Significant Accounting Policies (Policies)

9 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

The discussion and analysis of our financial condition and results of operations are based on our unaudited consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these unaudited consolidated financial statements requires management to make estimates and judgments 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 revenues and expenses during the reporting periods.

On an ongoing basis, management evaluates its estimates and judgments, including but

not

limited to those related to marketable securities, receivable reserves, inventory reserves, fair value of financial instruments, impairment of long-lived assets, revenue recognition, stock-based compensation and income taxes. 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 values 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.

The accounting policies that management believes are most critical to aid in fully understanding and evaluating our reported financial results include the following:

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

Product revenue is recognized 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 we have 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. We provide for a warranty reserve at the time the product revenue is recognized.

We perform 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. Revenue from cost reimbursement contracts is recognized as services are performed. 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 date to the total estimated costs for the contract. In each type of contract, we receive periodic progress payments or payments upon reaching interim milestones, and we retain the rights to the intellectual property developed in government contracts. All payments to TCC 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

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. When current estimates of total contract revenue and contract costs for a product development contract indicate a loss, a provision for the entire loss on the contract is recorded. Any losses incurred in performing funded research and development projects are recognized as funded research and development expenses.

Cost of product revenue includes material, labor and overhead. Costs incurred in connection with funded research and development are included in cost of sales.

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 sales; 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.

Inventory, Policy [Policy Text Block]

Inventories

We value our inventory at the lower of cost (based on the

first

-in,

first

-out method) to purchase and/or manufacture and net realizable value (based on the estimated selling prices, less reasonably predictable costs of completion, disposal, and transportation) of the inventory. We periodically review inventory quantities on hand and record a provision for excess and/or obsolete inventory based primarily on our estimated forecast of product demand, as well as historical usage. The Company evaluates the carrying value of inventory on a quarterly basis to determine whether the carrying value is in excess of net realizable value. To the extent that net realizable value is 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 expected future demand. It is possible that additional reserves above those already established

may

be required in the future if market conditions for our products should deteriorate.

Receivables, Policy [Policy Text Block]

Accounts Receivable

Accounts receivable are reduced by an allowance for amounts that

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. While management believes

no

allowance is currently needed, if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances

may

be required, which would reduce our net income.

In addition, if the Company becomes aware of a customer’s inability to meet its financial obligations, a specific write-off is recorded in that amount.

Income Tax, Policy [Policy Text Block]

Accounting for Income Taxes

The preparation of our unaudited consolidated financial statements requires us to estimate our income taxes in each of the jurisdictions in which we operate, including those outside the United States, which

may

subject the Company to certain risks that ordinarily would

not

be expected in the United States. The income tax accounting process involves estimating our actual current exposure together with assessing temporary differences resulting from differing treatments of items, such as inventory obsolescence and stock-based compensation, for tax and accounting purposes. These differences result in the recognition of deferred tax assets and liabilities. We must then record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than

not

to be realized.

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against deferred tax assets. At

June 30, 2018

and

September 30, 2017,

we recorded a full valuation allowance against our net deferred tax assets of approximately

$3.7

million and

$4.7

million, respectively due to uncertainties related to our ability to realize these assets. The valuation allowance is based on our estimates of taxable income by jurisdiction and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we

may

need to adjust our valuation allowance, which could materially impact our financial position and results of operations.

The Company follows appropriate guidance for the 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.

Due to the nature of our 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, and it is

not

anticipated that we will be subject to foreign taxes in the near future.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value Measurements

In determining fair value measurements, the Company follows the established framework for measuring fair value under GAAP and enhances disclosures about fair value measurements. The topic provides a consistent definition of fair value that focuses on an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The topic also prioritizes, within the measurement of fair value, the use of market-based information over entity-specific information and establishes a

three

-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date. At

June 30, 2018

and

September 30, 2017,

the carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, marketable securities and accounts payable approximate fair value because of their short-term nature.

The

three

-level hierarchy is as follows:

Level 1	-	Pricing inputs are quoted prices available in active markets for identical assets or liabilities as of the measurement date.
Level 2	-	Pricing inputs are quoted prices for similar assets or liabilities, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data.
Level 3	-	Pricing inputs are unobservable for the assets or liabilities, that is, inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

In certain cases, the inputs used to measure fair value

may

fall into different levels of the fair value hierarchy. In such cases, an asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

The Company’s held to maturity securities are comprised of investments in municipal bonds. These securities represent ownership in individual bonds issued by municipalities within the United States. The value of these securities is disclosed in Note

6.

The Company’s available for sale securities consist of mutual funds held in money market mutual funds in a brokerage account, which are classified as cash equivalents and measured at fair value.

The Company assesses the levels of the investments at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Company’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. During the

nine

month period ended

June 30, 2018

and the year ended

September 30, 2017,

there were

no

transfers between levels.

The following table sets forth by level, within the fair value hierarchy, the assets measured at fair value on a recurring basis as of

June 30, 2018

and

September 30, 2017,

in accordance with the fair value hierarchy as defined above. As of

June 30, 2018

and

September 30, 2017,

the Company did

not

hold any assets classified as Level

2

or Level

3.

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)
June 30, 2018
Mutual funds:
Money market funds	$	1,015,102	$	1,015,102
Total mutual funds		1,015,102		1,015,102
Total assets	$	1,015,102	$	1,015,102
September 30, 2017
Mutual funds:
Money market funds	$	851,195	$	851,195
Total mutual funds		851,195		851,195
Total assets	$	851,195	$	851,195

There were

no

assets or liabilities measured at fair value on a nonrecurring basis at

June 30, 2018

or

September 30, 2017.

Compensation Related Costs, Policy [Policy Text Block]

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the calculated fair value of the award. The expense is recognized over the participant’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 a financing activity. There were

no

excess tax benefits recorded during either of the

nine

month periods ended

June 30, 2018

and

July 1, 2017.

The Company uses the Black-Scholes option pricing model as the method for determining the estimated fair value of its stock 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 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 share-based compensation. There were

14,000

options granted during each of the

nine

month periods ended

June 30, 2018

and

July 1, 2017.

The following table summarizes stock-based compensation costs included in the Company’s consolidated statements of operations for the

three

and

nine

month periods ended

June 30, 2018

and

July 1, 2017:

	June 30, 2018				July 1, 2017
	3 months		9 months		3 months		9 months
Selling, general and administrative expenses	$	7,596	$	17,352	$	3,896	$	9,998
Product development expenses		356		1,064		272		811
Total share-based compensation expense before taxes	$	7,952	$	18,416	$	4,168	$	10,809

As of

June 30, 2018

and

July 1, 2017,

there was

$111,591

and

$58,468,

respectively, of unrecognized compensation expense related to options outstanding. The unrecognized compensation expense will be recognized over the remaining requisite service period. As of

June 30, 2018

and

July 1, 2017,

the weighted average period over which the compensation expense is expected to be recognized is

4.05

and

4.06

years, respectively.

The Technical Communications Corporation

2005

Non-Statutory Stock Option Plan and

2010

Equity Incentive Plan were outstanding at

June 30, 2018.

There are an aggregate of

600,000

shares authorized for issuance under these plans, of which options to purchase

228,837

shares were outstanding at

June 30, 2018.

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 market value at time of grant and have a term of

ten

years from the date of grant.

As of

June 30, 2018,

there were

230,563

shares available for grant under the

2010

Equity Incentive Plan. The

2005

Non-Statutory Stock Option Plan has expired and options are

no

longer available for grant under such plan.

The following table summarizes stock option activity during the

first

nine

months of fiscal

2018:

	Options Outstanding
	Number of Shares									Weighted Average		Weighted Average
	Unvested			Vested			Total			Exercise Price		Contractual Life
Outstanding, September 30, 2017		34,700			212,081			246,781		$	8.36	3.95 years
Grants		-			-			-
Vested		-			-			-
Exercises		-			-			-
Cancellations/forfeitures		-			-			-
Outstanding, December 30, 2017		34,700			212,081			246,781		$	8.35	3.72 years
Grants		14,000			-			14,000			7.25
Vested		(5,600	)		5,600			-			2.70
Exercises		-			(24,100	)		(24,100	)		6.12
Cancellations/forfeitures		-			(7,844	)		(7,844	)		9.68
Outstanding, March 31, 2018		43,100			185,737			228,837		$	8.48	4.17 years
Grants		-			-			-
Vested		(3,100	)		3,100			-			4.25
Exercises		-			-			-
Cancellations/forfeitures		-			-			-
Outstanding, June 30, 2018		40,000			188,837			228,837		$	8.48	3.92 years

Information related to the stock options vested and expected to vest as of

June 30, 2018

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
	$2.01	-	$3.00		27,300		8.13	$	2.70		7,700	$	2.75
	$4.01	-	$5.00		36,100		4.05		4.53		30,000		4.62
	$5.01	-	$10.00		51,000		5.31		7.80		36,700		8.02
	$10.01	-	$15.00		114,437		2.26		11.40		114,437		11.40
					228,837		3.92		8.48		188,837		9.31

The aggregate intrinsic value of the Company’s “in-the-money” outstanding and exercisable options as of

June 30, 2018

and

July 1, 2017

was

$15,270

and

$0,

respectively. Nonvested stock options are subject to the risk of forfeiture until the fulfillment of specified conditions.

New Accounting Pronouncements, Policy [Policy Text Block]

New Accounting Pronouncements

ASU

2014

-

09,

Revenue from Contracts with Customers, amended by ASU

2015

-

14

(Topic

606

), ASU

2016

-

10,

ASU

2016

-

11

and ASU

2016

-

12

In

May 2014,

the FASB and the International Accounting Standards Board issued guidance on the principles for recognizing revenue and developing a common revenue standard for U.S. GAAP and International Financial Reporting Standards that would: (

1

) remove inconsistencies and weaknesses in revenue requirements, (

2

) provide a more robust framework for addressing revenue issues, (

3

) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, (

4

) provide more useful information to users of financial statements through improved disclosure requirements, and (

5

) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. This guidance is effective prospectively for annual reporting periods beginning after

December 15, 2017,

including interim periods within that reporting period. Early adoption is

not

permitted. The Company is currently evaluating the impact of this guidance and is still considering whether it will have a material effect on the Company’s consolidated financial statements. This guidance will become effective for TCC as of the beginning of our

2019

fiscal year.

ASU

No.

2015

-

11,

Inventory (Topic

330

): Simplifying the Measurement of Inventory

In

July 2015,

the FASB issued guidance with respect to inventory measurement. This ASU requires inventory to be measured at the lower of cost and net realizable value. The provisions of this ASU are effective for fiscal years beginning after

December 15, 2016,

including interim periods within those fiscal years. The amendment is required to be applied prospectively, and early adoption is permitted. This amendment is applicable for the Company beginning in the

first

quarter of our

2018

fiscal year, and the adoption of this standard is

not

expected to have a material impact on our financial statements.

ASU

No.

2016

-

02,

Leases

In

February 2016,

the FASB issued guidance with respect to leases. This ASU requires entities to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. This guidance offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions.

Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for annual reporting periods beginning after

December 15, 2018,

including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. We are currently evaluating the potential impact this standard will have on our financial statements and related disclosure.

ASU

No.

2016

-

09,

Improvements to Employee Share-Based Payment Accounting

In

March 2016,

the FASB issued guidance that simplifies several aspects of the accounting for employee share based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new guidance is effective for annual periods beginning after

December 15, 2016,

including interim periods within those fiscal years. This guidance is applicable for the Company beginning in the

first

quarter of our

2018

fiscal year. We are currently evaluating the method of adoption and the potential impact this standard will have on our financial statements and related disclosure.

ASU

No.

2016

-

18,

Restricted Cash Presentation on Statement of Cash Flows

In

November 2016,

the FASB issued guidance in regards to additional disclosure surrounding restricted cash activity. The amendments in this update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new guidance is effective for annual periods beginning after

December 15, 2017,

including interim periods within those fiscal years. Accordingly, restricted cash has been grouped with cash and cash equivalents on the statements of cash flows and results for the

nine

month period ended

July 1, 2017

have been retrospectively reclassified.

Other recent accounting pronouncements were issued by the FASB (including its Emerging Issues Task Force), the AICPA and the SEC during fiscal

2017

but such pronouncements are

not

believed by management to have a material impact on the Company’s present or future financial statements.