NOTE

Description of the Business and Basis of Presentation

Company Operations

Technical Communications Corporation (“TCC”) 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 sometimes 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.

Interim Financial Statements

The accompanying unaudited consolidated financial statements of Technical Communications Corporation and its wholly-owned subsidiary include all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented and in order to make the financial statements

not

misleading. All such adjustments are of a normal recurring nature. Interim results are

not

necessarily indicative of the results to be expected for the fiscal year ending

September 25, 2021.

The

September 26, 2020

consolidated balance sheet contained herein was derived from the Company's audited consolidated balance sheet at

September 26, 2020

as contained in the Company's Annual Report on Form

-K for the fiscal year then ended as filed with the U.S. Securities and Exchange Commission (“SEC”). Certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as allowed by SEC rules and regulations. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto for the fiscal year ended

September 26, 2020

included in its Annual Report on Form

-K as filed with the SEC (the

“2020

Annual Report”).

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 Codification

- sometimes referred to as the Codification or ASC.

Liquidity and Ability to Continue as a Going Concern

For the quarter ended

December 26, 2020,

the Company generated a net loss of

$342,000.

For the fiscal year ended

September 26, 2020,

the Company generated a net loss of

$911,000

and, although the company generated

$631,000

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

and had an accumulated deficit of

$3,408,000

December 26, 2020.

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.

December 2020,

the Company implemented a partial furlough plan for the majority of salaried employees. This plan reduced the workweek to

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

June 2021.

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.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

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-

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

February 1, 2021,

the Company received a loan from bankHometown, under the U.S. Small Business Administration's Paycheck Protection Program as authorized under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act”). The loan, evidenced by a promissory note, is in the principal amount of

$474,400

and all or a portion of the loan is expected to be forgiven under the provisions of the Economic Aid Act. Any amounts

not

forgiven will be paid back over

five

years at an interest rate of

1%.

Loan payments will be deferred for borrowers who apply for loan forgiveness until SBA remits the borrower's loan forgiveness amount to the lender. If a borrower does

not

apply for loan forgiveness, payments are deferred

months after the end of the covered period for the borrower's loan forgiveness (either

weeks or

weeks).

This loan is designed to provide assistance in covering the Company's payroll-related expenses and a portion of certain other costs, such as rent and utilities, for a

week period following the loan date.

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

years at an annual interest rate of

3.75%

commencing

one

year from the date of issuance. Also in fiscal year

2020

the Company received a

$474,400

PPP loan

under the

Coronavirus Aid, Relief and Economic Security Act.

The entire PPP loan amount was forgiven by the SBA on

January 11, 2021.

The Company is considering raising capital through equity or debt arrangements in addition to the funding received from the SBA, 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 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 TCC expects its common stock to be 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.

Reporting Period

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.

Basis of Presentation

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

The discussion and analysis of the Company's financial condition and results of operations are based on the 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.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)

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

not

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