. Network performance impact is negligible and we believe the systems are easy to deploy,
use, monitor and manage. Additionally, the Cipher X family offers scalable performance to higher speeds without
changing hardware. This minimizes the entry cost of deploying a security solution and provides a cost-effective path
to meet evolving business needs. Upgrades are licensed and made available on-demand via the KEYNET
management system. All performance levels interoperate and are designed to have identical functionality.
The Cipher X 7211 network security device is the 100 Mb/s to 1 Gb/s model of the family of TCC Cyber
Security Appliances. Cipher X 7211 IP Encryption with KEYNET IP Manager provides strategic-level secure
communications for large global IP networks for point-to-point and multicast applications such as video
conferencing. It offers a unique combination of flexibility, scalable 1 gigabit per second performance and KEYNET
4
IP Manager for ease of use. The Cipher X 7211 is a hardware-based, FIPS 140-2 Level 3 designed encryption
device.
The Cipher X 7220 network security device is the 10 Gb/s model of the family of TCC Cyber Security
Appliances. The Cipher X 7220 is ideally suited for global Ethernet networks with high performance requirements,
and we believe it integrates seamlessly into existing networks without degrading performance. Its hardware-based
layer 2, 3 and 4 encryption engines encrypt and decrypt outbound and inbound traffic at full wire speed.
The Cipher X 7210 network security device is the 100 Mb/s model in the product family, best suited for
applications with low-bandwidth requirements, such as remote offices. Like the 7220, it is designed to integrate into
existing networks without degrading network performance and provide encryption and decryption of outbound and
inbound traffic at full wire speed.
Secure Office Systems
The CipherTalk 8500 secure mobile phone is designed to provide military-grade encrypted voice and text
communications anywhere in the world over Global System for Mobile Communications, or GSM, and Wi-Fi
networks. Introduced in fiscal 2016, the CipherTalk 8500 IP-based secure wireless phone is built on a hardened
AndroidTM smartphone platform for security and ease of use. TCC also offers a server-based, network management
system that provides the customer with total control of network connectivity.
The Company’s CSD 4100 executive secure telephone offers strategic-level voice and data security in an
executive telephone package. Exceptional voice quality can be achieved with three different voice-coding
algorithms. The product provides ease-of-use security features such as automated key management, authentication,
certification and access control. Due to diminished demand in recent years, this product is no longer being marketed
but we continue to provide support to existing customers that have installed equipment bases requiring expansion or
modification. The Company also continues to offer the CSD 3324 SE, our encrypted office telephone that offers
secure voice, fax and radio communications, as part of its Secure Office Systems product line.
Services
The Company performs funded research and development and technology development for commercial
companies and government agencies under both cost reimbursement and fixed-price contracts. Cost reimbursement
contracts provide for the reimbursement of allowable costs and, in some situations, the payment of a fee. These
contracts may contain incentive clauses providing for increases or decreases in the fee depending on how actual
costs compare with a budget. On fixed-price contracts that are expected to exceed one year in duration, revenue is
recognized pursuant to the proportional performance method based upon the proportion of actual costs incurred to
the total estimated costs for the contract. The Company typically receives periodic progress payments on these types
of contracts.
TCC offers general communications security education for businesses and other users, including military
and government entities, as well as product-specific training for its customers. TCC also specializes in developing
and designing custom cryptographic solutions for customers’ unique secure voice, data and video communications
requirements and integrating such solutions into existing systems. The Company has designed embedded secure
radio encryption solutions, national algorithms for military data applications, cryptographic modules for National
Secure Mode Identification Friend or Foe, or IFF, systems, as well as rocket-borne telemetry encryption modules,
and country-unique secure telephone and fax algorithms. In addition, TCC has partnered with network and
telecommunications equipment providers to add security in unique applications.
Competition
The market for communications security devices and systems is highly competitive and characterized by
rapid technological change. The Company has several competitors, including foreign-based companies, in the
communications security device field. The Company believes its principal competitors include Thales Group, Codan
Limited and Fortinet, Inc.
5
The Company competes based on its service, the operational and technical features of its products, its
customization abilities, its sales expertise, and pricing. Many of TCC’s competitors have substantially greater
financial, technical, sales and marketing, distribution and other resources, greater name recognition and longer
standing relationships with customers. Competitors with greater financial resources can be more aggressive in
marketing campaigns, can survive sustained price reductions in order to gain market share and can devote greater
resources to support existing products and develop new competing products.
Our competitive position also depends on our ability to attract and retain qualified personnel, obtain and
maintain intellectual property protection or otherwise develop proprietary products or processes, and secure
sufficient capital resources for product, research and development efforts. We believe the ability of TCC to custom-
tailor cryptographic functions and systems to satisfy unique customer requirements is an important competitive
differentiator, and will meet a growing demand as customers become more sophisticated in defining their
communications security needs.
Net Revenue and Backlog
In fiscal 2022, the Company had two customers representing 91% of total net revenue. This revenue was
derived from sales of our engineering services amounting to $996,000 and shipments of our narrowband radio
encryptors and various accessories to one Far East country amounting to $192,000 and a shipment of our internet
protocol data encryptors amounting to $80,000 and some training provided to a North African country in the amount
of $36,000.
In fiscal 2021, the Company had two customers representing 74% of total net revenue. This revenue was
derived from sales of our engineering services amounting to $1,107,000 and shipments of our narrowband radio
encryptors and various accessories to one north African country amounting to $148,000 and three domestic
customers for deployment into a Middle Eastern country amounting to $270,000, for deployment into a North
African country amounting to $98,000 and for deployment into Afghanistan amounting to $77,000, and shipments
of our internet protocol data encryptors amounting to $19,000.
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, consultants and distributors.
International sales are made primarily through our main office. We seldom have long-term contractual relationships
with our customers and, therefore, generally have no assurance of a continuing relationship within a given market.
Orders for our products are usually placed by customers on an as-needed basis and we typically ship
products within 30 to 180 days of receipt of a customer's firm purchase order. Our backlog consists of orders
received where the anticipated shipping date or services to be performed are within 12 months of the order date.
Because of the possibility of customer changes in delivery schedules or the cancellation of orders, our backlog as of
any particular date may not be indicative of revenue in any future period. Our backlog as of September 24, 2022 and
September 25, 2021 was approximately $80,000 and $1,090,000, respectively.
For certain services contracts, the Company will bill customers in accordance with the terms of the
contract, but recognize revenue as the services are performed. The billings in excess of revenue are recorded as
deferred revenue on the balance sheet. These deferred revenues are recognized in future periods as we perform the
services. There was no deferred revenue at September 24, 2022 or September 25, 2021.
Consistent with TCC’s historical experience, the Company expects that sales to a relatively small number
of customers will continue to account for a high percentage of the Company’s revenues for the foreseeable future. A
reduction in orders from any such customer, or the cancellation of any significant order and failure to replace such
order with orders from other customers, would have a material adverse effect on the Company’s financial condition
and results of operations.
Regulatory Matters
As a party to a number of contracts with the U.S. government and its agencies, the Company must comply
with extensive regulations with respect to bid proposals and billing practices. Should the U.S. government or its
6
agencies conclude that the Company has not adhered to federal regulations, any contracts to which the Company is a
party could be canceled and the Company could be prohibited from bidding on or participating in future contracts.
Such a prohibition would have a material adverse effect on the Company.
All payments to the Company for work performed on contracts with agencies of the U.S. government are
subject to adjustment upon audit by the U.S. Defense Contract Audit Agency, the U.S. Government Accountability
Office, and other agencies. The Company could be required to return any payments received from U.S. government
agencies if it is found to have violated federal regulations. There have been no government audits in recent years and
the Company believes the result of such audits, should they occur, would not have a material adverse effect on its
financial position or results of operations, although we can give no assurances. In addition, U.S. government
contracts may be canceled at any time by the government with limited or no notice or penalty. Contract awards are
also subject to funding approval from the U.S. government, which involves political, budgetary and other
considerations over which the Company has no control.
The Company’s security products are subject to export restrictions administered by the U.S. Department of
Commerce and U.S. Department of State, which license the export of encryption products, subject to certain
technical restrictions. In addition, U.S. export laws prohibit the export of encryption products to a number of hostile
countries. Although to date the Company has been able to secure necessary U.S. government export licenses, there
can be no assurance that the Company will continue to be able to secure such licenses in a timely manner in the
future, or at all.
The U.S. government controls, through a licensing process, the distribution of encryption technology and
the sale of encryption products. The procedure for obtaining the applicable license from either the Department of
Commerce or the Department of State, depending on the U.S. government’s determination of jurisdiction, is well
documented. The Company submits a license request application, which contains information pertaining to:
•
the type of equipment being sold;
•
detailed technical description (if required);
•
the buyer;
•
the end-user and use;
•
quantity; and
•
destination location.
The appropriate departments of the U.S. government review the application and a licensing decision is
provided to the Company. Pursuant to the receipt of the license, the Company may ship the product.
Many of TCC’s products can be sold under existing “blanket” licenses that have been obtained through a
variant of the licensing process that approves products for sale to certain classes of customers, such as financial
institutions, civilian government entities and commercial users. The Company has obtained “blanket” licenses for its
secure telephone and office system products and its family of network encryptors. Licenses for sales of certain other
products and/or to certain end users must be submitted for specific approval as described above. Although the U.S.
government retains the right and ability to restrict product exports, the Company does not believe that U.S.
government licensing will become more restrictive or an impediment to its business. The trend has been for the U.S.
government to reduce the restrictions on the foreign sale of cryptographic equipment. TCC believes this trend is
driven by the government’s recognition of the technology available from foreign sources and the need to allow
domestic corporations to compete in foreign markets. However, should the regulations become more restrictive, it
would have a negative impact on the Company’s international business, the impact of which could be material.
The costs and effects of compliance by the Company with applicable environmental laws during fiscal
2022 were, and historically have been, immaterial. In 2003, the European Union adopted the “Restriction of
Hazardous Substances Directive 2002/95/EC”. In the event the Company’s sales to Europe increase, the Company
may have to incur additional costs to provide for the disposal of its products in compliance with that directive.
7
Manufacturing
TCC has several manufacturing subcontractors and suppliers that provide outside processing of electronic
circuit boards, fabrication of metal components, and supply of electronic components. For the majority of purchased
materials and services, TCC has multiple suppliers that are able to deliver materials and services under short-term
delivery purchase orders. Payment is typically made after delivery, based upon standard credit arrangements. For a
small minority of parts, there are limited sources of supply. In such cases, TCC monitors source availability and
usually stocks for anticipated long-term requirements to assure manufacturing continuity. Notwithstanding the
Company’s efforts to maintain material supplies, shortages can and do develop, resulting in delays in production,
significant engineering development effort to find alternative solutions and, if production cannot be maintained, the
discontinuation of the affected product design.
The Company’s internal manufacturing process consists primarily of adding critical components, final
assembly, system burn-in, quality control and testing. Delivery times vary depending on the products and options
ordered.
Technological Expertise
TCC’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. TCC has been designing and
producing secure, cryptography-based communications systems for over 50 years, during which time the Company
has developed many technological techniques and practices. This expertise and experience are in the areas of
cryptographic algorithm design and implementation, key distribution and management systems, cryptographic
processors, voice and fax encryption, and electronic hardware design. TCC relies on its internal technical expertise
and experience, which TCC considers to be proprietary. These proprietary technologies are owned by TCC, are
under TCC’s control, and have been documented consistent with standard engineering practices. It is estimated that
the majority of revenue during the past two years and during the next two years will be of products that are based
upon TCC-proprietary designs.
Such technological experience and expertise are important as they enable an efficient design and
development process. Loss of this experience and expertise would have an adverse impact on the Company.
However, TCC’s practices governing the internal documentation of design data mitigate some of the risk associated
with the loss of personnel who are skilled in the core competencies described above.
TCC’s existing intellectual property portfolio includes a number of registered and unregistered trademarks;
while eight patents have been issued to the Company, such patents have expired. Management is of the opinion that,
while patent protection was desirable with respect to certain products, none of the Company's patents are currently
material to the conduct of its business and the expiration of such patents is not expected to have any significant
impact.
TCC has an on-going technology license for communications protocol software used in the CipherONE
family of Network Security System products. The license is royalty-based and runs without a specified termination
date. The cost of this license is immaterial.
With the exception of the technology license referred to above, TCC has no material third party rights upon
which the Company relies. Revenue from the sale of products associated with this license has not been and is not
anticipated to be significant to the Company’s revenues.
Research and Development
Research and development efforts are undertaken by the Company primarily on its own initiative. In order
to compete successfully, the Company must improve existing products and develop new products as well as attract
and retain qualified personnel. No assurances can be given that the Company will be able to hire and train such
technical, management and sales personnel or successfully improve and develop its products.
8
During the fiscal years ended September 24, 2022 and September 25, 2021, the Company spent $817,000
and $732,000, respectively, on internal product development. The Company also spent $636,000 and $711,000 on
billable development efforts during fiscal 2022 and 2021, respectively. In fiscal 2022, the Company’s total product
development costs were $10,000 higher than fiscal 2021 levels and reflected the costs of custom development,
product capability enhancements and production readiness. It is expected that product development expenses in
fiscal 2023 will be consistent with fiscal 2022 levels.
Technical work continued to focus on three principal areas: development of solutions that meet the needs of
OEMs; product enhancements that include expanded features, planned capability and applications growth; and
custom solutions that tailor our products and services to meet the unique needs of our customers. Going forward, the
Company expects to continue focusing technical efforts in these areas while also increasing our systems design and
integration capabilities and services offering portfolio. The following are highlights of our product development
efforts in fiscal 2022:
•
Completed the development of functional enhancements for the CX7211 digital data encryptor.
•
Completed the development of the aircraft-compatible, VOX HSE 6000 radio encryption product variants.
•
Provision of custom engineering services for secure communications.
Foreign Operations
The Company’s results of operations are dependent upon its foreign revenue, including domestic sales
shipped to foreign end-users. Sales to foreign markets have been and will continue to be affected by, among other
things, the stability of foreign governments, foreign and domestic 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. and foreign banks. Foreign
sales contracts are usually denominated in U.S. dollars.
The Company utilizes the services of sales representatives, consultants and distributors in connection with
foreign sales. Typically, representatives are paid commissions and consultants are paid fixed amounts on a stipulated
schedule in return for services rendered. Distributors are granted discounted pricing.
The export from the United States of many of the Company’s products may require the issuance of a
license by the U.S. Department of State under the Arms Export Control Act of 1976, as amended, or by the U.S.
Department of Commerce under the Export Administration Act as kept in force by the International Emergency
Economic Powers Act of 1977, as amended. The licensing process is discussed in more detail under the “Regulatory
Matters” section above.
In fiscal years 2022 and 2021, sales directly to international customers accounted for approximately 24%
and 13%, respectively, of our net revenue. Based on our historical results we expect that international revenue,
including sales to domestic customers that ship to foreign end-users, will continue to account for a significant
portion of our revenues for the foreseeable future. As a result, we are subject to the risks of doing business
internationally, including:
•
changes in regulatory requirements,
•
domestic and foreign government policies, including requirements to expend a portion of program
funds locally and governmental industrial cooperation requirements,
•
delays in placing orders,
•
fluctuations in foreign currency exchange rates,
•
the complexity and necessity of using foreign representatives, consultants and distributors,
•
the uncertainty of the ability of foreign customers to finance purchases,
•
uncertainties and restrictions concerning the availability of funding credit or guarantees,
•
imposition of tariffs or embargoes, export controls and other trade restrictions,
•
the difficulty of managing and operating an enterprise spanning several countries,
•
compliance with a variety of foreign laws, as well as U.S. laws affecting the activities of U.S.
companies abroad, and
•
economic and geopolitical developments and conditions, including international hostilities, acts of
9
terrorism and governmental reactions, inflation, trade relationships and military and political alliances.
While these factors and their impact are difficult to predict, any one or more of these factors could
adversely affect our operations in the future.
We also may not be successful in obtaining the necessary licenses to conduct operations abroad, and the
U.S. government may prevent proposed sales to foreign governments or other end-users.
Employees
As of September 24, 2022, the Company employed 19 full-time employees and two part-time employees,
as well as several consultants. The Company believes that its relationship with its employees is good.
Available Information
The U.S. Securities and Exchange Commission, or the SEC, maintains an Internet site that contains current
and periodic reports, proxy and information statements, and other information regarding issuers, including TCC, that
file electronically with the SEC at www.sec.gov. Additional information about TCC’s filings can also be obtained at
our website at www.tccsecure.com under “Investor Relations.” We make available free of charge on our website the
Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The contents of our
website are not a part of this Annual Report on Form 10-K and should not be considered to be a part of, or
incorporated into, this report.
Item 1A.
RISK FACTORS
You should carefully consider the following risk factors that affect our business. Such risks could cause our actual
results to differ materially from those that are expressed or implied by forward-looking statements contained herein.
The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that
we are unaware of, or that we currently deem immaterial, also may become important factors that affect us. If any of
the following risks occur, our business, financial condition or results of operations could be materially and
adversely affected. You should also consider the other information included in this Annual Report on Form 10-K for
the fiscal year ended September 24, 2022 and subsequent quarterly reports filed with the SEC.
We have suffered recurring operating losses from operations and there is doubt about our ability to continue as a
going concern.
For the year ended September 24, 2022, the Company generated a net loss of $2,331,000. For the fiscal year ended
September 25, 2021, the Company generated a net loss of $1,088,000 and, the Company suffered recurring losses
from operations during the prior seven year period from fiscal 2012 to fiscal 2018 and had an accumulated deficit of
$6,485,000 at September 24, 2022. We anticipate that our principal sources of liquidity, including the recent line of
credit, will be sufficient to fund our activities through January 2023. We may never achieve or sustain profitability.
We must raise additional capital to pursue our development initiatives, penetrate markets for the sale of our products
and continue as a going concern. We cannot provide any assurance that we will be able to raise additional capital. If
we are unable to secure additional capital, we may be required to curtail our research and development initiatives
and take additional measures to reduce costs in order to conserve cash in amounts sufficient to sustain operations
and meet our obligations. These factors continue to raise substantial doubt about the Company's ability to continue
as a going concern. Such consolidated financial statements do not include any adjustments to reflect the substantial
doubt about the Company’s ability to continue as a going concern.
We may not have sufficient cash to execute our business plan or sustain operations.
We used net cash in operations of $2,278,334 and $2,706,235 during fiscal years ended September 24, 2022 and
September 25, 2021, respectively. At September 24, 2022, we had $6,727 in cash and cash equivalents. On August
10
4, 2022, Technical Communications Corporation (the “Company”) issued an amended and restated demand
promissory note in the principal amount of up to $4,000,000 in favor of Carl H. Guild, Jr. Mr. Guild, the
Company’s Chief Executive Officer, President and Chairman of the Board, loaned the money to the Company to
provide working capital. The $4,000,000 consists of $1,000,000 previously loaned to the Company at an interest
rate of 6% and $2,000,000 previously loaned to the Company at an interest rate of 7.5% and an additional
$1,000,000 at an interest rate of 7.5%. The additional funds will be available to the Company to borrow from Mr.
Guild on a revolving basis and the loan has no specified term and may be prepaid at any time without premium or
penalty. The outstanding principal balance at September 24, 2022 was $3,000,000, plus accrued interest of
$106,000. An interest payment of $30,000 was made in January of 2022.
In December 2022 the Company implemented a partial furlough plan for the majority of salaried employees.
Although we have been able to and believe we will continue to be able to retain our employees and maintain all vital
functions, it is likely that in a period of continued sustained disruption we would be forced to further furlough or
terminate some or all of our employees.
We anticipate that our principal sources of liquidity, including the recent line of credit, will be sufficient to fund our
activities through January 2023. We must raise additional capital to pursue our development initiatives, penetrate
markets for the sale of our products and continue as a going concern. We cannot provide any assurance that we will
be able to raise additional capital. If we are unable to secure additional capital, we may be required to curtail our
research and development initiatives and take additional measures to reduce costs in order to conserve cash in
amounts sufficient to sustain operations and meet our obligations.
The COVID-19 pandemic has disrupted our business and may adversely affect our operations and results of
operations.
The COVID-19 pandemic may have a significant and adverse impact on our business. The full extent to
which COVID-19 will impact our operating results and financial condition will depend on future developments that
are highly uncertain and cannot be accurately predicted, including new medical and other information that may
emerge concerning the virus and the actions by governmental entities or others to address and contain it.
As a result of COVID-19, many of our customers have curtailed their operations and as a result we are
experiencing delays in orders. We believe these are only delays and that as we and our customers return to more
normal operations these orders will be restored and future orders will resume on a more predictable basis, but we
can make no assurances. While we have not experienced any significant supply problems and there have been no
materially late deliveries of components or parts to date, it is possible that in a period of sustained disruption we may
encounter problems in the manufacturing process or shortages in parts, components or other elements vital to the
manufacture, production and sale of our products.
Finally, we cannot be certain that we will have access to sufficient liquidity to meet our obligations for the
time required to allow our customer operations to resume or normalize. Although we were able to secure loans under
the Small Business Administration’s Payroll Protection Program and Economic Injury Disaster Loan program
during fiscal 2020, we may not be able to obtain additional funding on acceptable terms or at all, and any additional
relief provided by lenders or governmental agencies may be insufficient to support our operations until business
returns to normal.
Our management has determined that the Company’s disclosure control and procedures and internal control
over financial reporting were not effective for fiscal year-end September 24, 2022.
Our management team, under the supervision and with the participation of our Chief Executive Officer and
our Chief Financial Officer, conducted an assessment of the effectiveness of the Company’s disclosure controls and
procedures and internal control over financial reporting as of the end of the Company’s 2019 fiscal year.
Management had concluded that the Company did not maintain effective internal control over financial reporting
due to the misapplication of generally accepted accounting principles associated with revenue recognition, inventory
reserves, accruals and the preparation of the consolidated financial statements, as well as the classification and
disclosure of financial information, all caused by a lack of adequate skills and experience within the accounting
department. In addition, management identified a material weakness due to a lack of sufficient staff to segregate
11
accounting duties, as well as a material weakness in internal control over significant non-routine transactions, all as
disclosed in the relevant quarterly reports filed during our 2022 fiscal year. These conditions have led management
to conclude that neither the Company’s disclosure controls and procedures nor its internal control over financial
reporting were effective at September 24, 2022.
The Company has made significant progress in improving its internal control over financial reporting but
remediation efforts are ongoing; the Company’s goal is to have all material weaknesses remediated in the early part
of its 2023 fiscal year.
Although we review and evaluate our internal control systems on a regular basis, we cannot assure you that
we will not discover additional weaknesses in the future or that any corrective actions taken to remediate issues
identified during the course of an assessment will be effective. Any such additional weaknesses could materially
adversely affect our financial condition or ability to comply with applicable financial reporting requirements.
Our quarterly operating results typically fluctuate and our future revenues and profitability are uncertain.
We have experienced significant fluctuations in our quarterly operating results during the last several years
and anticipate continued substantial fluctuations in our future operating results. A number of factors have
contributed to these quarterly fluctuations, including but not limited to:
• foreign political unrest;
• budgeting cycles of customers, including the U.S. government;
• introduction and market acceptance of new products and product enhancements by us and our
competitors;
• timing and execution of individual contracts;
• competitive conditions in the communications security industry;
• changes in general economic conditions; and
• shortfalls of revenues in relation to expectations that formed the basis for the calculation of fixed
expenses.
Our international operations expose us to additional risks.
The Company is dependent upon its foreign revenue (including domestic sales shipped to foreign end-
users) and we expect that revenue to foreign end-users will continue to account for a significant portion of our
revenues for the foreseeable future. As a result, we are subject to the risks of doing business internationally,
including imposition of tariffs or embargoes, export controls, trade barriers and trade disputes, regulations related to
customs and export/import matters, fluctuations in foreign economies and currency exchange rates, longer payment
cycles and difficulties in collecting accounts receivable, the complexity and necessity of using foreign
representatives, consultants and distributors, tax uncertainties and unanticipated tax costs due to foreign taxing
regimes, the difficulty of managing and operating an enterprise spanning several countries, the uncertainty of
protection for intellectual property rights and differing legal systems generally, compliance with a variety of laws,
and economic and geopolitical developments and conditions, including international hostilities, armed conflicts, acts
of terrorism and governmental reactions, inflation, trade relationships, and military and political alliances.
We also may not be successful in obtaining the necessary licenses to conduct operations abroad, including
the export of many of the Company’s products, and the U.S. government may prevent proposed sales to foreign
governments or certain international end-users. Export restrictions, compliance with which imposes additional
burdens on the Company, may further provide a competitive advantage to foreign competitors facing less stringent
controls on their products and services.
We continue to focus efforts in emerging markets, including the Middle East, Northern Africa and
Southwest Asia. In many of these emerging markets, we may be faced with risks that are more significant than if we
were to do business in developed countries, including undeveloped legal systems, unstable governments and
economies, and potential governmental actions affecting the flow of goods and currency.
12
We continue to face a number of risks related to current global economic and political conditions that could
unfavorably impact our business.
Global economic conditions continue to be challenging for the secure communications markets, as many
economies and financial markets remain in a recession resulting from a number of factors, including the impact of
the pandemic, adverse credit conditions, low economic growth rates, continuing high rates of unemployment, and
reduced corporate capital spending. Economic growth in many other countries has remained low and the length of
time these adverse economic conditions may persist, including as a result of COVID-19, is unknown. In addition,
conflicts in the Middle East and elsewhere have created many economic and political uncertainties that have
impacted worldwide markets. These global economic and political conditions have impacted and will continue to
impact our business in a number of ways, including:
•
Budgeting and forecasting are difficult: It is difficult to estimate changes in various parts of the U.S.
and world economy, including the markets in which we participate. Components of our budgeting and
forecasting are dependent upon estimates of demand for our products, and the prevailing economic and
political uncertainties make estimating future income and expenditures difficult.
•
Potential deferment or cancellation of purchases and orders by customers: Uncertainty about current
and future global economic and political conditions may cause, and in some cases has caused,
governments and businesses to defer or cancel purchases. If future demand for our products declines
due to deteriorating global economic and political conditions, it will negatively impact our financial
results.
•
Customers' inability to obtain financing to make purchases: Some of our customers require substantial
financing, including government financing, in order to fund their operations and make purchases from
us. The inability of these customers to obtain sufficient credit or other funds to finance purchases
and/or meet their payment obligations could have a negative impact on our financial results.
Our future success will depend on our ability to respond to rapid technological changes in the markets in which
we compete.
The markets for TCC’s products and services are characterized by rapid technological developments,
changing customer technological requirements and preferences, frequent new product introductions, enhancements
and modifications, and evolving industry standards. Our success will depend in large part on our ability to correctly
identify emerging technological trends, enhance capabilities, and develop and manufacture new technologies and
products quickly, in a cost-effective manner, and at competitive prices. The development of new and enhanced
products is a complex and costly process. We may need to make substantial capital expenditures and incur
significant research and development costs to develop and introduce such new products and enhancements. Our
choices for developing technologies may prove incorrect if customers do not adopt the products we develop or if the
technologies ultimately prove to be technically or commercially unviable. Development schedules also may be
adversely affected as the result of the discovery of performance problems. If we fail to timely develop and introduce
competitive new technologies, our business, financial condition and results of operations would be adversely
affected.
Existing or new competitors may develop competing or superior technologies.
The industry in which the Company competes is highly competitive, and the Company has several
domestic and foreign competitors. Many of these competitors have substantially greater financial, technical, sales
and marketing, distribution and other resources, greater name recognition and longer standing relationships with
customers. Competitors with greater financial resources can be more aggressive in marketing campaigns, can
survive sustained price reductions in order to gain market share, and can devote greater resources to support existing
products and develop new competing products. Any period of sustained price reductions for our products would
have a material adverse effect on the Company’s financial condition and results of operations. TCC may not be able
to compete successfully in the future and competitive pressures may result in price reductions, loss of market share
or otherwise have a material adverse effect on the Company’s financial condition and results of operations. It is also
possible that competing products will emerge that may be superior in quality and performance and/or less expensive
13
than those of the Company, or that similar technologies may render TCC’s products obsolete or uncompetitive and
prevent the Company from achieving or sustaining profitable operations.
The operating performance of our products is critical to our business and reputation.
The sale and use of our products entail a risk of product failure, product liability or other claims.
Occasionally, some of our products have quality issues resulting from the design or manufacture of the product or
the software used in the product. Often these issues are discovered prior to shipment and may result in shipping
delays or even cancellation of orders by customers. Other times problems are discovered after the products have
shipped, requiring us to resolve issues in a manner that is timely and least disruptive to our customers. Such pre-
shipment and post-shipment problems have ramifications for TCC, including cancellation of orders, product returns,
increased costs associated with product repair or replacement, and a negative impact on our goodwill and reputation.
Once our products are in use, any product failure, including software or hardware failure, which causes a
breach of security with respect to our customer’s confidential communications could have a material adverse effect
on TCC. There is no guarantee of product performance or that our products are adequate to protect against all
security breaches. While we attempt to mitigate such risks by maintaining insurance and including warranty
disclaimers and liability limitation clauses in our arrangements with customers, such mitigation measures may not
protect us against liability in all instances. If our products failed for any reason, our clients could experience data
loss, financial loss, personal and property losses, harm to reputation, and significant business interruption. Such
events may expose us to substantial liability, increased regulation and/or penalties, as well as loss of customer
business and a diminished reputation. Any product liability claims and related litigation would likely be time-
consuming and expensive, may not be adequately covered by insurance, and may delay or terminate research and
development efforts, regulatory approvals and commercialization activities.
If our products and services do not interoperate with our end-users’ products, orders could be delayed or
cancelled, which could significantly reduce our revenues.
Our products are designed to interface with our end-users’ existing products, each of which have different
specifications and utilizes multiple protocol standards. Many of our end-users’ systems contain multiple generations
of products that have been added over time as these systems have grown and evolved. Our products and services
must interoperate with all of these products and services as well as with future products and services that might be
added to meet our end-users’ requirements. If our products do not interface with those within our end-users’
products and systems, orders for our products could be delayed or cancelled, which could significantly reduce our
revenues.
Government regulation and legal uncertainties could harm our business.
As a party to a number of contracts with the U.S. government and its agencies, the Company must comply
with extensive regulations with respect to bid proposals and billing practices. Should the U.S. government or its
agencies conclude that the Company has not adhered to federal regulations, any contracts to which the Company is a
party could be canceled and the Company could be prohibited from bidding on or participating in future contracts.
Moreover, payments to the Company for work performed on contracts with agencies of the U.S. government are
subject to audit and adjustment. The Company could be required to return any payments received from U.S.
government agencies if it is found to have violated federal regulations. There have been no government audits in
recent years and the Company believes the result of such audits, should they occur, would not have a material
adverse effect on its financial position or results of operations, though we can give no assurances.
The Company’s security products are subject to export restrictions administered by the U.S. Department of
Commerce and U.S. Department of State, which license the export of encryption products, subject to certain
technical restrictions. In addition, U.S. export laws prohibit the export of encryption products to a number of hostile
countries and some end-users. Although to date the Company has been able to secure necessary U.S. government
export licenses, there can be no assurance that the Company will continue to be able to secure such licenses in a
timely manner in the future, or at all. Delays in obtaining necessary approvals could be costly in terms of lost sales
opportunities and compliance costs. Should export restrictions increase or regulations become more restrictive, or
14
should new laws be enacted, it could have a negative impact on the Company’s international business, which impact
could be material.
Contracts with the U.S. government may not be fully funded at inception and are subject to termination.
A portion of our revenues has historically been generated under agreements with the U.S. government. Any
changes or delays in the budget of the U.S. government, and in particular defense spending, could affect our
business, and funding levels are difficult to predict with any certainty. Moreover, certain multi-year contracts are
conditioned on the continuing availability of appropriations. However, funds are typically appropriated on a fiscal-
year basis, even though contract performance may extend over many years, making future sales and revenues under
multi-year contracts uncertain. Changes in appropriations and budgets as well as economic conditions generally in
subsequent years may impact the funding for these contracts. In addition, changes in funding and other factors may
lead to the termination of such contracts. In addition, U.S. government contracts may be canceled at any time by the
government with limited or no notice or penalty. Adverse changes in funding and the termination of government
contracts could have a material adverse impact on the Company’s financial condition and results of operations.
If the protection of our intellectual property is inadequate, our competitors may gain access to our technologies.
The Company’s technological expertise and experience, including certain proprietary rights that it has
developed and maintains as trade secrets, are crucial to the conduct of the Company’s business and its ability to
compete in the marketplace. Such technological expertise and experience are important as they enable an efficient
design and development process. Loss of this experience and expertise would have an adverse impact on the
Company. To protect our proprietary information, we rely primarily on a combination of internal procedures,
contractual provisions, and copyright, trademark and trade secret laws. Such internal procedures and contractual
provisions may not prove sufficient to maintain the confidentiality and proprietary nature of such information and
may not provide meaningful protection in the event of any unauthorized use or disclosure. Trade secret and
copyright laws afford only limited protection. Current and potential trademarks and patents may not provide us with
any competitive advantage and patents and trademarks must be enforced and maintained in order to provide
protection, which may prove costly and time-consuming.
Despite our efforts to safeguard and maintain our proprietary rights, we may not be successful in doing so
or the steps taken by us may be inadequate to deter unauthorized parties from misappropriating our technologies or
prevent them from obtaining and using our proprietary information, products and technologies. Moreover, our
competitors may independently develop similar technologies or design around patents issued to us.
Other parties may have patent rights relating to the same subject matter covered by our products or
technologies, enabling them to prevent us from operating without obtaining a license and paying royalties. Third
parties also may challenge our proprietary rights or claim we are infringing on their rights. Any claims of
infringement or misappropriation, with or without merit, would likely be time-consuming, result in costly litigation
and diversion of resources, and cause delays in the development and commercialization of our products. We may be
required to expend significant resources to develop non-infringing intellectual property, pay royalties, or obtain
licenses to the intellectual property that is the subject of such litigation. Royalties may be costly and licenses, if
required, may not be available on terms acceptable to us, the absence of which could seriously harm our business.
In addition, the laws and enforcement mechanisms of some foreign countries with respect to intellectual
property may not offer the same level of protection as do the laws of the United States. Legal protections of our
rights may be ineffective in such countries, and technologies developed in such countries may not be protected in
jurisdictions where protection is ordinarily available. Our inability to protect our intellectual property both in the
United States and abroad would have a material adverse effect on our financial condition and results of operations.
The Company relies on a small number of customers for a large percentage of its revenues.
We will be successful only if a significant number of customers adopt our secure communications products.
Historically the Company has had a small number of customers representing a large percentage of its total revenue.
Although the Company endeavors to expand its customer base, we expect that sales to a limited number of
customers will continue to account for a high percentage of our revenues in any given period for the foreseeable
15
future. This reliance makes us particularly susceptible to factors affecting those customers. If such customers’
business declines and as a result our sales to such customers decline without corresponding sales orders from other
customers, our financial condition and results of operations would be adversely affected. It is difficult to predict the
rate at which customers will use our products, even in the case of repeat customers, and we do not typically have
long-term contractual arrangements.
We may not be able to maintain effective product distribution channels.
We rely on an in-house sales force as well as domestic and international representatives, consultants and
distributors for the sale and distribution of our products. Our sales and marketing organization may be unable to
successfully compete against more extensive and well-funded operations of certain of our competitors. In addition,
we must manage sales and marketing personnel in numerous countries around the world with the concomitant
difficulties in maintaining effective communications due to distance, language and cultural barriers. Further, certain
of our distributors may carry competing products lines, which may negatively impact our net revenues.
We rely on single or limited sources for the manufacture and supply of certain product components.
For a small percentage of parts, we rely upon a single or limited number of manufacturers and suppliers.
Moreover, because we depend on third party manufacturers and suppliers, we do not directly control product
delivery schedules or component quality. In addition, we may not be able to maintain satisfactory contractual
relations with our manufacturers and suppliers. A significant delay in delivering products to our customers, whether
from unforeseen events such as the coronavirus, natural disasters or otherwise, or unforeseen quality issues could
have a material adverse effect on our results of operations and financial condition. If we lose any of the
manufacturers or suppliers of certain product components, we expect that it would take from three to six months for
a new manufacturer or supplier to begin full-scale production of one of our products. The delay and expense
associated with qualifying a new manufacturer or supplier and commencing production could result in a material
loss of revenue and reduced operating margins and harm our relationships with customers. While we have not
experienced any significant supply problems or problems with the quality of the manufacturing process of our
suppliers and there have been no materially late deliveries of components or parts to date, it is possible that in the
future we may encounter problems in the manufacturing process or shortages in parts, components or other elements
vital to the manufacture, production and sale of our products.
The loss of existing key management and technical personnel and the inability to attract new hires could have a
detrimental effect on the Company.
Our success depends on identifying, hiring, training, and retaining qualified professionals. Competition for
qualified employees in our industry is intense and made more difficult due to the historically tight labor market in
Massachusetts, prior to the pandemic. We expect these conditions to remain so for the foreseeable future. If we were
unable to attract and hire a sufficient number of employees, or if a significant number of our current employees or
any of our senior managers resign, we may be unable to complete or maintain existing projects or bid for new
projects of similar scope and revenue. The Company’s success is particularly dependent on the retention of existing
management and technical personnel, including Carl H. Guild, Jr., the Company’s President and Chief Executive
Officer. Although the Company has entered into an employment agreement with Mr. Guild, the loss or
unavailability of his services could impede our ability to effectively manage our operations.
We may need to expand our operations and we may not effectively manage any future growth.
As of December 16, 2022, we employed 19 full-time and two part-time employees as well as several
consultants. In the event our products and services obtain greater market acceptance, we may be required to expand
our management team and hire and train additional technical and skilled personnel. We may need to scale up our
operations in order to service our customers, which may strain our resources, and we may be unable to manage our
growth effectively. If our systems, procedures, and controls are inadequate to support our operations, growth could
be delayed or halted, and we could lose our opportunity to gain significant market share. In order to achieve and
manage growth effectively, we must continue to improve and expand our operational and financial management
capabilities. Any inability to manage growth effectively could have a material adverse effect on our business, results
of operations, and financial condition.
16
Security breaches and other disruptions could interfere with the Company’s operations and could compromise
the Company’s and its customer’s information, exposing the Company to liability that would cause the
Company’s business and reputation to suffer.
In the ordinary course of business, the Company relies upon information technology networks and systems,
some of which are managed by third parties, to process, transmit and store electronic information, and to manage or
support a variety of business processes and activities, including collection of payments from purchasers of our
products. The Company also uses information technology systems to record, process and summarize financial
information and results of operations for internal reporting purposes, and to comply with regulatory financial
reporting, legal, and tax requirements. Additionally, the Company collects and stores sensitive data, including
personally identifiable information of the Company’s employees, in data centers and on information technology
networks. The secure operation of these information technology networks and the processing and maintenance of
this information is material to the Company’s business operations and strategy. Despite security measures, the
Company’s information technology networks and infrastructure may be vulnerable to damage, disruptions, or
shutdowns due to attacks by cyber criminals or breaches due to employee error or malfeasance or other disruptions,
power outages, computer viruses, telecommunication or utility failures, terrorist acts, natural disasters or other
catastrophic events. The occurrence of any of these events could compromise the Company’s networks, and the
information stored there could be accessed, publicly disclosed, lost, or stolen. Any such access, disclosure, or other
loss of information could result in legal claims, liability, and regulatory proceedings and penalties under laws
protecting the privacy of personal information, disrupt operations, and damage the Company’s reputation, which
could adversely affect the Company’s business, results of operations and financial condition. In addition, as security
threats continue to evolve and increase in frequency and sophistication, the Company may need to invest additional
resources to protect the security of its systems.
Item 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.
Item 2.
PROPERTIES
On March 27, 2014, the Company entered into a lease commencing April 1, 2014 for its facility located at
100 Domino Drive, Concord, MA. The Company has been a tenant in this space since 1983. This is the Company’s
only facility and houses all manufacturing, research and development, and corporate operations. The initial term of
the lease was for five years through March 31, 2019 at an annual rate of $171,000. In addition, the lease contains
options to extend the lease for two and one half years through September 30, 2021 and another two and one half
years through March 31, 2024 at an annual rate of $171,000. Rent expense for each of the years ended September
24, 2022 and September 25, 2021 was $171,000. On September 25, 2018, the Company exercised its option to
renew the lease through September 30, 2021 and on March 31, 2021, the Company exercised its option to renew the
lease through March 30, 2024.
Item 3.
LEGAL PROCEEDINGS
Our Company, on occasion, may become involved in legal matters arising in the ordinary course of our
business, which could have a material adverse effect on our business, financial condition or results of operations.
We are currently not aware of any pending or threatened litigation against us or our officers and directors in their
capacity as such that could have a material impact on our operations or finances.
Item 4.
MINE SAFETY DISCLOSURES
Not applicable.
17
PART II
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company’s common stock, $0.10 par value, trades on the OTC Market under the symbol “TCCO.”
Holders
As of December 16, 2022, there were 52 record holders of our Common Stock. We believe there are
approximately 1,931 beneficial holders of our stock based on information reported to TCC by the Company’s
transfer agent.
Dividends
We do not intend to pay dividends unless future profits warrant such actions.
Equity Compensation Plan Information
The following table presents information about the Technical Communications Corporation 2021 Equity
Incentive Plan, the 2010 Equity Incentive Plan and the Technical Communications Corporation 2005 Non-Statutory
Stock Option Plan as of the fiscal year ended September 24, 2022. For more information on these plans, see the
discussion of the Company’s stock option plans and stock-based compensation plans included in Note 2 to the
Company’s financial statements as of and for the year ended September 24, 2022, included herewith.
Plan category
Number of securities to
be issued upon exercise
of outstanding options
Weighted average
exercise price of
outstanding options
Number of
securities
remaining
available for
future issuance
Equity compensation plans approved by security holders
147,400 (1) $
3.10
-
Equity compensation plans not approved by security
holders
17,500 $
6.46
-
Total
164,900 $
3.46
-
(1) Of the 147,400 options outstanding as of September 24, 2022, 90,700 were exercisable as of such date at an
average exercise price of $3.53 per share.
Sales of Unregistered Securities and Purchases by the Issuer and Affiliated Purchasers
There was a sale by the Company of 4,000 unregistered shares of the Company’s common stock at $4.00
per share on July 15, 2021 to Ralph M. Norwood, a member of the Board of Directors. There were no purchases of
TCC stock by or on behalf of the Company or any affiliated purchaser during the fourth fiscal quarter of our 2022
fiscal year.
Item 6.
RESERVED
18
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company’s financial condition and results of operations should be read in
conjunction with the Company’s audited consolidated financial statements and notes thereto appearing elsewhere
herein.
Forward-Looking Statements
The following discussion may contain statements that are not purely historical. Such statements contained
herein or as may otherwise be incorporated by reference herein constitute “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include but are not
limited to statements regarding anticipated operating results, future earnings, and the ability to achieve growth and
profitability. Such forward-looking statements involve known and unknown risks, uncertainties and other factors,
including but not limited to the impact of the COVID-19 pandemic (including its duration and severity) and
governmental actions in response thereto; the effect of foreign political unrest; domestic and foreign government
policies and economic conditions; future changes in export laws or regulations; changes in technology; 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 secure adequate capital resources. Such risks,
uncertainties and other factors could cause the actual results, performance or achievements of the Company, or
industry results, to be materially different from any future results, performance or achievements expressed or
implied by such forward-looking statements. For a more detailed discussion of the risks facing the Company, see the
Company’s filings with the SEC, including this Form 10-K for the fiscal year ended September 24, 2022 and the
“Risk Factors” section included herein.
Impact of COVID-19 Coronavirus
As a result of the economic slowdown due to the COVID-19 pandemic, there has been a noticeable delay in
the receipt of customer orders. While we remain in contact with our customers and their requirements have not
changed, the operations of certain of our customers have been slowed or shut down entirely. Our suppliers thus far
have been able to timely deliver components and parts necessary for the manufacture and production of the
Company’s products to fulfill orders, although we cannot be sure this trend will continue. It is uncertain how long
our customers’ operations will be impacted, and those of our suppliers and our ability to respond to customer
requirements and supplier issues will become more challenging during a period of sustained disruption. Any period
of sustained disruption would have a material adverse effect on the Company’s financial condition and results of
operations.
Critical Accounting Policies and Significant Judgments and Estimates
The discussion and analysis of our financial condition and results of operations are based on our
consolidated financial statements, which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these consolidated financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. The Company’s significant accounting policies are more fully described in
Note 2, “Summary of Significant Accounting Policies and Basis of Presentation”, to the Company’s Consolidated
Financial Statements appearing elsewhere in this Annual Report on Form 10-K.
On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue
recognition, inventory reserves, receivable reserves, impairment of long-lived assets, income taxes, fair value and
stock-based compensation. Management bases its estimates on historical experience and on various other factors that
are believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent from other sources. By their nature
estimates are subject to an inherent degree of uncertainty. Actual results may differ from these estimates under
different assumptions or conditions and such differences may be material.
19
Results of Operations
Year ended September 24, 2022 compared to year ended September 25, 2021
Net Revenue
Net revenue for the years ended September 24, 2022 and September 25, 2021 was $1,304,000 and
$1,866,000, respectively, a decrease of $562,000 or 30%. Revenue for fiscal 2022 consisted of $996,000, or 76%,
from domestic sources and $308,000, or 24%, from international customers as compared to fiscal 2021, in which
revenue consisted of $1,630,000, or 87%, from domestic sources and $237,000, or 13%, from international
customers. International revenues continued to be impacted by the effects of the Covid-19 pandemic.
Foreign revenue consisted of shipments to three countries during the year ended September 24, 2022 and
four countries during the year ended September 25, 2021. A sale is attributed to a foreign country based on the
location of the contracting party. Domestic revenue may include the sale of products shipped through domestic
resellers or manufacturers to international destinations. The table below summarizes our principal foreign revenue
by country:
2022
2021
Morocco
$
36,000 $ 148,000
Egypt
-
58,000
Saudi Arabia
80,000
19,000
Philippines
192,000
12,000
$
308,000 $ 237,000
For the year ended September 24, 2022, revenue was derived from sales of our engineering services
amounting to $996,000 and shipments of our narrowband radio encryptors and various accessories to one Far East
country amounting to $192,000, a shipment of our internet protocol data encryptors amounting to $80,000 and some
training provided to a North African country in the amount of $36,000.
For the year ended September 25, 2021, revenue was derived from sales of our engineering services
amounting to $1,107,000 and shipments of our narrowband radio encryptors and various accessories to one north
African country amounting to $148,000 and three domestic customers for deployment into a Middle Eastern country
amounting to $270,000, for deployment into a North African country amounting to $98,000 and for deployment into
Afghanistan amounting to $77,000, and shipments of our internet protocol data encryptors amounting to $19,000.
Gross Profit
Gross profit for fiscal 2022 was $14,000, compared to gross profit of $557,000 for fiscal 2021, a decrease
of 97%. Gross profit expressed as a percentage of revenue was 1% for fiscal 2022 compared to 30% for fiscal 2021,
which lower gross profit percentage for 2022 was due to the lower sales volume and higher concentration of lower
margin engineering sales during the year.
Operating Costs and Expenses
Selling, General and Administrative
Selling, general and administrative expenses for fiscal 2022 were $1,914,000, compared to $1,842,000 for
fiscal 2021. This increase of $72,000, or 4%, was attributable to an increase in general and administrative expenses
of $38,000 and an increase in selling and marketing expenses of $34,000 during the 2022 fiscal year.
The increase in general and administrative expenses for the year ended September 24, 2022 was primarily
attributable increases in payroll and payroll related expenses of $60,000, inspection and certification fees of $7,000,
20
audit fees of $6,000 and outside consulting costs of $13,000 after a return to normal operations in the current period
compared to the previous period where a temporary furlough was in place. These increases were partially offset by
decreases in shareholder related costs of $19,000, legal fees of $14,000 and a decrease in insurance costs of $17,000
during the quarter.
The increase in selling and marketing expenses for the year ended September 24, 2022 was attributable to
increases in payroll and payroll related expenses of $67,000 after a return to normal operations in the current quarter
compared to the previous period where a temporary furlough was in place. Also contributing to the increase were
increases in product demonstration costs of $30,000 and travel expenses of $19,000. Partially offsetting these
increases were decreases to outside consulting costs of $25,000, commissions of $13,000 and product evaluation
costs of $5,000. Also an increase in sales support activities has led to a decrease in selling and marketing expenses
of $37,000, during the period.
Product Development Costs
Product development costs for fiscal years 2022 and 2021 were $817,000 and $732,000, respectively. This
increase of $85,000, or 12%, was primarily attributable to an increase in payroll and payroll-related expenses of
$32,000 and an increase in project consulting and material costs of $29,000 during the period. In addition a decrease
in billable engineering services contracts during fiscal 2022 resulted in increased product development costs of
$24,000.
The Company actively sells its engineering services in support of funded research and development. The
receipt of these orders is sporadic, although such programs can span over several months to several years. In
addition to these programs, the Company invests in research and development to enhance its existing products or to
develop new products, as it deems appropriate. There was $996,000 of billable engineering services revenue
generated during fiscal 2022 and $1,107,000 of billable engineering services revenue generated during fiscal 2021.
Net Loss
The Company generated a net loss of $2,331,000 for fiscal 2022, compared to a net loss of $1,088,000 for
fiscal 2021. This increase in net loss is primarily attributable to a 97% decrease in gross profit during fiscal 2022, an
increase of 6% in operating expenses and the forgiveness of two PPP loans amounting to $949,000, which reduced
our net loss in fiscal 2021.
The effects of inflation and changing costs have not had a significant impact on revenue or earnings in
recent years. As of September 24, 2022, none of the Company’s monetary assets or liabilities was subject to foreign
exchange risks. The Company usually includes an inflation factor in its pricing when negotiating multi-year
contracts with customers.
Liquidity and Capital Resources
Our cash and cash equivalents at September 24, 2022 totaled $7,000.
Liquidity and Ability to Continue as a Going Concern
For the years ended September 24, 2022, September 25, 2021 and September 26, 2020, the Company
generated net losses of $2,331,139, $1,088,386 and $910,650 and, although the Company generated $631,426 of net
income in the fiscal year ended September 28, 2019, the Company suffered recurring losses from operations during
the prior seven year period from fiscal 2012 to fiscal 2018. The Company has an accumulated deficit of $6,485,106
at September 24, 2022. These factors continue to raise substantial doubt about the Company's ability to continue as a
going concern. Such consolidated financial statements do not include any adjustments to reflect the substantial doubt
about the Company’s ability to continue as a going concern.
On August 4, 2022, the Company issued an amended and restated demand promissory note in the principal
amount of up to $4,000,000 in favor of Carl H. Guild, Jr. Mr. Guild, the Company’s Chief Executive Officer,
21
President and Chairman of the Board, loaned the money to the Company to provide working capital. The
$4,000,000 consists of $1,000,000 previously loaned to the Company at an interest rate of 6% and $2,000,000
previously loaned to the Company at an interest rate of 7.5% and an additional $1,000,000 at an interest rate of
7.5%. The additional funds will be available to the Company to borrow from Mr. Guild on a revolving basis and the
loan has no specified term year and may be prepaid at any time without premium or penalty. The outstanding
principal balance at September 24, 2022 was $3,000,000, plus accrued interest of $106,000. An interest payment of
$30,000 was made in January of 2022.
Also on March 15, 2021, the Company ended its furlough plan instituted in December 2020 and all
employees returned to work on a full time basis following the Company’s receipt of the proceeds of its second PPP
loan, described below. During the furlough, the Company had reduced the workweek for the majority of salaried
employees to 24 hours and reduced salaries commensurately.
In December 2022 the Company implemented a partial furlough plan for the majority of salaried
employees. This plan reduces the workweek to 24 hours and salaries have been reduced commensurately. With this
furlough plan in place we anticipate that our principal sources of liquidity will be sufficient to fund our activities to
January 2023. In order to have sufficient cash to fund our operations beyond that point, we will need to secure new
customer contracts, raise additional equity or debt capital, and reduce expenses, including payroll and payroll-related
expenses through another employee furlough and/or separations.
In order to have sufficient capital resources to fund operations, the Company has been working diligently to
secure several large orders with new and existing customers. The receipt of these orders has been significantly
delayed and will continue to be difficult to predict due to the impact of the COVID-19 pandemic on our customers
as a result of their operations being reduced or shut down. TCC has been able to maintain its operations during this
sustained period of disruption, but a continuation of the disruption in either our customers’ operations or those of the
Company will continue to have a material adverse impact on sales activity and revenue.
Since the start of the pandemic, the Company has been able to secure capital in the form of debt financing
to assist with funding its operations. On April 17, 2020, the Company was granted a loan from bankHometown
under the U.S. Small Business Administration's, or SBA, Paycheck Protection Program, or PPP, in the principal
amount of $474,400. The loan, which was evidenced by a note dated April 17, 2020, was payable over 18 months at
an annual interest rate of 1% to the extent not forgiven. The Company used the entire original PPP loan amount for
qualifying expenses and the SBA forgave the loan in its entirety on January 11, 2021.
On February 1, 2021, the Company received a second loan from bankHometown under the PPP as
authorized under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, or the Economic
Aid Act. The loan, evidenced by a promissory note, was in the principal amount of $474,405. The Company used
the entire second PPP loan amount for qualifying expenses and the loan was forgiven on August 10, 2021 under the
provisions of the Economic Aid Act.
During fiscal year 2020, the Company was granted a loan from the SBA in the principal amount of
$150,000 pursuant to the Economic Injury Disaster Loan program. This loan is payable monthly over 30 years at an
annual interest rate of 3.75% commencing thirty months from the date of issuance.
The Company is working diligently to secure additional capital through equity or debt arrangements in
addition to the recent funding received from the SBA and Mr. Guild. The Company is actively working with equity
investors as well as debt investors, such as the SBA and Mr. Guild to secure additional funding, although we cannot
provide assurances we will be able to secure such new funding, especially in light of the tightening of the credit
markets and continuing volatility of the capital markets as a result of the coronavirus. Moreover, the Company’s
common stock was delisted from the Nasdaq Capital Market effective January 25, 2021; while our common stock is
quoted on the OTC Bulletin Board, the change in listing may have a negative impact on the liquidity of the stock
and the Company’s ability to raise capital through offerings of its equity securities.
Should the Company be unsuccessful in these efforts, it would be forced to implement headcount
reductions, additional employee furloughs and/or reduced hours for certain employees, or cease operations
completely.
22
Sources and Uses of Cash
The following table presents our abbreviated cash flows for the years ended September 24, 2022 and
September 25, 2021:
2022
2021
Net loss
$ (2,331,000) $(1,088,000 )
Changes not affecting cash
58,000 (882,000)
Changes in current assets and current liabilities
(5,000) (736,000 )
Cash used in operating activities
(2,278,000) (2,706,000 )
Cash used in investing activities
(13,000)
-
Cash provided by financing activities
2,000,000 1,490,000
Net decrease in cash and cash equivalents
(291,000) (1,216,000 )
Cash and cash equivalents - beginning of year
298,000 1,514,000
Cash and cash equivalents - end of year
$
7,000 $
298,000
Operating Activities
The Company used approximately $428,000 less in cash from operations due to a decrease of $949,000 in
forgiveness of PPP loans, the proceeds of which are included in financing activities on the Company’s fiscal 2021
statement of cash flows, a net difference in the change in inventory of $446,000, a $412,000 in the change in
accounts receivable, a $314,000 change in accounts payable and accrued expenses and a change in customer
deposits of $75,000 offset by a receivable for Employee Retention Credits of $516,000 and a change in net loss of
$1,243,000 in fiscal 2022 compared to fiscal 2021.
Investing Activities
Cash used in investing activities during fiscal 2022 increased by approximately $13,000. This increase was
attributable to additions to equipment and leasehold improvements in 2022.
Financing Activities
Cash provided by financing activities in fiscal 2022 and 2021 was a result of proceeds from long-term debt,
described below.
Debt Instruments
On April 17, 2020, the Company was granted a loan from bankHometown in the principal amount of
$474,400 pursuant to the PPP under the CARES Act. The loan, which was evidenced by a Note dated April 17,
2020, was payable over 18 months at an annual interest rate of 1% to the extent not forgiven. The Company used the
entire original PPP loan amount for qualifying expenses and the SBA forgave the loan in its entirety on January 11,
2021.
The Company also was granted a loan by the SBA in August 2020. This loan is evidenced by a promissory
note dated August 10, 2020 in the principal amount of $150,000 and was made under the Economic Injury Disaster
Loan program of the SBA. This note is payable monthly over 30 years at an annual interest rate of 3.75%
commencing thirty months from the date of issuance.
On February 1, 2021, the Company was granted a second PPP loan from bankHometown in the principal
amount of $474,405 under the Economic Aid Act. Any amounts not forgiven will be paid back over five years at an
interest rate of 1% per year. Program rules provide that loan payments will be deferred for borrowers who apply for
loan forgiveness until the SBA remits the borrower's loan forgiveness amount to the lender. If a borrower does not
23
apply for loan forgiveness, payments are deferred for 10 months following the end of the covered period for the
borrower’s loan forgiveness (between 8 and 24 weeks). The Company used the entire original PPP loan amount for
qualifying expenses and the SBA forgave the loan in its entirety on August 10, 2021.
On August 4, 2022, the “Company issued an amended and restated demand promissory note in the
principal amount of up to $4,000,000 in favor of Carl H. Guild, Jr. Mr. Guild, the Company’s Chief Executive
Officer, President and Chairman of the Board, loaned the money to the Company to provide working capital. The
$4,000,000 consists of $1,000,000 previously loaned to the Company at an interest rate of 6% and $2,000,000
previously loaned to the Company at an interest rate of 7.5% and an additional $1,000,000 at an interest rate of
7.5%. The additional funds will be available to the Company to borrow from Mr. Guild on a revolving basis and the
loan has no specified term year and may be prepaid at any time without premium or penalty. The outstanding
principal balance at September 24, 2022 was $3,000,000, plus accrued interest of $106,000. An interest payment of
$30,000 was made in January of 2022.
Backlog
Backlog at September 24, 2022 and September 25, 2021 amounted to $80,000 and $1,090,000,
respectively. The orders in backlog at September 24, 2022 are expected to ship and/or services are expected to be
performed over the next 12 months depending on customer requirements and product availability.
Performance guarantees
Certain foreign customers require the Company to guarantee bid bonds and performance of products sold.
These guaranties typically take the form of standby letters of credit. Guarantees are generally required in amounts of
5% to 10% of the purchase price and last in duration from three months to one year. At September 24, 2022 and
September 25, 2021, the Company had no outstanding letters of credit.
Research and Development
Research and development efforts are undertaken by the Company primarily on its own initiative. In order
to compete successfully, the Company must improve existing products and develop new products as well as attract
and retain qualified personnel. No assurances can be given that the Company will be able to hire and train such
technical, management and sales personnel or successfully improve and develop its products.
During the fiscal years ended September 24, 2022 and September 25, 2021, the Company spent $817,000
and $732,000, respectively, on internal product development. The Company also spent $636,000 and $711,000 on
billable development efforts during fiscal 2022 and 2021, respectively. In fiscal 2022, the Company’s total product
development costs were $10,000 higher than fiscal 2021 levels and reflected the costs of custom development,
product capability enhancements and production readiness. It is expected that product development expenses in
fiscal 2023 will be consistent with fiscal 2022 levels.
Capital Expenditures
Other than those stated above, there are no plans for material commitments for capital expenditures in fiscal
2023.
Material Trends and Uncertainties
As a result of the current economic slowdown due to the COVID-19 pandemic, there has been a noticeable
delay in the receipt of customer orders. While we remain in contact with our customers and their requirements have
not changed, the operations of certain of our customers have been slowed or shut down entirely. Our suppliers thus
far have been able to timely deliver components and parts necessary for the manufacture and production of the
Company’s products to fulfill orders. However we cannot be sure this condition will continue and there is emerging
evidence that certain parts are becoming more difficult to obtain and are adversely impacting delivery times.
Nonetheless, the Company has been able to maintain its operations, and believes it will be in a strong position to
respond to our customers’ needs as their operations return to normal, but can give no assurances. It is uncertain how
24
long our and our customers’ operations will be impacted, and those of our suppliers, especially in light of recent
increases in COVID-19 infection rates worldwide, and our ability to respond to customer requirements and supplier
issues will become more challenging during a period of sustained disruption. Any period of sustained disruption
would have a material adverse effect on the Company’s financial condition and results of operations.
In order to have sufficient capital resources to fund operations, the Company has been working diligently to
secure several large orders with new and existing customers. The receipt of these orders has been significantly
delayed and will continue to be difficult to predict due to the impact of the COVID-19 pandemic on our customers
as a result of their operations being reduced or shut down. Without the near term receipt of these new orders the
Company will have to secure other sources of financing such as debt or equity capital.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and notes thereto listed in the accompanying index to financial statements (Item
15) are filed as part of this Annual Report on Form 10-K and are incorporated herein by reference.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
Item 9A.
CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. The Company’s Chief Executive Officer and Chief
Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of the end of the
period covered by this Annual Report on Form 10-K. Based on that review and evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are not
effective as of September 24, 2022 due to the material weaknesses described below.
Management’s annual report on internal control over financial reporting. Our management is responsible
for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f)
promulgated under the Exchange Act. Under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, we conducted an assessment of the
effectiveness of our internal control over financial reporting as of September 24, 2022. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
in Internal Control—Integrated Framework (2013). Based on such an assessment, management concluded that the
Company’s internal control over financial reporting was not effective as of September 24, 2022.
Our internal control over financial reporting is a process designed under the supervision of our Chief
Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of our financial statements for external reporting purposes in accordance with U.S.
GAAP. Internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our
assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance
with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or
25
timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the
financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or
procedures may deteriorate.
A goal of the assessment was to determine whether any material weaknesses existed with respect to the
Company’s internal control over financial reporting. A “material weakness” is defined as a deficiency, or a
combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility
that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or
detected on a timely basis by the Company’s internal controls.
Based upon that assessment management identified a deficiency that rose to the level of a material
weakness in our internal control over financial reporting related to generally accepted accounting principles
associated with revenue recognition caused by an error in judgement within the accounting department. The
Company identified this material weakness at year end, but remediated those material weaknesses it had identified in
prior years, as described below.
As disclosed in the Company’s periodic and annual reports for prior periods through fiscal year end 2019,
management had concluded that the Company did not maintain effective internal control over financial reporting
due to material weaknesses in such internal control related to the misapplication of generally accepted accounting
principles associated with revenue recognition, inventory reserves, accruals and the preparation of the consolidated
financial statements, as well as the classification and disclosure of financial information, all caused by a lack of
adequate skills and experience within the accounting department. In addition, management also previously identified
a material weakness due to a lack of sufficient staff to segregate accounting duties.
Nonetheless, management believes that our consolidated financial statements included in this Annual
Report on Form 10-K have been prepared in accordance with generally accepted accounting principles. Our Chief
Executive Officer and Chief Financial Officer have certified that, based on such officer’s knowledge, the financial
statements and other financial information included in this Annual Report on Form 10-K fairly present in all
material respects the financial condition, results of operations and cash flows of the Company as of, and for, the
periods presented in this report. In addition, we initiated a remediation plan for the material weaknesses, described
above.
Our management, with oversight from the Audit Committee, actively engaged in remediating the identified
material weaknesses. As part of these remediation efforts management undertook education and training for TCC’s
accounting staff and management to address certain core competencies that resulted in the lack of operational
effectiveness. Management will continue to assess the design of controls to determine if enhancements are needed to
increase effectiveness of our internal control over financial reporting. Management has retained a subject matter
expert in the area of income tax accounting and is assessing the need to retain additional subject matter experts to
ensure compliance with generally accepted accounting principles and SEC rules and regulations. Both management
and the Audit Committee have increased their oversight of non-routine transactions. This includes oversight of large
revenue contracts as well as judgement areas, including inventory reserves and accruals. This oversight will
contribute to the assessment of the need to retain additional subject matter experts.
The Company has made significant progress in improving its internal control over financial reporting but
remediation efforts are ongoing; the Company’s goal is to have all material weaknesses remediated in the early part
of its 2022 fiscal year.
Changes in internal control over financial reporting. The changes in the aforementioned internal control
over financial reporting and the remediation efforts undertaken as of year-end and undertaken in the fourth quarter
of the Company’s fiscal 2022 have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting. No other changes in the Company’s internal control over financial reporting
occurred during the fourth quarter of its 2022 fiscal year.
26
Item 9B.
OTHER INFORMATION
Not applicable.
Item 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION
Not applicable.
Part III
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item 10 is incorporated herein by reference to our Definitive Proxy
Statement, under the captions “Members of the Board of Directors, Nominees and Executive Officers,” “Certain
Relationships and Related Person Transactions; Legal Proceedings,” “Corporate Governance,” and “Section 16(a)
Beneficial Ownership Reporting Compliance,” with respect to our 2023 Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission not later than 120 days after the end of the Company’s 2022 fiscal
year.
The Company has adopted a Code of Business Conduct and Ethics, which applies to all of its employees,
officers and directors. A copy of this code can be found on the Company’s website at
www.tccsecure.com/investors.aspx.
Item 11.
EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated herein by reference to our Definitive Proxy
Statement, under the captions “Compensation” and “Compensation Discussion and Analysis” with respect to our
2023 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120
days after the end of the Company’s 2022 fiscal year.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this Item 12 is incorporated herein by reference to Part II, Item 5 herein under
the caption “Equity Compensation Plan Information” and by reference to our Definitive Proxy Statement, under the
caption “Security Ownership of Certain Beneficial Owners and Management,” with respect to our 2023 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the
end of the Company’s 2022 fiscal year.
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item 13 is incorporated herein by reference to our Definitive Proxy
Statement, under the captions “Certain Relationships and Related Person Transactions; Legal Proceedings” and
“Corporate Governance” with respect to our 2023 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the Company’s 2022 fiscal year.
Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 is incorporated herein by reference to our Definitive Proxy
Statement, under the caption Proposal III – Ratification of Selection of Independent Registered Public Accounting
Firm with respect to our 2023 Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the Company’s 2022 fiscal year.
The Independent Registered Accounting Firm is Stowe & Degon LLC (PCAOB Firm ID 557) located in
Westborough, Massachusetts.
27
PART IV
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(1)
Financial Statements The following Consolidated Financial Statements and Notes thereto are filed as part
of Part II, Item 8 of this report:
Page
Consolidated Balance Sheets as of September 24, 2022 and September 25, 2021
31
Consolidated Statements of Operations for the Years Ended September 24, 2022 and September 25,
2021
32
Consolidated Statements of Cash Flows for the Years Ended September 24, 2022 and September 25,
2021
33
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended September 24, 2022
and September 25, 2021
34
Notes to Consolidated Financial Statements
35-47
(2)
List of Exhibits
3.1
Articles of Organization of the Company (incorporated by reference to the Company’s Annual Report for
2005 on Form 10-KSB, filed with the Securities and Exchange Commission on December 21, 2005)
3.2
By-laws of the Company (incorporated by reference to the Company’s 8-K filed with the Securities and
Exchange Commission on May 5, 1998)
4
Rights Agreement, dated as of August 7, 2014, by and between the Company and American Stock Transfer
& Trust Company, as Rights Agent (incorporated by reference to the Company’s 8-K filed with the
Securities and Exchange Commission on August 12, 2014)
10.1+
Employment Agreement, effective November 19, 1998, with Carl H. Guild, Jr. (incorporated by reference to
the Company’s Annual Report for 1998 on Form 10-K, as amended, filed with the Securities and Exchange
Commission on December 21, 1998)
10.2+
Employment Agreement, effective February 12, 2001, with Michael P. Malone (incorporated by reference to
the Company’s Form 10-QSB filed with the Securities and Exchange Commission on May 15, 2001)
10.3+
Amendment to Employment Agreement between the Company and Carl H. Guild Jr., as of November 8,
2001 (incorporated by reference to the Company’s Form 10-QSB filed with the Securities and Exchange
Commission on August 13, 2002)
10.4
Standard Form Commercial Lease, dated March 27, 2014, between the Company and Batstone LLC
(incorporated by reference to the Company’s 8-K filed with the Securities and Exchange Commission on
April 2, 2014)
10.5+
2005 Non-Statutory Stock Option Plan (incorporated by reference to the Company’s Form 10-QSB filed with
the Securities and Exchange Commission on May 10, 2005.)
10.6+
2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.17 to the Company’s Form 10-K filed
with the Securities and Exchange Commission on December 22, 2010.)
10.7
10.8
Demand Promissory Note, dated August 29, 2019, made by the Company in favor of Carl H. Guild, Jr.
(incorporated by reference to the Company’s Annual Report for 2019 on Form 10-K, filed with the Securities
and Exchange Commission on December 13, 2019)
SBA Note in favor of bankHometown dated April 17, 2020 (incorporated by reference to Exhibit 10.1 to the
Company’s Form 10-Q filed with the Securities and Exchange Commission on May 28, 2020.)
10.9
Purchase Order from ADS, Inc. dated May 19, 2020 (Confidential portions of this exhibit have been
omitted). (incorporated by reference to Exhibit 10.10 to the Company’s Form 10-Q filed with the Securities
and Exchange Commission on August 11, 2020.)
28
10.10
10.11
10.12
10.13
10.14
10.15
10.16+
14+
SBA Loan Authorization and Agreement, Promissory Note and Security Agreement, dated August 10, 2020
(incorporated by reference to Exhibit 10.10 to the Company’s Form 10-K filed with the Securities and
Exchange Commission on December 28, 2020.)
SBA Note in favor of bankHometown dated January 28, 2021 (incorporated by reference to Exhibit 10.1 to
the Company’s Form 10-Q filed with the Securities and Exchange Commission on February 9, 2021.)
Demand Promissory Note with Carl H. Guild, Jr. dated May 6, 2021 (incorporated by reference to Exhibit
10.1 to the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 11, 2021.)
Amended and Restated Demand Promissory Note, dated November 18, 2021, made by the Company in favor
of Carl H. Guild, Jr (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-K filed with the
Securities and Exchange Commission on December 22, 2021.)
Amended and Restated Demand Promissory Note, dated April 7, 2022, made by the Company in favor of
Carl H. Guild, Jr (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed with the
Securities and Exchange Commission on May 10, 2022.)
Amended and Restated Demand Promissory Note, dated August 4, 2022, made by the Company in favor of
Carl H. Guild, Jr (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the
Securities and Exchange Commission on August 8, 2022.)
2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-K filed
with the Securities and Exchange Commission on December 22, 2021.)
Code of Business Conduct and Ethics (incorporated by reference to the Company’s Annual Report for 2003
on Form 10-KSB, filed with the Securities and Exchange Commission on December 22, 2004.)
21*
List of Subsidiaries of the Company
23*
Consent of Stowe & Degon LLC
31.1*
Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32*
Certifications of Chief Executive and Chief Financial Officers pursuant to 18 U.S.C. Section 1350
101.INS Inline XBRL Report Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Calculation Linkbase Document
101.LAB Inline XBRL Taxonomy Label Linkbase Document
101.PRE Inline XBRL Presentation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
Footnotes:
* Attached to this filing
+ Denotes a management contract or compensatory plan or arrangement
Item 16.
FORM 10-K SUMMARY
Not applicable.
29
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/ Carl H. Guild, Jr.
Carl H. Guild, Jr.
Chief Executive Officer and President
Chairman of the Board, Director
Date: December 22, 2022
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.
Signature
Title
Date
/s/ Carl H. Guild, Jr.
Chief Executive Officer and President
December 22, 2022
Carl H. Guild, Jr.
Chairman of the Board, Director
(Principal Executive Officer)
/s/ Michael P. Malone
Treasurer and Chief Financial Officer
December 22, 2022
Michael P. Malone
(Principal Financial
and Accounting Officer)
/s/ Thomas E. Peoples
Director
December 22, 2022
Thomas E. Peoples
/s/ Francisco F. Blanco
Director
December 22, 2022
Francisco F. Blanco
/s/ Ralph M. Norwood
Director
December 22, 2022
Ralph M. Norwood
30
Technical Communications Corporation and Subsidiary
Consolidated Balance Sheets
September 24, 2022 and September 25, 2021
ASSETS
2022
2021
Current assets:
Cash and cash equivalents
$
6,727 $
298,022
Accounts receivable - trade
15,174
280,807
Government grant receivable – Employee retention credit (Note 11)
515,966
-
Inventories, net
966,185 1,157,382
Other current assets
186,963
169,479
Total current assets
1,691,015 1,905,690
Equipment and leasehold improvements
4,556,144 4,543,183
Less accumulated depreciation and amortization
(4,544,778) (4,538,782 )
Equipment and leasehold improvements, net
11,366
4,401
Operating lease right-of-use asset
248,462
406,519
Total assets
$ 1,950,843 $ 2,316,610
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable – long-term (Notes 9 and 14)
$
1,996 $
494
Notes payable – related party (Note 9)
3,000,000 1,000,000
Current operating lease liabilities
164,086
158,070
Accounts payable
159,388
105,676
Customer deposits
3,933
45,124
Accrued liabilities:
Compensation and related expenses
204,412
219,271
Interest expense
118,208
19,158
Commissions
-
16,248
Other current liabilities
1,419
10,172
Total current liabilities
3,653,442 1,574,213
Long-term operating lease liabilities
84,376
248,449
Notes payable – long-term, net of current maturities (Note 9)
148,004
149,506
Commitments and contingencies
Stockholders' equity
Common stock - par value $0.10 per share; 7,000,000 shares authorized,
1,854,403 issued and outstanding at September 24, 2022 and September 25, 2021
185,440
185,440
Additional paid-in capital
4,364,687 4,312,969
Accumulated deficit
(6,485,106) (4,153,967 )
Total stockholders' equity (deficit)
(1,934,979)
344,442
Total liabilities and stockholders’ equity
$ 1,950,843 $ 2,316,610
The accompanying notes are an integral part of these consolidated financial statements.
31
Technical Communications Corporation and Subsidiary
Consolidated Statements of Operations
Years ended September 24, 2022 and September 25, 2021
2022
2021
Net revenue
$ 1,303,935 $ 1,866,379
Cost of revenue
1,289,920
1,309,712
Gross profit
14,015
556,667
Operating expenses:
Selling, general and administrative
1,914,336
1,842,094
Product development
816,633
732,020
Total operating expenses
2,730,969
2,574,114
Operating loss
(2,716,954)
(2,017,447)
Other income (expense)
Grant income (Note 9)
-
948,805
Government grant income - ERC (Note 11)
515,966
-
Interest expense
(130,151)
(19,744)
Total other income
385,815
929,061
Net loss
$ (2,331,139) $
(1,088,386)
Net loss per common share
Basic
$
(1.26) $
(0.59)
Diluted
$
(1.26) $
(0.59)
Weighted average shares
Basic
1,854,403
1,851,194
Diluted
1,854,403
1,851,194
The accompanying notes are an integral part of these consolidated financial statements.
32
Technical Communications Corporation and Subsidiary
Consolidated Statements of Cash Flows
Years ended September 24, 2022 and September 25, 2021
2022
2021
Operating activities:
Net loss
$
(2,331,139 ) $
(1,088,386)
Adjustments to reconcile net loss to cash (used in) provided by operating
activities:
Depreciation and amortization
5,996
14,328
Stock-based compensation
51,718
52,404
PPP loan forgiveness reported as grant income
-
(948,805)
Changes in current assets and current liabilities:
Accounts receivable
265,633
(146,395)
Government grant receivable - ERC
(515,966 )
-
Inventories
191,197
(255,331)
Other current assets
(17,484 )
(15,996)
Customer deposits
(41,191 )
(116,829)
Accounts payable and accrued liabilities
112,902
(201,224)
Cash used in operating activities
(2,278,334 )
(2,706,234)
Investing activities:
Additions to equipment and leasehold improvements
(12,961 )
-
Cash used in investing activities
(12,961 )
-
Financing activities:
Proceeds from issuance of common stock
-
15,999
Proceeds from PPP loans
-
474,405
Proceeds from notes payable – related party
2,000,000
1,000,000
Cash provided by financing activities
2,000,000
1,490,404
Net decrease in cash and cash equivalents
(291,295 )
(1,215,830)
Cash and cash equivalents at beginning of year
298,022
1,513,852
Cash and cash equivalents at end of year
$
6,727 $
298,022
Supplemental disclosures:
Interest paid
$ 30,433
$ -
Income taxes paid
912
912
The accompanying notes are an integral part of these consolidated financial statements.
33
Technical Communications Corporation and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
Years ended September 24, 2022 and September 25, 2021
2022
2021
Stockholders' Equity
Shares of common stock:
Beginning balance
1,854,403
1,850,403
Issuance of common stock
-
4,000
Ending balance
1,854,403
1,854,403
Common stock at par value:
Beginning balance
$
185,440 $
185,041
Issuance of common stock
-
399
Ending balance
185,440
185,440
Additional paid-in capital:
Beginning balance
4,312,969
4,244,965
Issuance of common stock
-
15,600
Stock-based compensation
51,718
52,404
Ending balance
$ 4,364,687 $ 4,312,969
Accumulated deficit:
Beginning balance
(4,153,967) (3,065,581)
Net loss
(2,331,139) (1,088,386)
Ending balance
$(6,485,106) $(4,153,967)
Total stockholders’ equity
$ (1,934,979) $
344,442
The accompanying notes are an integral part of these consolidated financial statements.
34
Notes to Consolidated Financial Statements
(1) Company Operations
Technical Communications Corporation (“TCC” or the “Company”) was incorporated in Massachusetts in 1961; its
wholly-owned subsidiary, TCC Investment Corp., was organized in that jurisdiction in 1982. Technical
Communications Corporation and TCC Investment Corp. are collectively referred to herein as the “Company”. The
Company’s business consists of only one industry segment, which is the design, development, manufacture,
distribution, marketing and sale of communications security devices, systems and services. The secure
communications solutions provided by TCC protect vital information transmitted over a wide range of data, video,
fax and voice networks. TCC’s products have been sold into over 115 countries and are in service with
governments, military agencies, telecommunications carriers, financial institutions and multinational corporations.
Liquidity and Ability to Continue as a Going Concern
For the years ended September 24, 2022, September 25, 2021 and September 26, 2020, the Company
generated net losses of $2,331,139, $1,088,386 and $910,650 and, although the Company generated $631,426 of net
income in the fiscal year ended September 28, 2019, the Company suffered recurring losses from operations during
the prior seven year period from fiscal 2012 to fiscal 2018. The Company has an accumulated deficit of $6,485,106
at September 24, 2022. These factors continue to raise substantial doubt about the Company's ability to continue as a
going concern. Such consolidated financial statements do not include any adjustments to reflect the substantial doubt
about the Company’s ability to continue as a going concern.
On August 4, 2022, the Company issued an amended and restated demand promissory note in the principal
amount of up to $4,000,000 in favor of Carl H. Guild, Jr. Mr. Guild, the Company’s Chief Executive Officer,
President and Chairman of the Board, loaned the money to the Company to provide working capital. The
$4,000,000 consists of $1,000,000 previously loaned to the Company at an interest rate of 6% and $2,000,000
previously loaned to the Company at an interest rate of 7.5% and an additional $1,000,000 at an interest rate of
7.5%. The additional funds will be available to the Company to borrow from Mr. Guild on a revolving basis and the
loan has no specified term year and may be prepaid at any time without premium or penalty. The outstanding
principal balance at September 24, 2022 was $3,000,000, plus accrued interest of $106,000. An interest payment of
$30,000 was made in January of 2022.
In December 2022 the Company implemented a partial furlough plan for the majority of salaried employees.
The plan reduces the workweek to 24 hours and salaries have been reduced commensurately. With this furlough
plan in place we anticipate that our principal sources of liquidity, including the recent line of credit, will be
sufficient to fund our activities through January 2023. In order to have sufficient cash to fund our operations beyond
that point, we will need to secure new customer contracts, raise additional equity or debt capital, and reduce
expenses, including payroll and payroll-related expenses through another employee furlough and/or separations.
In order to have sufficient capital resources to fund operations, the Company has been working diligently to
secure several large orders with new and existing customers. The receipt of these orders has been significantly
delayed and will continue to be difficult to predict due to the impact of the COVID-19 pandemic on our customers
as a result of their operations being reduced or shut down. TCC has been able to maintain its operations during this
sustained period of disruption, but a continuation of the disruption in either our customers’ operations or those of the
Company will continue to have a material adverse impact on sales activity and revenue.
Since the start of the pandemic, the Company has been able to secure capital in the form of debt financing
to assist with funding its operations. On April 17, 2020, the Company was granted a loan from bankHometown
under the U.S. Small Business Administration's, or SBA, Paycheck Protection Program, or PPP, in the principal
amount of $474,400. The loan, which was evidenced by a note dated April 17, 2020, was payable over 18 months at
an annual interest rate of 1% to the extent not forgiven. The Company used the entire original PPP loan amount for
qualifying expenses and the SBA forgave the loan in its entirety on January 11, 2021.
35
Notes to Consolidated Financial Statements (continued)
On February 1, 2021, the Company received a second loan from bankHometown under the PPP as
authorized under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, or the Economic
Aid Act. The loan, evidenced by a promissory note, was in the principal amount of $474,405. The Company used
the entire second PPP loan amount for qualifying expenses and the loan was forgiven on August 10, 2021 under the
provisions of the Economic Aid Act.
During fiscal year 2020, the Company was granted a loan from the SBA in the principal amount of
$150,000 pursuant to the Economic Injury Disaster Loan program. This loan is payable monthly over 30 years at an
annual interest rate of 3.75% commencing thirty months from the date of issuance.
The Company is working diligently to secure additional capital through equity or debt arrangements in
addition to the recent funding received from the SBA and Mr. Guild. The Company is actively working with equity
investors as well as debt investors, such as the SBA and Mr. Guild to secure additional funding, although we cannot
provide assurances we will be able to secure such new funding, especially in light of the tightening of the credit
markets and continuing volatility of the capital markets as a result of the coronavirus. Moreover, the Company’s
common stock was delisted from the Nasdaq Capital Market effective January 25, 2021; while the common stock is
quoted on the OTC Bulletin Board, the change in listing may have a negative impact on the liquidity of the stock
and the Company’s ability to raise capital through offerings of its equity securities.
Should the Company be unsuccessful in these efforts, it would be forced to implement headcount
reductions, additional employee furloughs and/or reduced hours for certain employees, or cease operations
completely.
(2) Summary of Significant Accounting Policies
The Company follows accounting standards set by the Financial Accounting Standards Board, commonly referred to
as the FASB. The FASB sets generally accepted accounting principles (“GAAP”) that the Company follows to
ensure it consistently reports its financial condition, results of operations, and cash flows. References to GAAP
issued by the FASB in these footnotes are to the FASB Accounting Standards CodificationTM, sometimes referred to
as the Codification or ASC.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of TCC and its wholly-owned
subsidiary, TCC Investment Corp., a Massachusetts corporation. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP in the United States requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting periods. Significant judgments and estimates include those related to
revenue recognition, receivable reserves, inventory reserves, impairment of long-lived assets, income taxes,
fair value and stock-based compensation. Actual results could differ from those estimates.
Cash, Cash Equivalents and Marketable Securities
The Company considers all highly liquid instruments with an original maturity of three months or less to be
cash equivalents. Cash and cash equivalents include demand deposits at banks and other investments
(including mutual funds) readily convertible into cash. The Company maintains its cash and cash equivalents
in bank deposit accounts and money market mutual funds that, at times, may exceed federally insured limits.
The Company has not experienced any losses in such accounts and believes it is not exposed to any
36
Notes to Consolidated Financial Statements (continued)
significant credit risk on its cash, cash equivalents or marketable securities. The Company accounts for
marketable securities in accordance with FASB ASC 320, Investments—Debt and Equity Securities.
Accounts Receivable
Accounts receivable are reduced by an allowance for amounts that management believes may become
uncollectible in the future. The estimated allowance for uncollectible amounts is based primarily on a specific
analysis of accounts in the receivable portfolio and historical write-off experience. When the financial
condition of the Company’s customers deteriorates, resulting in an impairment of their ability to make
payments, additional allowances are recorded. In addition, if the Company becomes aware of a customer’s
inability to meet its financial obligations to TCC, a specific write-off is recorded in that amount. There was
no allowance for doubtful accounts at September 24, 2022 or September 25, 2021.
Inventories
The Company values its inventory at the lower of actual cost (based on the first-in, first-out method) to
purchase and/or manufacture and net realizable value (based on estimated selling prices, less the cost to sell)
of the inventory. The Company periodically reviews inventory quantities on hand and records a provision for
excess and/or obsolete inventory based primarily on its estimated forecast of product demand, as well as
historical usage. The Company evaluates the carrying value of inventory on a quarterly basis to determine if
the carrying value is recoverable at estimated selling prices. To the extent that estimated selling prices are less
than the associated carrying values, inventory carrying values are written down. In addition, the Company
makes judgments as to future demand requirements and compares those with the current or committed
inventory levels. Reserves are established for inventory levels that exceed the Company’s judgment of future
demand. It is possible that additional reserves above those already established may be required in the future if
market conditions for the Company’s products should deteriorate.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization are computed using the straight-line method over the lesser of the estimated
useful life of the asset or the applicable lease term. When assets are retired or otherwise disposed of, the cost
and related accumulated depreciation and amortization are removed from the accounts, and any resulting gain
or loss is recognized in operations for the period. The costs of maintenance and repairs are charged to
operations as incurred; significant renewals and betterments are capitalized.
Long-lived Assets
The Company’s only long-lived assets are equipment and leasehold improvements. Long-lived assets are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. These events include a significant decrease in the market price of a long-
lived asset, a significant adverse change in the extent or manner in which a long-lived asset is being used or
in its physical condition, a significant adverse change in legal factors or in the business climate that could
affect the value of a long-lived asset, including an adverse action or assessment by a regulator, an
accumulation of costs significantly in excess of the amount originally expected for the acquisition or
construction of a long-lived asset, a current-period operating or cash flow loss combined with a history of
operating or cash flow losses, or a projection or forecast that demonstrates continuing losses associated with
the use of a long-lived asset, among other items. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to
be generated by such asset. If the carrying amount of the asset exceeds its estimated undiscounted future cash
flows, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value
of the asset. There were no events or changes in circumstances that required the Company to review long-
lived assets for impairment during fiscal years 2022 and 2021.
37
Notes to Consolidated Financial Statements (continued)
Revenue Recognition
The Company’s engineering services revenue is derived from performing funded research and development
and technology development for commercial companies and government agencies under both cost
reimbursement and fixed-price contracts. Cost reimbursement contracts provide for the reimbursement of
allowable costs and, in some situations, the payment of a fee. These contracts may contain incentive clauses
providing for increases or decreases in the fee depending on how actual costs compare with a budget. On
fixed-price contracts that are expected to exceed one year in duration, revenue is recognized pursuant to the
proportional performance method based upon the proportion of actual costs incurred to the total estimated
costs for the contract. The Company may receive periodic progress payments and it retains the rights to the
intellectual property developed in government contracts.
The Company recognizes equipment sales revenue when there is persuasive evidence of an arrangement, the
fee is fixed or determinable, delivery of the product and passage of title to the customer has occurred and the
Company has determined that collection of the fee is probable. Title to the product generally passes upon
shipment of the product, as the products are shipped freight on board shipping point, except for certain
foreign shipments for which title passes upon entry of the product into the first port in the buyer’s country. If
the product requires installation to be performed by TCC or other acceptance criteria exist, all revenue related
to the product is deferred and recognized upon completion of the installation or satisfaction of the customer
acceptance criteria. The Company provides for a warranty reserve at the time the product revenue is
recognized.
All payments to the Company for work performed on contracts with agencies of the U.S. government are
subject to audit and adjustment by the Defense Contract Audit Agency, the U.S. Government Accountability
Office and other agencies. Adjustments are recognized in the period made. There have been no audits in
recent years and the Company believes the result of such audits, should they occur, would not have a material
adverse effect on its financial position or results of operations
Costs incurred in connection with funded research and development are included in cost of revenue. Product
development costs are charged to billable engineering services, bid and proposal efforts or business
development activities, as appropriate. Product development costs charged to billable projects are recorded as
cost of revenue; engineering costs charged to bid and proposal efforts are recorded as selling expenses; and
product development costs charged to business development activities are recorded as marketing expenses.
Product development costs consist primarily of costs associated with personnel, outside contractor and
engineering services, supplies and materials. Cost of product revenue includes material, labor and overhead.
Income Taxes
The Company accounts for income taxes using the asset/liability method. Under the asset/liability method,
deferred income taxes are recognized at current income tax rates to reflect the tax effect of temporary
differences between the consolidated financial reporting basis and tax basis of assets and liabilities. The
Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated
realizable value.
The Company follows the appropriate guidance relative to uncertain tax positions. This standard provides
detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax
positions recognized in the financial statements. Uncertain tax positions must meet a recognition threshold of
more-likely-than-not in order for those tax positions to be recognized in the financial statements. There were
no uncertain tax positions as of September 24, 2022 and September 25, 2021.
38
Notes to Consolidated Financial Statements (continued)
Warranty Costs
The Company provides for estimated warranty costs at the time product revenue is recognized based upon
historical experience.
Fair Value of Financial Measurements
The Company’s available for sale securities consist of money market mutual funds held in a brokerage
account, which are classified as cash equivalents and measured at fair value.
As of September 24, 2022 and September 25, 2021, the Company did not hold any assets classified as Level
1, Level 2 or Level 3. There were no assets or liabilities measured at fair value on a nonrecurring basis at
September 24, 2022 and September 25, 2021.
Earnings (Loss) per Share (EPS)
The Company presents both a “basic” and a “diluted” EPS. Basic EPS is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding during the period. In
computing diluted EPS, stock options that are dilutive (i.e., those that reduce earnings per share) are included
in the calculation of EPS using the treasury stock method. The exercise of outstanding stock options is not
included if the result would be antidilutive, such as when a net loss is reported for the period or the option
exercise price is greater than the average market price for the period presented.
Research and Development
Research and development costs are included in product development expenses in the consolidated
statements of operations. Expenditures for Company-sponsored research and development projects are
expensed as incurred and were $816,633 and $732,020 in fiscal 2022 and 2021, respectively. Customer-
sponsored research and development projects performed under contracts are accounted for as contract costs as
the work is performed and included in cost of revenue; such amounts were $636,318 and $711,335 in fiscal
years 2022 and 2021, respectively.
Fiscal Year-End Policy
The Company’s by-laws call for its fiscal year to end on the Saturday closest to the last day of September,
unless otherwise decided by its Board of Directors. The 2022 fiscal year ended on September 24, 2022 and
included 52 weeks. The 2021 fiscal year ended on September 25, 2021 and included 52 weeks.
Reclassification
Certain reclassifications have been made to the consolidated financial statements for fiscal 2021 to conform
with the fiscal year 2022 presentation.
SBA Payroll Protection Program Loan
During fiscal year 2020, the Company adopted IAS 20 - Accounting for Government Grants and Disclosure
of Government Assistance (“IAS 20”) to account for the receipt of the loan under the SBA’s Payroll
Protection Program. IAS 20 requires the loan to be recognized as deferred income. Derecognition of the
liability for any portion of the loan that is forgivable or has been forgiven will occur only when there is a
reasonable assurance any conditions attached to the assistance will be met. The income statement effect for
the portion of the loan that is forgivable or has been forgiven will consist of either (1) a credit in the income
statement, either separately or under a general heading such as “other income,” or (2) a reduction of the
related expenses, as the entity recognizes the related cost to which the loan relates. The Company has
elected to treat the forgiven part of the loan as other income. As the Company used 100% (minimum
39
Notes to Consolidated Financial Statements (continued)
requirement is 75%) of the loan proceeds to cover its payroll expenses during the “Alternate Covered
Period”, the full amount of the loans were forgiven.
New Accounting Pronouncements
Recent accounting pronouncements were issued by the FASB (including its Emerging Issues Task Force) and
the SEC during the Company’s 2022 fiscal year but such pronouncements are not believed by management to
have a material impact on the Company’s present or future financial statements.
(3)
Revenue
The following table presents the Company’s revenues disaggregated by revenue type for the years ended September
24, 2022 and September 25, 2021.
Revenue type:
September 24, 2022
September 25, 2021
Engineering services
$
995,833 $
1,106,709
Equipment sales
308,102
759,670
Total sales
$
1,303,935 $
1,866,379
Engineering services revenue consists of funded research and development and technology development for
commercial companies and government agencies primarily under fixed-price contracts. The Company also derives
revenue from developing and designing custom cryptographic solutions for customers’ unique secure voice, data and
video communications requirements and integrating such solutions into existing systems. These contracts can vary
but typically call for fixed monthly payments or payments due upon meeting certain milestones. Customers are
billed monthly or upon achieving the milestone, and payments are due on a net basis after the billing date.
Equipment sales revenue consists of sales of communications security equipment for voice, data, facsimile and
video networks for military, government and corporate/industrial applications. Equipment sales are billed to the
customer upon shipment with typical payment terms requiring a down payment at the time of order with the balance
due prior to shipment. For government and certain long term customers, the Company may grant net payment terms.
(4)
Net Loss Per Share
Outstanding potentially dilutive stock options, which were not included in the net loss per share amounts as their
effect would have been anti-dilutive, were 164,900 and 143,900 shares in fiscal years 2022 and 2021, respectively.
(5)
Stock Based Compensation
Stock-based compensation expense is measured at the grant date based on the calculated fair value of the award. The
expense is recognized over the employee’s requisite service period, generally the vesting period of the award. The
related excess tax benefit received upon the exercise of stock options, if any, is reflected in the Company’s statement
of cash flows as an operating activity. There were no excess tax benefits for the fiscal years ended September 24,
2022 and September 25, 2021.
The Company uses the Black-Scholes option pricing model as the method for determining the estimated fair value of
its stock option awards. The Black-Scholes method of valuation requires several assumptions: (1) the expected term
of the stock award, (2) the expected future stock price volatility over the expected term, (3) a risk-free interest rate
and (4) the expected dividend rate. The expected term represents the expected period of time the Company believes
the options will be outstanding based on historical information. Estimates of expected future stock price volatility
are
40
Notes to Consolidated Financial Statements (continued)
based on the historic volatility of the Company’s common stock and the risk free interest rate is based on the U.S.
Treasury Note rate. The Company utilizes a forfeiture rate based on an analysis of its actual experience. The
forfeiture rate is not material to the calculation of stock-based compensation.
The fair value of options at date of grant was estimated with the following assumptions:
September 24, 2022 September 25, 2021
Assumptions:
Option life (years)
6.5
6.5
Risk-free interest rate
2.0 %
0.7 %
Stock volatility
117 %
113 %
Dividend yield
0 %
0 %
There were 28,000 options granted during the fiscal year ended September 24, 2022 and no options were granted
during the fiscal year ended September 25, 2021. The weighted average grant date fair value of options granted
during the year September 24, 2022 was $1.54. The following table summarizes stock-based compensation costs
included in the Company’s consolidated statements of operations for the years ended September 24, 2022 and
September 25, 2021:
2022
2021
Selling, general and administrative
$
43,776 $
43,292
Product development
7,942
9,112
Total stock-based compensation expense before taxes
$
51,718 $
52,404
As of September 24, 2022, there was $89,090 of unrecognized compensation expense related to options outstanding.
The unrecognized compensation expense will be recognized over the remaining requisite service period. As of
September 24, 2022, the weighted average period over which the compensation expense is expected to be
recognized 2.9 years.
On May 6, 2021 the Company adopted the 2021 Equity Incentive Plan (the “Plan”). The Plan authorizes the
issuance of up to 300,000 shares. The Plan has not been approved by shareholders and allows for non-qualified
stock option grants, stock appreciation rights (SARS), restricted stock and stock units and other stock and stock
based awards. There were 28,000 options granted under this Plan during the year ended September 24, 2022.
Vesting periods are at the discretion of the Board of Directors and typically range between zero and five years.
Options under the Plan are granted with an exercise price equal to fair value at time of grant and have a term of ten
years from the date of grant.
The Technical Communications Corporation 2005 Non-Statutory Stock Option Plan and 2010 Equity Incentive Plan
are expired as of September 24, 2022 and options are no longer available for grant thereunder, although vested,
unexercised options under such plans remain outstanding. There were an aggregate of 600,000 shares authorized for
issuance under these plans, of which options to purchase 136,900 shares were outstanding at September 24, 2022.
Vesting periods are at the discretion of the Board of Directors and typically range between zero and five years.
Options under these plans are granted with an exercise price equal to fair value at time of grant and have a term of
ten years from the date of grant.
41
Notes to Consolidated Financial Statements (continued)
The following tables summarize stock option activity during fiscal years 2021 and 2022:
Options Outstanding
Number of Shares
Weighted Average
Weighted Average
Contractual Life
Unvested
Vested
Total Exercise Price
(years)
Outstanding, September 26, 2020
71,600
86,300 157,900 $
4.54
6.54
Grants
-
-
-
-
Vested
(21,900)
21,900
-
3.32
Exercises
-
-
-
-
Cancellations/forfeitures
(1,200)
(12,800 )
(14,000)
8.92
Outstanding, September 25, 2021
48,500
95,400 143,900 $
4.11
5.97
Grants
28,000
-
28,000
1.75
Vested
(19,800)
19,800
-
3.37
Exercises
-
-
-
-
Cancellations/forfeitures
-
(7,000 )
(7,000)
10.20
Outstanding, September 24, 2022
56,700
108,200 164,900 $
3.45
5.98
Information related to the stock options vested or expected to vest as of September 24, 2022 is as follows:
Range of
Exercise Prices
Number of
Shares
Weighted-
Average
Remaining
Contractual
Life (years)
Weighted-
Average
Exercise Price
Exercisable
Number of
Shares
Exercisable
Weighted-
Average
Exercise Price
$1.01 - $2.00
48,000
8.57 $
1.80
12,000 $
1.87
$2.01 - $3.00
34,300
5.42
2.61
25,900
2.65
$3.01 - $4.00
43,500
6.59
3.60
33,300
3.60
$4.01 - $5.00
16,600
1.75
4.34
16,600
4.33
$5.01 - $10.00
22,500
3.27
7.36
20,400
7.37
164,900
5.98 $
3.45
108,200 $
4.00
The aggregate intrinsic value of the Company’s “in-the-money” outstanding and exercisable options was $0 as of
September 24, 2022 and $14,226 as of September 25, 2021. There were no stock options exercised during the years
ended September 24, 2022 and September 25, 2021. Nonvested common stock options are subject to the risk of
forfeiture until the fulfillment of specified conditions.
(6)
Inventories
Inventories consist of the following:
September 24, 2022 September 25, 2021
Finished goods
$
- $
57,006
Work in process
489,854
487,276
Raw materials and supplies
476,331
613,100
Total inventories
$
966,185 $
1,157,382
42
Notes to Consolidated Financial Statements (continued)
(7)
Equipment and Leasehold Improvements
Equipment and leasehold improvements consist of the following:
September 24,
2022
September 25,
2021
Estimated
Useful Life (years)
Engineering and manufacturing equipment
$
2,162,241 $
2,149,280
3
-
8
Demonstration equipment
834,137
834,137
3
Furniture and fixtures
1,015,816
1,015,816
3
-
8
Automobile
49,441
49,441
5
Leasehold improvements
494,509
494,509
Lesser of useful life
or term of lease
Total equipment and leasehold improvements
4,556,144
4,543,183
Less accumulated depreciation and amortization
(4,544,778) (4,538,782)
Equipment and leasehold improvements, net
$
11,366 $
4,401
Depreciation expense was $5,996 and $14,328 for the fiscal years ended September 24, 2022 and September 25,
2021, respectively.
(8)
Leases
The Company leases space from a third party for all manufacturing, research and development, and corporate
operations. The initial term of the lease was for five years through March 31, 2019 at an annual rate of $171,000. In
addition, the lease contains options to extend the lease for two and one-half years through September 30, 2021 and
another two and one-half years through March 31, 2024 at an annual rate of $171,000. In September 2018, the
Company exercised its option to extend the term of the lease through September 2021. The Company exercised the
option on March 31, 2021, and the new term will run until March 30, 2024. As such, the Company uses the extended
lease term in its calculation of the lease liability and right-of-use asset. The Company classifies this lease as an
operating lease with the costs recognized as a selling, general and administrative expense in its consolidated
statements of operations. The lease expense for each of the years ended September 24, 2022 and September 25,
2021 was approximately $171,000.
The table below presents the maturity of the Company’s operating lease liability as of September 24, 2022:
2023
170,603
2024
85,301
Total lease payments
255,904
Less: Imputed interest
(7,442)
Total lease liability
$ 248,462
(9)
Debt
On April 17, 2020, the Company was granted an initial PPP loan from bankHometown in the principal amount of
$474,400 under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The loan, which was
evidenced by a Note dated April 17, 2020, was payable over 18 months at an annual interest rate of 1% to the extent
not forgiven. The Company used the entire loan amount for qualifying expenses and the loan was forgiven in its
entirety on January 11, 2021. The AICPA and the SEC Office of the Chief Accountant have indicated that a
borrower may elect to account for a PPP loan as a government grant in substance by applying the guidance in IAS
20, Accounting for Government Grants and Disclosure of Government Assistance by analogy if it is probable that it
will meet both (a) the eligibility criteria for a PPP loan, and (b) the loan forgiveness criteria for all or substantially
all of the PPP loan. The Company has elected to adopt this method of accounting for this PPP loan under IAS 20,
and has recognized the loan forgiveness as grant income for the full amount of the loan.
43
Notes to Consolidated Financial Statements (continued)
On August 10, 2020, the Company also was granted a loan (the “SBA Loan”) from the SBA in the principal amount
of $150,000 pursuant to the Economic Injury Disaster Loan program. The SBA Loan, which is evidenced by a
Promissory Note dated August 10, 2020, is payable in monthly installments of $731, including principal and
interest, over 30 years at an interest rate of 3.75% per year. The SBA Loan may be prepaid by the Company at any
time prior to maturity with no prepayment penalties. The proceeds from this loan must be used solely as working
capital to alleviate economic injury caused by the Covid-19 pandemic. Although originally repayable commencing
one year after grant, on March 15, 2022 the SBA announced that payments on the SBA Loan would be deferred an
additional six months. Payments on the loan will now commence on February 10, 2023.
As part of the SBA Loan, the Company granted the SBA a continuing security interest in and to any and all
“Collateral” to secure payment and performance of all debts, liabilities and obligations of the Company to the SBA
under the SBA Loan. The Collateral includes all tangible and intangible personal property that the Company owns
or acquires or creates immediately upon the acquisition or creation thereof, including, but not limited to: (a)
inventory, (b) equipment, (c) instruments, including promissory notes, (d) chattel paper, including tangible chattel
paper and electronic chattel paper, (e) documents, (f) letter of credit rights, (g) accounts, including health-care
insurance receivables and credit card receivables, (h) deposit accounts, (i) commercial tort claims, (j) general
intangibles, including payment intangibles and software, and (k) as-extracted collateral, in each case as such terms
may from time to time be defined in the Uniform Commercial Code.
The aggregate amounts of principal maturities of long-term debt for the following fiscal years are:
2023
$ 1,996
2024
3,089
2025
3,207
2026
3,329
2027
3,739
Thereafter
134,640
$ 150,000
On February 1, 2021, the Company received a second PPP loan from bankHometown as authorized under the
Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act”). The loan,
which was evidenced by a promissory note, is in the principal amount of $474,405 was payable over 60 months at
an annual interest rate of 1% to the extent not forgiven. The Company used the entire loan amount for qualifying
expenses and the loan was forgiven in its entirety on August 30, 2021 under the provisions of the Economic Aid Act.
On August 4, 2022, the Company issued an amended and restated demand promissory note in the principal amount
of up to $4,000,000 in favor of Carl H. Guild, Jr. Mr. Guild, the Company’s Chief Executive Officer, President and
Chairman of the Board, loaned the money to the Company to provide working capital. The $4,000,000 consists of
$1,000,000 previously loaned to the Company at an interest rate of 6% and $2,000,000 previously loaned to the
Company at an interest rate of 7.5% and an additional $1,000,000 at an interest rate of 7.5%. The additional funds
will be available to the Company to borrow from Mr. Guild on a revolving basis and the loan has no specified term
year and may be prepaid at any time without premium or penalty. The outstanding principal balance at September
24, 2022 was $3,000,000, plus accrued interest of $106,000. An interest payment of approximately $30,000 was
made in January of 2022.
(10) Warranty
The Company's products generally carry a standard 15 month warranty. The Company records a reserve based on
anticipated warranty claims at the time product revenue is recognized. Factors that affect the Company's product
warranty liability include the number of installed units, the anticipated cost of warranty repairs and historical and
anticipated rates of warranty claims. The warranty reserve is included in other current liabilities on the balance
sheet.
44
Notes to Consolidated Financial Statements (continued)
The following table reflects changes in the Company's accrued warranty account:
September 24, 2022 September 25, 2021
Beginning balance
$
13,764 $
28,211
Plus: accruals related to new sales
1,174
2,290
Less: payments and adjustments to prior period accruals
(13,519)
(16,737)
Ending balance
$
1,419 $
13,764
(11) Income Taxes
The income tax expense (benefit) is different from what would be obtained by applying the statutory federal income
tax rate to income (loss) before income taxes due to the following:
September 24, 2022
September 25, 2021
Amount
Percent
Amount
Percent
Tax expense (benefit) at U.S. statutory
rate
$
(489,072)
(21.0 %)
$
(228,561)
(21.0%)
State income tax provision, net of federal
benefit
(125,112)
(5.4 %)
(104,451)
(9.6%)
Federal research credits
-
-
-
-
Change in state income tax rate
(32,518)
(1.4 %)
(160,738)
(14.8%)
Other
13,241
0.6 %
(105,280)
(9.6%)
Valuation allowance
633,461
27.2 %
599,030
55.0%
Total income tax expense (benefit)
$
-
-
$
-
-
Deferred income taxes consist of the following:
September 24, 2022 September 25, 2021
Inventory differences
$
1,054,281 $
1,046,749
Net operating losses
3,407,197
2,789,142
Stock based compensation
138,736
133,173
Tax credits
539,421
516,542
Other
49,617
70,168
Total
5,189,252
4,555,791
Less: valuation allowance
(5,189,252)
(4,555,791)
Total
$
- $
-
During fiscal year 2014, the Company established a valuation allowance against deferred tax assets. The valuation
allowance is related to uncertainty with respect to the Company’s ability to realize its deferred tax assets. Deferred
tax assets consist of net operating loss carryforwards, tax credits, inventory differences and other temporary
differences. During fiscal years 2022 and 2021, the change in the valuation allowance was $633,461 and $599,030,
respectively and related primarily to changes in net operating losses.
Due to the nature of the Company’s current operations in foreign countries (selling products into these countries
with the assistance of local representatives), the Company has not been subject to any foreign taxes in recent years.
Also, it is not anticipated that the Company will be subject to foreign taxes in the near future.
The Company files income tax returns in the U.S. federal jurisdiction and in the states of Massachusetts and New
Hampshire. For U.S. federal and state purposes, the tax years 2018 through 2021 remain open to examination. In
45
Notes to Consolidated Financial Statements (continued)
addition, the amount of the Company’s federal and state net operating loss carryforwards utilized in prior periods
may be subject to examination and adjustment. The Company has federal research credits of $365,897 available
through fiscal year 2040 and net operating loss carryforwards of $5,859,642 available through fiscal year 2039 and
the net operating loss carryforwards generated in fiscal years 2022 through 2019 of $7,276,985 will carryforward
indefinitely. In addition, the Company has Massachusetts research credits of $189,318 available through fiscal year
2036 and net operating loss carryforwards of $11,633,242 available through fiscal year 2041.
Under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) the Company is entitled to
Employee Retention Credits for parts of its fiscal 2020 and 2021 years. The Company has filed amended
Employer’s Quarterly Federal Tax returns to apply for these credits. As a result the Company is due $515,966 in
credits and expects to receive refunds from the IRS in fiscal 2023.
(12) Employee Benefit Plans
The Company has a qualified, contributory, profit sharing plan covering substantially all employees. The
Company’s policy is to fund contributions as they are accrued. The contributions are allocated based on the
employee’s proportionate share of total compensation. The Company’s contributions to the plan are determined by
the Board of Directors and are subject to other specified limitations. There were no Company profit sharing
contributions during fiscal years 2022 or 2021. The Company's matching contributions were $73,824 and $56,435 in
fiscal years 2022 and 2021, respectively.
The Company has an Executive Incentive Bonus Plan for the benefit of key management employees. The bonus
pool is determined based on the Company’s performance as defined by the plan. Under the plan, there were no
bonuses earned, accrued or paid to eligible employees at September 24, 2022 or September 25, 2021.
(13) Major Customers and Export Revenue
In fiscal year 2022, the Company had two customers representing 91% (76% and 15%) of total net revenue and at
September 24, 2022 had one customer representing 100% of accounts receivable. In fiscal year 2021, the Company
had two customers representing 74% (59% and 15%) of total net revenue and at September 25, 2021 had one
customer representing 97% of accounts receivable.
A breakdown of net revenue is as follows:
September 24, 2022 September 25, 2021
Domestic
$
995,833 $
1,629,824
Foreign
308,102
236,555
Total Revenue
$
1,303,935 $
1,866,379
A summary of foreign sales, as a percentage of total foreign revenue, by geographic area, is as follows:
September 24, 2022
September 25, 2021
Far East
62.3 %
5.0%
Mid-East and Africa
37.7 %
95.0%
The Company sold products to customers located in three countries during the year ended September 24, 2022 and
to customers located in four countries during the year ended September 25, 2021. A sale is attributed to a foreign
country based on the location of the contracting party. Domestic revenue may include the sale of products shipped
through domestic resellers or manufacturers to international destinations. The table below summarizes the
Company’s foreign revenues by country as a percentage of total foreign revenue.
46
Notes to Consolidated Financial Statements (continued)
September 24, 2022
September 25, 2021
Philippines
62.3 %
5.0 %
Saudi Arabia
25.9 %
8.0 %
Morocco
11.8 %
62.5 %
Egypt
-
24.5 %
(14) Related Party Transactions
On August 4, 2022, the Company issued an amended and restated demand promissory note in the principal amount
of up to $4,000,000 in favor of Carl H. Guild, Jr. Mr. Guild, the Company’s Chief Executive Officer, President and
Chairman of the Board, loaned the money to the Company to provide working capital. The $4,000,000 consists of
$1,000,000 previously loaned to the Company at an interest rate of 6% and $2,000,000 previously loaned to the
Company at an interest rate of 7.5% and an additional $1,000,000 at an interest rate of 7.5%. The additional funds
will be available to the Company to borrow from Mr. Guild on a revolving basis and the loan has no specified term
year and may be prepaid at any time without premium or penalty. The outstanding principal balance at September
24, 2022 was $3,000,000, plus accrued interest of $106,000. An interest payment of $30,000 was made in January of
2022.
On July 15, 2021 there was a sale by the Company of 4,000 unregistered shares of the Company’s common stock at
$4.00 per share to a member of the Board of Directors.
(15) Shareholder Rights Plan
On August 7, 2014, the Board of Directors of the Company adopted a Stockholder Rights Plan to replace the
Company's former plan, which had expired on August 5, 2014. The new plan is substantially similar to the former
plan, and was not adopted in response to any specific takeover threat. In adopting the plan, the Board declared a
dividend distribution of one common stock purchase right for each outstanding share of common stock of the
Company, payable to stockholders of record at the close of business on August 18, 2014. Until the rights become
exercisable, which occurs with certain exceptions when a person or affiliated group acquires 15% or more of TCC's
common stock, they will trade automatically with the common stock and separate rights certificates will not be
issued. Each right, once exercisable, will entitle the holder (other than rights owned by the acquiring person or
group) to buy one share of the common stock at a price of $25 per share, subject to certain adjustments. The rights
can generally be redeemed by the Company at $.001 per right at any time prior to the close of business on the tenth
business day after there has been a public announcement of the acquisition of beneficial ownership by any person or
group of 15% or more of the Company’s outstanding common stock, subject to certain exceptions. The rights will
expire on August 6, 2024 unless earlier redeemed.
(16) Impact of COVID-19 Coronavirus
As a result of the economic slowdown due to the COVID-19 pandemic, there has been a noticeable delay in the
receipt of customer orders. While we remain in contact with our customers and their requirements have not
changed, the operations of certain of our customers have been slowed or shut down entirely. Our suppliers thus far
have been able to timely deliver components and parts necessary for the manufacture and production of the
Company’s products to fulfill orders, although we cannot be sure this trend will continue. While the Company was
able to reopen its facility in June 2020 after a brief government-mandated shutdown, we believe it is possible that
new restrictions may be imposed in the near future. In December 2020 the Company implemented a partial furlough
plan for the majority of salaried employees and all employees returned to work on a full time basis following the
Company’s receipt of the proceeds of its second PPP loan. In December of 2022 the Company implemented a new
partial furlough plan for the majority of salaried employees. With this furlough plan in place we anticipate that our
principal sources of liquidity will be sufficient to fund activities to January 2023. It is uncertain how long our
customers’ operations will be impacted, and those of our suppliers and our ability to respond to customer
requirements and supplier issues will become more challenging during a period of sustained disruption. Any period
of sustained disruption would have a material adverse effect on the Company’s financial condition and results of
operations.
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and
Stockholders of Technical Communications Corporation:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Technical Communications Corporation and Subsidiary
(the Company) as of September 24, 2022 and September 25, 2021, and the related consolidated statements of operations,
cash flows and changes in stockholders’ equity for the year then ended, and the related notes (collectively referred to as
the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of September 24, 2022 and September 25, 2021, and the results of its operations and its cash
flows for the years ended September 24, 2022 and September 25, 2021, in conformity with accounting principles generally
accepted in the United States of America.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a
going concern. As discussed in Note 1 to the consolidated financial statements, the Company has an accumulated deficit,
has suffered significant net losses and negative cash flows from operations and has limited working capital that raises
substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also
described in Note 1. The consolidated financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control
over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period of the financial statements that were communicated or
required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective or complex judgments. We have determined
that there are no critical audit matters to report.
/s/ Stowe & Degon LLC
Westborough, Massachusetts
December 22, 2022
We have served as the Company’s auditors since 2019.
CORPORATE INFORMATION
AS OF DECEMBER 2022
OFFICERS
Carl H. Guild, Jr.
Chairman, President
and Chief Executive Officer
Michael P. Malone
Chief Financial Officer
and Treasurer
Thomas J. Conte
Secretary
Partner, Mirick, O'Connell, DeMallie & Lougee, LLP
DIRECTORS
Carl H. Guild, Jr.
Chairman, President
and Chief Executive Officer, TCC
Ralph M. Norwood
Consultant
Francisco F. Blanco
President and CEO of The Pola Group, LLC
Thomas E. Peoples
Consultant
INDEPENDENT REGISTEED PUBLIC ACCOUNTANTS
Stowe & Degon, LLC
Westborough, Massachusetts
GENERAL COUNSEL
Mirick, O'Connell, DeMallie & Lougee, LLP
Worcester, Massachusetts
ANNUAL STOCKHOLDERS MEETING
This year’s annual meeting will be held Monday, February 13, 2023
at 10:00 a.m. at TCC’s facilities in Concord, Massachusetts. The
shareholder record date is December 16, 2022.
STOCK EXCHANGE LISTING
The common stock is traded on the NASDAQ Capital Market,
NASDAQ Symbol: TCCO.
10-K REPORT
A copy of the Company’s Annual Report on Form 10-K for 2022,
filed with the Securities and Exchange Commission, may be
obtained upon written request to the Company.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
59 Maiden Lane
New York, New York 10038
INVESTOR RELATIONS
Technical Communications Corporation
100 Domino Drive
Concord, MA 01742
(978) 287-5100
The discussion in this Annual Report and Form 10-K may contain statements that are not purely historical. Such statements contained
herein or as may otherwise be incorporated by reference herein constitute “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include but are not limited to statements regarding anticipated operating results, future
earnings, and the ability to achieve growth and profitability. Such forward-looking statements involve known and unknown risks, uncertainties and
other factors, including but not limited to the impact of the COVID-19 pandemic (including its duration and severity) and governmental actions in
response thereto; the effect of foreign political unrest; domestic and foreign government policies and economic conditions; future changes in export
laws or regulations; changes in technology; 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 secure adequate capital resources. Such risks, uncertainties and other factors could cause the actual
results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. For a more detailed discussion of the risks facing the Company, see the
Company’s filings with the SEC, including this Form 10-K for the fiscal year ended September 24, 2022 and the “Risk Factors” section included
herein.