UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
(Mark One)
| | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the quarterly period ended | ||
| 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:
TECHNICAL COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
| | | |
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
| incorporation or organization) | ||
| | | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (
| N/A | ||
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act: None.
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.
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).
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 | ☐ | Emerging growth company | |
| | ☒ | Smaller reporting 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.
INDEX
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
| June 26, 2021 | September 26, 2020 | |||||||
| Assets | (Unaudited) | |||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable - trade | ||||||||
| Inventories, net | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Equipment and leasehold improvements | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Equipment and leasehold improvements, net | ||||||||
| Operating lease right-of-use asset | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Current operating lease liabilities | $ | $ | ||||||
| Accounts payable | ||||||||
| Customer deposits | ||||||||
| Note payable – short-term (Note 7) | ||||||||
| Deferred income | ||||||||
| Accrued liabilities: | ||||||||
| Accrued compensation and related expenses | ||||||||
| Accrued commissions | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term operating lease liability | ||||||||
| Note payable – long-term (Note 7) | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Common stock, par value per share; shares authorized; shares issued and outstanding at June 26, 2021 and September 26, 2020 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
| Three Months Ended | ||||||||
| June 26, 2021 | June 27, 2020 | |||||||
| Net revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | ||||||||
| Product development | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ||||||
| Total other income (expense) | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share: | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
| Nine Months Ended | ||||||||
| June 26, 2021 | June 27, 2020 | |||||||
| Net revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | ||||||||
| Product development | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Grant income | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total other income (expense) | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share: | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended | ||||||||
| June 26, 2021 | June 27, 2020 | |||||||
| Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Changes in certain operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ( | ) | ||||
| Customer deposits | ||||||||
| Deferred income | ( | ) | ||||||
| Accounts payable and other accrued liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Financing Activities: | ||||||||
| Proceeds from debt | ||||||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of the period | ||||||||
| Cash and cash equivalents at end of the period | $ | $ | ||||||
| Supplemental Disclosures: | ||||||||
| Income taxes paid | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| June 26, 2021 | June 27, 2020 | June 26, 2021 | June 27, 2020 | |||||||||||||
| Shares of common stock: | ||||||||||||||||
| Beginning balance | $ | $ | $ | $ | ||||||||||||
| Ending balance | $ | $ | $ | $ | ||||||||||||
| Common stock at par value: | ||||||||||||||||
| Beginning balance | $ | $ | $ | $ | ||||||||||||
| Ending balance | $ | $ | $ | $ | ||||||||||||
| Additional paid-in capital: | ||||||||||||||||
| Beginning balance | $ | $ | $ | $ | ||||||||||||
| Stock-based compensation | ||||||||||||||||
| Ending balance | $ | $ | $ | $ | ||||||||||||
| Accumulated deficit: | ||||||||||||||||
| Beginning balance | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Ending balance | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Total stockholders’ equity | $ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
TECHNICAL COMMUNICATIONS CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| NOTE 1. | 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 10-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 10-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 CodificationTM - sometimes referred to as the Codification or ASC.
Liquidity and Ability to Continue as a Going Concern
For the nine months ended June 26, 2021, the Company generated a net loss of For the fiscal year ended September 26, 2020, the Company generated a net loss of $
During the third quarter of fiscal 2021, the Company was able to secure funding for operations in the form of a line of credit extended by Carl H. Guild, Jr., TCC’s Chief Executive Officer, President and Chairman of the Board. Mr. Guild agreed to loan up to $
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
Also during the second quarter, 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.
We anticipate that our principal sources of liquidity, including the recent line of credit, will be sufficient to fund our activities through September 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 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 February 1, 2021, the Company received a loan from bankHometown under the U.S. Small Business Administration's (the “SBA”) Paycheck Protection Program (the “PPP”) 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 $
During fiscal year 2020, the Company was granted a loan from the SBA in the principal amount of $
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.
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.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
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.
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.
| NOTE 2. | Summary of Significant Accounting Policies and Significant Judgments and Estimates |
The Company’s significant accounting policies are described in “Note 2. Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in its 2020 Annual Report and are supplemented by the notes included in this Quarterly Report on Form 10-Q. The financial statements and related notes included in this Quarterly Report should be read in conjunction with the Company’s 2020 Annual Report.
| NOTE 3. | Stock-Based Compensation |
The following table summarizes stock-based compensation costs included in the Company’s consolidated statements of operations for each of the three and nine month periods of fiscal 2021 and 2020:
| June 26, 2021 | June 27, 2020 | |||||||||||||||
| 3 months | 9 months | 3 months | 9 months | |||||||||||||
| Selling, general and administrative expenses | $ | $ | $ | $ | ||||||||||||
| Product development expenses | ||||||||||||||||
| Total share-based compensation expense before taxes | $ | $ | $ | $ | ||||||||||||
As of June 26, 2021, there was $
The Technical Communications Corporation 2005 Non-Statutory Stock Option Plan and 2010 Equity Incentive Plan have expired and options are no longer available for grant thereunder, although vested, unexercised options under such plans remain outstanding. There were an aggregate of
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
The following table summarizes stock option activity during the first nine months of fiscal 2021:
| Options Outstanding | ||||||||||||||||||||
| Number of Shares | Weighted Average | Weighted Average | ||||||||||||||||||
| Unvested | Vested | Total | Exercise Price | (in years) | ||||||||||||||||
| Outstanding, September 26, 2020 | $ | |||||||||||||||||||
| Grants | - | - | - | |||||||||||||||||
| Vested | - | |||||||||||||||||||
| Cancellations/forfeitures | ( | ) | ( | ) | ||||||||||||||||
| Outstanding, December 26, 2020 | $ | |||||||||||||||||||
| Grants | - | - | - | |||||||||||||||||
| Vested | ( | ) | - | |||||||||||||||||
| Cancellations/forfeitures | ||||||||||||||||||||
| Outstanding, March 27, 2021 | $ | |||||||||||||||||||
| Grants | - | - | - | |||||||||||||||||
| Vested | ( | ) | - | |||||||||||||||||
| Cancellations/forfeitures | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Outstanding, June 26, 2021 | $ | |||||||||||||||||||
Information related to the stock options vested and expected to vest as of June 26, 2021 is as follows:
| Range of | Number of | Weighted-Average | Weighted | Exercisable | Exercisable | ||||||||||||||||||||
| $ | 1.01 | $ | $ | $ | |||||||||||||||||||||
| $ | 2.01 | $ | |||||||||||||||||||||||
| $ | 3.01 | $ | |||||||||||||||||||||||
| $ | 4.01 | $ | |||||||||||||||||||||||
| $ | 5.01 | $ | |||||||||||||||||||||||
| $ | 10.01 | $ | |||||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||||
The aggregate intrinsic value of the Company’s “in-the-money” outstanding and exercisable options as of June 26, 2021 and June 27, 2020 was $
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
| NOTE 4. | Revenue |
The following table presents the Company’s revenues disaggregated by revenue type for the first three and nine months of fiscal 2021 and 2020.
Revenue type:
| 2021 | 2020 | |||||||||||||||
| June 26, 2021 | June 27, 2020 | |||||||||||||||
| 3 months | 9 months | 3 months | 9 months | |||||||||||||
| Engineering services | $ | $ | $ | $ | ||||||||||||
| Equipment sales | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
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, we may grant net payment terms.
| NOTE 5. | Inventories |
Inventories consisted of the following:
| June 26, 2021 | September 26, 2020 | |||||||
| Finished goods | $ | $ | ||||||
| Work in process | ||||||||
| Raw materials | ||||||||
| Total inventory, net | $ | $ | ||||||
| NOTE 6. | 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 years through March 31, 2019 at an annual rate of $
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
The table below presents the maturity of the Company’s operating lease liability as of June 26, 2021:
| July - September 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Total lease payments | ||||
| Less: Imputed interest | ( | ) | ||
| Total lease liability | $ |
| NOTE 7. | Debt |
On April 17, 2020, the Company was granted an initial PPP loan from bankHometown in the principal amount of $
On August 10, 2020, the Company also was granted a loan (the “SBA Loan”) from the SBA in the principal amount of $
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:
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| $ |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
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, evidenced by a promissory note, is in the principal amount of $
On May 6, 2021, the Company executed a Demand Promissory Note in favor of Carl H. Guild, Jr. for up to $
| NOTE 8. | Income Taxes |
The Company has recorded an income tax benefit on its net loss for the nine month periods ended June 26, 2021 and June 27, 2020 due to its uncertain realizability. During previous fiscal years, the Company recorded a valuation allowance for the full amount of its net deferred tax assets since it could not predict the realization of these assets.
| NOTE 9. | 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 as follows:
| NOTE 10. | Major Customers and Export Sales |
During the three months ended June 26, 2021, the Company had customer that represented
A breakdown of domestic and foreign net revenue for the first three and nine months of fiscal 2021 and 2020 is as follows:
| June 26, 2021 | June 27, 2020 | |||||||||||||||
| 3 months | 9 months | 3 months | 9 months | |||||||||||||
| Domestic | $ | $ | $ | $ | ||||||||||||
| Foreign | ||||||||||||||||
| Total net revenue | $ | $ | $ | $ | ||||||||||||
The Company did not sell products into any foreign countries during the three month period ended June 26, 2021, and sold products into country during the three month period ended June 27, 2020. The Company sold products into countries during the nine month period ended June 26, 2021 and countries during the nine month period ended June 27, 2020. 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 foreign revenues by country as a percentage of total foreign revenue.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
| June 26, 2021 | June 27, 2020 | |||||||||||||||
| 3 months | 9 months | 3 months | 9 months | |||||||||||||
| Morocco | % | |||||||||||||||
| Egypt | % | |||||||||||||||
| Philippines | % | |||||||||||||||
| Saudi Arabia | % | % | % | |||||||||||||
| Other | % | |||||||||||||||
A summary of foreign revenue, as a percentage of total foreign revenue by geographic area, is as follows:
| June 26, 2021 | June 27, 2020 | |||||||||||||||
| 3 months | 9 months | 3 months | 9 months | |||||||||||||
| Mid-East and Africa | % | % | % | |||||||||||||
| Far East | % | |||||||||||||||
| NOTE 11. | 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. Substantially all cash equivalents are invested in money market mutual funds. Money market mutual funds held in a brokerage account are considered available for sale. The Company accounts for marketable securities in accordance with FASB ASC 320, Investments—Debt and Equity Securities.
| Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
Forward-Looking Statements
Certain statements contained herein or as may otherwise be incorporated by reference herein that are not purely historical 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 Company’s 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 its Annual Report on Form 10-K for the fiscal year ended September 26, 2020.
Overview
The Company designs, manufactures, markets and sells communications security equipment that utilizes various methods of encryption to protect the information being transmitted. Encryption is a technique for rendering information unintelligible, which information can then be reconstituted if the recipient possesses the right decryption “key”. The Company manufactures several standard secure communications products and also provides custom-designed, special-purpose secure communications products for both domestic and international customers. The Company’s products consist primarily of voice, data and facsimile encryptors. Revenue is generated principally from the sale of these products, which have traditionally been to foreign governments either through direct sale, pursuant to a U.S. government contract, or made as a sub-contractor to domestic corporations under contract with the U.S. government. We also sell these products to commercial entities and U.S. government agencies. We generate additional revenues from contract engineering services performed for certain government agencies, both domestic and foreign, and commercial entities.
Critical Accounting Policies and Significant Judgments and Estimates
There have been no material changes in the Company’s critical accounting policies or critical accounting estimates since September 26, 2020 and we have not adopted any accounting policies that have had or will have a material impact on our consolidated financial statements. For further discussion of our accounting policies see Note 2, Summary of Significant Accounting Policies and Significant Judgments and Estimates in the Notes to Unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q and the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended September 26, 2020 as filed with the SEC.
Results of Operations
Three Months ended June 26, 2021 compared to Three Months ended June 27, 2020
Net Revenue
Net revenue for the quarter ended June 26, 2021 was $426,000, compared to $599,000 for the quarter ended June 27, 2020, a decrease of 29%. Revenue for the third quarter of fiscal 2021 was entirely from domestic sources as compared to the same period in fiscal 2020, during which revenue consisted of $513,000, or 86%, from domestic sources and $86,000, or 14%, from international customers.
There were no foreign sales during the quarter ended June 26, 2021 and foreign sales consisted of shipments to one country during the quarter ended June 27, 2020. 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 sales by country during the third quarters of fiscal 2021 and 2020:
| 2021 |
2020 |
|||||||
| Saudi Arabia |
$ | - | $ | 86,000 | ||||
| $ | - | $ | 86,000 | |||||
For the three months ended June 26, 2021, revenue was derived primarily from sales of our engineering services amounting to $410,000.
For the three months ended June 27, 2020, revenue was derived primarily from sales of our narrowband radio encryptors and various accessories to a domestic customer for deployment into a Middle Eastern country amounting to $316,000. We also shipped our narrowband radio encryptors to a domestic customer for deployment into a North African country amounting to $149,000 and shipped our internet protocol data encryptors to a customer in a Middle Eastern country amounting to $86,000. The Company also had sales of engineering services amounting to $47,000 during the period.
Gross Profit
Gross profit for the third quarter of fiscal 2021 was $99,000, compared to gross profit of $355,000 for the same period of fiscal 2020, a decrease of 72%. Gross profit expressed as a percentage of total net revenue was 23% and 59% for the third quarters of fiscal 2021 and fiscal 2020, respectively. The decrease in the percentage of gross profit was primarily attributed to the decrease in equipment sales in fiscal 2021.
Operating Costs and Expenses
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the third quarter of fiscal 2021 were $478,000, compared to $505,000 for the same quarter in fiscal 2020. This decrease of $27,000, or 5%, was attributable to increases in general and administrative expenses of $4,000 and offset by decreases in selling and marketing expenses of $31,000 during the three months ended June 26, 2021.
The increase in general and administrative expenses for the three months ended June 26, 2021 was primarily attributable to an increase in insurance costs of $14,000 during the quarter. This increase was offset by decreases in payroll and payroll-related expenses of $6,000 and legal fees of $8,000.
The decrease in selling and marketing expenses for the three months ended June 26, 2021 was primarily attributable to decreases in outside commissions and third party marketing agreements of $23,000 and internal commissions of $13,000. These decreases were offset by increases in product evaluation costs of $7,000 for the period.
Product Development Costs
Product development costs for the quarter ended June 26, 2021 were $108,000, compared to $332,000 for the quarter ended June 27, 2020. This decrease of $224,000, or 67%, was attributable to an increase in billable engineering services contracts during the third quarter of fiscal 2021 that resulted in decreased product development costs of $190,000 and a decrease in payroll and payroll-related expenses of $47,000. These decreased costs were partially offset by increases in consulting costs of $7,000 and project costs of $4,000 during the period.
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. In addition to these programs, the Company also invests in research and development to enhance its existing products or to develop new products, as it deems appropriate. There was engineering services revenue generated during the third quarter of fiscal 2021 of $410,000 and $47,000 generated during the third quarter of fiscal 2020.
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.
Net Loss
The Company generated a net loss of $490,000 for the third quarter of fiscal 2021, compared to a net loss of $482,000 for the same period of fiscal 2020. This increase in net loss is primarily attributable to a decrease in gross profit of $256,000, partially offset by a decrease in operating expenses of $251,000 during the third quarter of fiscal 2021.
Nine Months ended June 26, 2021 compared to Nine Months ended June 27, 2020
Net Revenue
Net revenue for the nine months ended June 26, 2021 was $1,209,000, compared to $1,987,000 for the nine months ended June 27, 2020, a decrease of 39%. Revenue for the first nine months of fiscal 2021 consisted of $973,000, or 80%, from domestic sources and $236,000, or 20%, from international customers, compared to the same period in fiscal 2020, during which revenue consisted of $1,500,000, or 76%, from domestic sources and $487,000, or 24%, from international customers.
Foreign sales consisted of a shipment to four countries during the nine months ended June 26, 2021 and two countries during the nine months ended June 27, 2020. 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 sales by country during the first nine months of fiscal 2021 and 2020:
| 2021 |
2020 |
|||||||
| Morocco |
$ | 148,000 | ||||||
| Egypt |
58,000 | - | ||||||
| Philippines |
11,000 | - | ||||||
| Saudi Arabia |
19,000 | $ | 484,000 | |||||
| Bahrain |
- | 3,000 | ||||||
| $ | 236,000 | $ | 487,000 | |||||
For the nine months ended June 26, 2021, revenue was derived from sales of our engineering services amounting to $652,000 and shipments of our narrowband radio encryptors and various accessories to three domestic customers for deployment into a Middle Eastern country amounting to $98,000, for deployment into a North African country amounting to $246,000 and for deployment into Afghanistan amounting to $77,000, and shipments of our internet protocol data encryptors amounting to $19,000.
For the nine months ended June 27, 2020, revenue was derived primarily from sales of our engineering services amounting to $913,000 and shipments of our internet protocol data encryptors to four customers in a Middle Eastern country amounting to $488,000. We also shipped our narrowband radio encryptors and various accessories to two domestic customers for deployment into a Middle Eastern country amounting to $434,000 and for deployment into a North African country amounting to $149,000.
Gross Profit
Gross profit for the first nine months of fiscal 2021 was $486,000, compared to gross profit of $973,000 for the same period of fiscal 2020, a decrease of 50%. Gross profit expressed as a percentage of total net revenue was 40% for the first nine months of fiscal 2021 compared to 49% for the same period in fiscal 2020. The decrease in the percentage of gross profit was primarily attributed to the decrease in equipment sales in fiscal 2021.
Operating Costs and Expenses
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the first nine months of fiscal 2021 were $1,420,000, compared to $1,602,000 for the same period in fiscal 2020. This decrease of $182,000, or 11%, was attributable to decreases in general and administrative expenses of $93,000 and decreases in selling and marketing expenses of $89,000 during the nine months ended June 26, 2021.
The decrease in general and administrative expenses for the nine months ended June 26, 2021 was primarily attributable to decreases in payroll and payroll-related expenses of $67,000, director fees of $8,000 and audit costs of $7,000.
The decrease in selling and marketing expenses for the nine months ended June 26, 2021 was primarily attributable to decreases in outside commissions of $58,000, internal commission costs of $13,000 and in payroll and payroll-related expenses of $13,000.
Product Development Costs
Product development costs for the nine months ended June 26, 2021 were $695,000, compared to $694,000 for the nine months ended June 27, 2020. This slight increase was attributable to a decrease in billable engineering services contracts during the first nine months of fiscal 2021 that resulted in increased product development costs of $161,000 and an increase in project costs of $62,000. These increased costs were partially offset by decreases in payroll and payroll-related expenses of $204,000 and consulting costs of $20,000 during the period.
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. In addition to these programs, the Company also invests in research and development to enhance its existing products or to develop new products, as it deems appropriate. There was $652,000 of engineering services revenue generated during the first nine months of fiscal 2021 and $913,000 generated during the first nine months of fiscal 2020.
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.
Net Loss
The Company generated a net loss of $1,161,000 for the first nine months of fiscal 2021, compared to a net loss of $1,324,000 for the same period of fiscal 2020. This decrease in net loss of $163,000 is primarily attributable to grant income associated with the forgiveness of a Small Business Administration loan of $474,000 and a decrease in operating expenses of $182,000 during the first nine months of fiscal 2021, which was partially offset by a decrease in gross profit of $486,000.
Liquidity and Capital Resources
Our cash and cash equivalents at June 26, 2021 totaled $221,000 and we had a long-term SBA note payable in the amount of $150,000. The Company also has borrowed $474,405 from bankHometown under the SBA’s Paycheck Protection Program as authorized under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act”). All or a portion of the loan is expected to be forgiven under the provisions of the Economic Aid Act. In addition, the Company’s President and CEO, Carl H. Guild, Jr, loaned the Company $451,000 under a line of credit arrangement with funds available of up to $1 million.
Liquidity and Ability to Continue as a Going Concern
For the nine months ended June 26, 2021, the Company generated a net loss of $1,161,000. 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 $4,226,000 at June 26, 2021. 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 May 6, 2021, the Company executed a Demand Promissory Note in favor of Carl H. Guild, Jr. for up to $1 million. Mr. Guild, the Company’s Chief Executive Officer, President and Chairman of the Board, agreed to provide a line of credit to the Company for working capital purposes. This note will bear interest at a rate of 6% per annum and has no specified term.
Also during the second quarter, the Company ended its furlough plan instituted in December 2020 and all employees returned to work on a full time basis on March 15, 2021 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.
We anticipate that our principal sources of liquidity, including the recent line of credit, will be sufficient to fund our activities through September 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 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 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, including the line of credit extended by the Company’s CEO and President during the third quarter of the Company’s 2021 fiscal year. During the second quarter of fiscal 2021, the Company received a loan from bankHometown under the PPP as authorized under the Economic Aid Act. The loan on February 1, 2021, evidenced by a promissory note, is in the principal amount of $474,405 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% 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 apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness (between 8 and 24 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 24 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 30 years at an annual interest rate of 3.75% commencing two years from the date of issuance following a recent change in the loan program. Also in fiscal year 2020, the Company received an initial $474,400 PPP loan under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The entire amount of this original PPP loan was forgiven by the SBA on January 11, 2021.
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 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, employee furloughs and/or reduced hours for certain employees, or cease operations completely.
Sources and Uses of Cash
The following table presents our abbreviated cash flows for the nine month periods ended (unaudited):
| June 26, |
June 27, |
|||||||
| Net loss |
$ | (1,161,000 | ) |
$ | (1,324,000 | ) |
||
| Changes not affecting cash |
53,000 | 59,000 | ||||||
| Changes in assets and liabilities |
(1,110,000 | ) |
159,000 | |||||
| Cash used in operating activities |
(2,218,000 | ) |
(1,106,000 | ) |
||||
| Cash provided by financing activities |
925,000 | 474,000 | ||||||
| Net change in cash and cash equivalents |
(1,293,000 | ) |
(632,000 | ) |
||||
| Cash and cash equivalents - beginning of period |
1,514,000 | 1,593,000 | ||||||
| Cash and cash equivalents - end of period |
$ | 221,000 | $ | 961,000 | ||||
Company Facilities
On April 1, 2014, the Company entered into a lease for its current facilities. This lease is for 22,800 square feet located at 100 Domino Drive in 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. In February 2021, the Company exercised its option to extend the term of the lease through March 2024. The lease expense for each of the nine month periods ended June 26, 2021 and June 27, 2020 was $128,000.
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 two years 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 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 expects to use the entire loan amount for qualifying expenses and that the SBA will forgive the loan in its entirety.
On May 6, 2021, the Company executed a Demand Promissory Note in favor of Carl H. Guild, Jr. for up to $1 million. Mr. Guild, the Company’s Chief Executive Officer, President and Chairman of the Board, agreed to provide a line of credit to the Company for working capital purposes. This note will bear interest at a rate of 6% per annum and has no specified term. The outstanding principal balance at June 26, 2021 was $451,000, plus accrued interest of $6,167.
Backlog
Backlog at June 26, 2021 and September 26, 2020 amounted to $1,701,000 and $701,000, respectively. The orders in backlog at June 26, 2021 are expected to ship and/or services are expected to be performed over the next twelve months depending on customer requirements and product availability.
Performance guaranties
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. Guaranties are generally required in amounts of 5% to 10% of the purchase price and last in duration from three months to one year. At June 26, 2021 and September 26, 2020, 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 nine month periods ended June 26, 2021 and June 27, 2020 the Company spent $695,000 and $694,000, respectively, on internal product development. The Company also spent $405,000 on billable development efforts during the first nine months of fiscal 2021 and $563,000 during the first nine months of fiscal 2020. The Company’s total product development costs during the first nine months of fiscal 2021 were 12% lower than the same period in fiscal 2020 but in line with its budgeted spending on research and development, and reflected the costs of custom development, product capability enhancements and production readiness. It is expected that total product development expenses will remain lower until we secure a new billable research and development contract.
It is anticipated that cash from operations will fund our near-term research and development and marketing activities. We also believe that, in the long term, based on current billable activities, cash from operations will be sufficient to meet the development goals of the Company, although we can give no assurances. Any increase in development activities - either billable or new product related - will require additional resources, which we may not be able to fund through cash from operations. In circumstances where resources will be insufficient, the Company will look to other sources of financing, including debt and/or equity investments; however, we can provide no guarantees that we will be successful in securing such additional financing.
Other than those stated above, there are no plans for significant internal product development or material commitments for capital expenditures during the remainder of fiscal 2021.
New Accounting Pronouncements
ASU No. 2019-12, Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued guidance under ASU No. 2019-12, Simplifying the Accounting for Income Taxes, with respect to leases. The decisions reflected in this ASU update specific areas of ASC 740, Income Taxes, to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. This guidance is effective for annual reporting periods beginning after December 15, 2020 (including interim periods within that reporting period) and is not expected to have a material impact on the Company’s financial statements.
Other recent accounting pronouncements were issued by the FASB (including its Emerging Issues Task Force) and the SEC during the first nine months of the Company’s 2021 fiscal year but such pronouncements are not believed by management to have a material impact on the Company’s present or future financial statements.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
Not applicable.
| Item 4. |
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 Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that review and evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of June 26, 2021 as a result of the material weaknesses in our internal control over financial reporting discussed below.
As previously disclosed under Item 9A, Controls and Procedures in our Annual Report on Form 10-K for the fiscal year ended September 26, 2020, as well as prior fiscal years, 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, caused by an error in judgment by, or 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 unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q 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 below.
Our management, with oversight from the Audit Committee, is actively engaged in remediating the identified material weaknesses. As part of these remediation efforts management has undertaken 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 continues to make 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 by the end of its 2021 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 the end of fiscal 2020 and undertaken in the first nine months of TCC’s fiscal 2021 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 third quarter of its 2021 fiscal year.
| Legal Proceedings |
There were no material pending legal proceedings to which the Company or its subsidiary was a party or which any of their property was subject during the period covered by this quarterly report.
| Item 1A. |
Risk Factors |
Not applicable.
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
Not applicable.
| Item 3. |
Defaults Upon Senior Securities |
Not applicable.
| Item 4. |
Mine Safety Disclosures |
Not applicable.
| Item 5. |
Other Information |
Not applicable.
| Item 6. |
Exhibits |
| 101.INS |
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE |
Inline XBRL Taxonomy Extension 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) |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TECHNICAL COMMUNICATIONS CORPORATION | |||
| (Registrant) | |||
| August 10, 2021 |
By: |
/s/ Carl H. Guild, Jr. |
|
| Date |
Carl H. Guild, Jr., President and Chief |
||
| Executive Officer |
|||
| August 10, 2021 |
By: |
/s/ Michael P. Malone |
|
| Date |
Michael P. Malone, Chief Financial Officer |
||
Page 23
Exhibit 31.1
CERTIFICATION
I, Carl H. Guild, Jr., certify that:
|
(1) |
I have reviewed this quarterly report on Form 10-Q of Technical Communications Corporation; |
|
(2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
(3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
(4) |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a. |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c. |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d. |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
(5) |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a. |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b. |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/ Carl H. Guild, Jr. | |||
| Carl H. Guild, Jr. | |||
| President and Chief Executive Officer | |||
| Date: August 10, 2021 |
Exhibit 31.2
CERTIFICATION
I, Michael P. Malone, certify that:
|
(1) |
I have reviewed this quarterly report on Form 10-Q of Technical Communications Corporation; |
|
(2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
(3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
(4) |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a. |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c. |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d. |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
(5) |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a. |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b. |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/ Michael P. Malone | |||
| Michael P. Malone | |||
| Chief Financial Officer | |||
| Date: August 10, 2021 |
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. § 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned President and Chief Executive Officer and Chief Financial Officer of Technical Communications Corporation (the “Company”) certifies that, to his knowledge:
|
1) |
the Company’s Quarterly Report on Form 10-Q for the quarter ended June 26, 2021 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
2) |
the information contained in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 26, 2021 fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| /s/ Carl H. Guild, Jr. | /s/ Michael P. Malone | ||
| Carl H. Guild, Jr. | Michael P. Malone | ||
| President and Chief Executive Officer | Chief Financial Officer | ||
| Date: August 10, 2021 | Date: August 10, 2021 |
Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares |
Jun. 26, 2021 |
Sep. 26, 2020 |
|---|---|---|
| Common stock, par value (in dollars per share) | $ 0.10 | $ 0.10 |
| Common stock, authorized (in shares) | 7,000,000 | 7,000,000 |
| Common stock, issued (in shares) | 1,850,403 | 1,850,403 |
| Common stock, outstanding (in shares) | 1,850,403 | 1,850,403 |
Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 26, 2021 |
Jun. 27, 2020 |
Jun. 26, 2021 |
Jun. 27, 2020 |
|
| Net revenue | $ 425,830 | $ 598,730 | $ 1,209,309 | $ 1,987,406 |
| Cost of revenue | 326,572 | 243,766 | 723,091 | 1,014,798 |
| Gross profit | 99,258 | 354,964 | 486,218 | 972,608 |
| Operating expenses: | ||||
| Selling, general and administrative | 477,843 | 505,358 | 1,419,532 | 1,601,927 |
| Product development | 108,426 | 332,167 | 695,186 | 694,552 |
| Total operating expenses | 586,269 | 837,525 | 2,114,718 | 2,296,479 |
| Operating loss | (487,011) | (482,561) | (1,628,500) | (1,323,871) |
| Other income (expense): | ||||
| Interest income | 0 | 83 | 0 | 455 |
| Interest expense | (2,918) | 0 | (6,620) | (802) |
| Total other income (expense) | (2,918) | 83 | 467,780 | (347) |
| Net loss | $ (489,929) | $ (482,478) | (1,160,720) | (1,324,218) |
| Grant income | $ 474,400 | $ 0 | ||
| Net loss per common share: | ||||
| Basic (in dollars per share) | $ (0.26) | $ (0.26) | $ (0.63) | $ (0.72) |
| Diluted (in dollars per share) | $ (0.26) | $ (0.26) | $ (0.63) | $ (0.72) |
| Weighted average shares: | ||||
| Basic (in shares) | 1,850,403 | 1,850,403 | 1,850,403 | 1,850,403 |
| Diluted (in shares) | 1,850,403 | 1,850,403 | 1,850,403 | 1,850,403 |
| Net revenue | $ 425,830 | $ 598,730 | $ 1,209,309 | $ 1,987,406 |
| Cost of revenue | 326,572 | 243,766 | 723,091 | 1,014,798 |
| Gross profit | $ 99,258 | $ 354,964 | $ 486,218 | $ 972,608 |
Note 1 - Description of the Business and Basis of Presentation |
9 Months Ended | ||
|---|---|---|---|
Jun. 26, 2021 | |||
| Notes to Financial Statements | |||
| Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block] |
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 10-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 10-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 CodificationTM - sometimes referred to as the Codification or ASC.
Liquidity and Ability to Continue as a Going Concern
For the nine months ended June 26, 2021, the Company generated a net loss of 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 at June 26, 2021. 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.
During the third quarter of fiscal 2021, the Company was able to secure funding for operations in the form of a line of credit extended by Carl H. Guild, Jr., TCC’s Chief Executive Officer, President and Chairman of the Board. Mr. Guild agreed to loan up to $1 million to the Company pursuant to a Demand Promissory Note dated May 6, 2021 for working capital purposes. The note bears interest at a rate of 6% per annum and has no specified term. The outstanding principal balance at June 26, 2021 was $451,000, plus accrued interest of $6,167.
Also during the second quarter, 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.
We anticipate that our principal sources of liquidity, including the recent line of credit, will be sufficient to fund our activities through September 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 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 February 1, 2021, the Company received a loan from bankHometown under the U.S. Small Business Administration's (the “SBA”) Paycheck Protection Program (the “PPP”) 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 $474,405 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% per year. 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 24 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 30 years at an annual interest rate of 3.75% commencing two years 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 original PPP loan amount was forgiven by the SBA on January 11, 2021.
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.
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.
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. |
Note 2 - Summary of Significant Accounting Policies and Significant Judgments and Estimates |
9 Months Ended | ||
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Jun. 26, 2021 | |||
| Notes to Financial Statements | |||
| Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block] |
The Company’s significant accounting policies are described in “Note 2. Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in its 2020 Annual Report and are supplemented by the notes included in this Quarterly Report on Form 10-Q. The financial statements and related notes included in this Quarterly Report should be read in conjunction with the Company’s 2020 Annual Report. |
Note 3 - Stock-based Compensation |
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| Share-based Payment Arrangement [Text Block] |
The following table summarizes stock-based compensation costs included in the Company’s consolidated statements of operations for each of the three and nine month periods of fiscal 2021 and 2020:
As of June 26, 2021, there was $110,174 of unrecognized compensation expense related to options outstanding. The unrecognized compensation expense will be recognized over the remaining requisite service period. As of June 26, 2021, the weighted average period over which the compensation expense is expected to be recognized is 2.54 years.
The Technical Communications Corporation 2005 Non-Statutory Stock Option Plan and 2010 Equity Incentive Plan have expired 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 151,400 shares were outstanding at June 26, 2021. Vesting periods were at the discretion of the Board of Directors and typically ranged between and years. Options under these plans were granted with an exercise price equal to fair value at time of grant and have a term of years from the date of grant.
The following table summarizes stock option activity during the first nine months of fiscal 2021:
Information related to the stock options vested and expected to vest as of June 26, 2021 is as follows:
The aggregate intrinsic value of the Company’s “in-the-money” outstanding and exercisable options as of June 26, 2021 and June 27, 2020 was $41,776 and $10,960, respectively. Nonvested stock options are subject to the risk of forfeiture until the fulfillment of specified conditions.
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Note 4 - Revenue |
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| Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue from Contract with Customer [Text Block] |
The following table presents the Company’s revenues disaggregated by revenue type for the first three and nine months of fiscal 2021 and 2020.
Revenue type:
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, we may grant net payment terms. |
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Note 5 - Inventories |
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Jun. 26, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Text Block] |
Inventories consisted of the following:
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Note 6 - Leases |
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Jun. 26, 2021 | ||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||
| Leases of Lessee Disclosure [Text Block] |
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 years through March 31, 2019 at an annual rate of $171,000. In addition, the lease contains options to extend the lease for 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. In February 2021, the Company exercised the remaining option to extend the lease through March 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 nine month periods ended June 26, 2021 and June 27, 2020 was $128,000.
The table below presents the maturity of the Company’s operating lease liability as of June 26, 2021:
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Note 7 - Debt |
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Jun. 26, 2021 | ||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Text Block] |
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.
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 12, 2021 the SBA announced that payments on the SBA Loan would be deferred an additional year. Payments on the loan will now commence on August 10, 2022.
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:
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, evidenced by a promissory note, is in the principal amount of $474,405 and all or a portion of the loan is expected to be forgiven under the provisions of the Economic Aid Act. Any amount of the loan 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 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).
On May 6, 2021, the Company executed a Demand Promissory Note in favor of Carl H. Guild, Jr. for up to $1 million. Mr. Guild, the Company’s Chief Executive Officer, President and Chairman of the Board, agreed to provide a line of credit to the Company for working capital purposes. This note, which has no expiration, will bear interest at a rate of 6% per annum. The outstanding balance at June 26, 2021 was $451,000, plus accrued interest of $6,167. |
Note 8 - Income Taxes |
9 Months Ended | ||
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Jun. 26, 2021 | |||
| Notes to Financial Statements | |||
| Income Tax Disclosure [Text Block] |
The Company has recorded an income tax benefit on its net loss for the nine month periods ended June 26, 2021 and June 27, 2020 due to its uncertain realizability. During previous fiscal years, the Company recorded a valuation allowance for the full amount of its net deferred tax assets since it could not predict the realization of these assets. |
Note 9 - Loss Per Share |
9 Months Ended | ||
|---|---|---|---|
Jun. 26, 2021 | |||
| Notes to Financial Statements | |||
| Earnings Per Share [Text Block] |
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 as follows: 151,400 shares at June 26, 2021 and 241,370 shares at June 27, 2020. |
Note 10 - Major Customers and Export Sales |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Concentration Risk Disclosure [Text Block] |
During the three months ended June 26, 2021, the Company had customer that represented 96% of net revenue as compared to the three months ended June 27, 2020, during which customers represented 92% (53%, 25% and 14%, respectively) of net revenue. During the nine month period ended June 26, 2021, the Company had customers that represented 66% (54% and 12%, respectively) of net revenue as compared to the nine month period ended June 27, 2020, during which customers represented 68% (46% and 22%, respectively) of net revenue.
A breakdown of domestic and foreign net revenue for the first three and nine months of fiscal 2021 and 2020 is as follows:
The Company did not sell products into any foreign countries during the three month period ended June 26, 2021, and sold products into country during the three month period ended June 27, 2020. The Company sold products into countries during the nine month period ended June 26, 2021 and countries during the nine month period ended June 27, 2020. 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 foreign revenues by country as a percentage of total foreign revenue.
A summary of foreign revenue, as a percentage of total foreign revenue by geographic area, is as follows:
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Note 11 - Cash Equivalents and Marketable Securities |
9 Months Ended | ||
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Jun. 26, 2021 | |||
| Notes to Financial Statements | |||
| Cash and Cash Equivalents Disclosure [Text Block] |
The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. Substantially all cash equivalents are invested in money market mutual funds. Money market mutual funds held in a brokerage account are considered available for sale. The Company accounts for marketable securities in accordance with FASB ASC 320, Investments—Debt and Equity Securities.
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Note 3 - Stock-based Compensation (Tables) |
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Note 4 - Revenue (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Disaggregation of Revenue [Table Text Block] |
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Note 5 - Inventories (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Jun. 26, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Inventory, Current [Table Text Block] |
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Note 6 - Leases (Tables) |
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Jun. 26, 2021 | ||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||
| Lessee, Operating Lease, Liability, Maturity [Table Text Block] |
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Note 7 - Debt (Tables) |
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Jun. 26, 2021 | ||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||
| Schedule of Maturities of Long-term Debt [Table Text Block] |
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Note 10 - Major Customers and Export Sales (Tables) |
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| Revenue from External Customers by Geographic Areas [Table Text Block] |
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| Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block] |
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Note 1 - Description of the Business and Basis of Presentation (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
Feb. 01, 2021 |
Aug. 10, 2020 |
Apr. 17, 2020 |
Jun. 26, 2021 |
Mar. 31, 2021 |
Jun. 27, 2020 |
Jun. 26, 2021 |
Jun. 27, 2020 |
Sep. 26, 2020 |
Sep. 28, 2019 |
May 06, 2021 |
|
| Net Income (Loss) Attributable to Parent, Total | $ (489,929) | $ (482,478) | $ (1,160,720) | $ (1,324,218) | $ (911,000) | $ 631,000 | |||||
| Retained Earnings (Accumulated Deficit), Ending Balance | (4,226,301) | (4,226,301) | (3,065,581) | ||||||||
| Proceeds from Issuance of Long-term Debt, Total | 925,405 | $ 474,400 | |||||||||
| Paycheck Protection Program CARES Act [Member] | |||||||||||
| Proceeds from Issuance of Long-term Debt, Total | $ 474,405 | $ 474,400 | $ 474,405 | $ 474,400 | |||||||
| The SBA Loan [Member] | |||||||||||
| Debt Instrument, Interest Rate, Stated Percentage | 3.75% | 3.75% | |||||||||
| Proceeds from Issuance of Long-term Debt, Total | $ 150,000 | $ 150,000 | |||||||||
| Debt Instrument, Term (Year) | 30 years | 30 years | |||||||||
| Mr. Carl H. Guild [Member] | |||||||||||
| Line of Credit Facility, Maximum Borrowing Capacity | $ 1,000,000 | ||||||||||
| Debt Instrument, Interest Rate, Stated Percentage | 6.00% | ||||||||||
| Notes Payable, Total | 451,000 | 451,000 | |||||||||
| Interest Payable | $ 6,167 | $ 6,167 | |||||||||
Note 3 - Stock-based Compensation - Stock-based Compensation Costs (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 26, 2021 |
Jun. 27, 2020 |
Jun. 26, 2021 |
Jun. 27, 2020 |
|
| Stock-based compensation costs | $ 12,570 | $ 14,926 | $ 39,833 | $ 41,677 |
| Selling, General and Administrative Expenses [Member] | ||||
| Stock-based compensation costs | 10,505 | 11,243 | 32,787 | 32,486 |
| Product Development Expenses [Member] | ||||
| Stock-based compensation costs | $ 2,065 | $ 3,683 | $ 7,046 | $ 9,191 |
Note 4 - Revenue - Disaggregation By Revenue (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 26, 2021 |
Jun. 27, 2020 |
Jun. 26, 2021 |
Jun. 27, 2020 |
|
| Net revenue | $ 425,830 | $ 598,730 | $ 1,209,309 | $ 1,987,406 |
| Engineering Services [Member] | ||||
| Net revenue | 409,550 | 46,804 | 652,304 | 913,446 |
| Equipment Sales [Member] | ||||
| Net revenue | $ 16,280 | $ 551,926 | $ 557,005 | $ 1,073,960 |
Note 5 - Inventories - Schedule of Inventory (Details) - USD ($) |
Jun. 26, 2021 |
Sep. 26, 2020 |
|---|---|---|
| Finished goods | $ 40,018 | $ 75,289 |
| Work in process | 497,640 | 176,980 |
| Raw materials | 762,365 | 649,782 |
| Total inventory, net | $ 1,300,023 | $ 902,051 |
Note 6 - Leases (Details Textual) - USD ($) |
9 Months Ended | ||
|---|---|---|---|
Jun. 26, 2021 |
Jun. 27, 2020 |
Mar. 31, 2019 |
|
| Lessee, Operating Lease, Term of Contract (Year) | 5 years | ||
| Lease Annual Rent Payments | $ 171,000 | ||
| Lessee, Operating Lease, Renewal Term (Year) | 2 years 6 months | ||
| Operating Lease, Expense | $ 128,000 | $ 128,000 | |
Note 6 - Leases - Maturity of Operating Lease Liability (Details) |
Jun. 26, 2021
USD ($)
|
|---|---|
| July - September 2021 | $ 42,651 |
| 2022 | 170,604 |
| 2023 | 170,604 |
| 2024 | 85,302 |
| Total lease payments | 469,161 |
| Less: Imputed interest | (24,044) |
| Total lease liability | $ 445,117 |
Note 7 - Debt (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | |||||
|---|---|---|---|---|---|---|---|---|
Feb. 01, 2021 |
Aug. 10, 2020 |
Apr. 17, 2020 |
Mar. 31, 2021 |
Jun. 26, 2021 |
Jun. 27, 2020 |
Sep. 26, 2020 |
May 06, 2021 |
|
| Proceeds from Issuance of Long-term Debt, Total | $ 925,405 | $ 474,400 | ||||||
| Mr. Carl H. Guild [Member] | ||||||||
| Debt Instrument, Interest Rate, Stated Percentage | 6.00% | |||||||
| Line of Credit Facility, Maximum Borrowing Capacity | $ 1,000,000 | |||||||
| Notes Payable, Total | 451,000 | |||||||
| Interest Payable | $ 6,167 | |||||||
| Paycheck Protection Program CARES Act [Member] | ||||||||
| Proceeds from Issuance of Long-term Debt, Total | $ 474,405 | $ 474,400 | $ 474,405 | $ 474,400 | ||||
| The SBA Loan [Member] | ||||||||
| Proceeds from Issuance of Long-term Debt, Total | $ 150,000 | $ 150,000 | ||||||
| Debt Instrument, Periodic Payment, Total | $ 731 | |||||||
| Debt Instrument, Term (Year) | 30 years | 30 years | ||||||
| Debt Instrument, Interest Rate, Stated Percentage | 3.75% | 3.75% | ||||||
Note 7 - Debt - Principal Maturities of Long-term Debt (Details) |
Jun. 26, 2021
USD ($)
|
|---|---|
| 2022 | $ 494 |
| 2023 | 3,032 |
| 2024 | 3,148 |
| 2025 | 3,268 |
| 2026 | 3,392 |
| Thereafter | 136,666 |
| Long-term Debt, Total | $ 150,000 |
Note 8 - Income Taxes (Details Textual) - USD ($) $ in Thousands |
9 Months Ended | |
|---|---|---|
Jun. 26, 2021 |
Jun. 27, 2020 |
|
| Income Tax Expense (Benefit), Total | $ 0 | $ 0 |
Note 9 - Loss Per Share (Details Textual) - shares |
9 Months Ended | |
|---|---|---|
Jun. 26, 2021 |
Jun. 27, 2020 |
|
| Share-based Payment Arrangement, Option [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | 151,400 | 241,370 |
Note 10 - Major Customers and Export Sales - Foreign and Domestic Net Sales (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 26, 2021 |
Jun. 27, 2020 |
Jun. 26, 2021 |
Jun. 27, 2020 |
|
| Net revenue | $ 425,830 | $ 598,730 | $ 1,209,309 | $ 1,987,406 |
| UNITED STATES | ||||
| Net revenue | 425,830 | 512,455 | 972,754 | 1,500,502 |
| Non-US [Member] | ||||
| Net revenue | $ 0 | $ 86,275 | $ 236,555 | $ 486,904 |
Note 10 - Major Customers and Export Sales - Foreign Revenue (Details) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 26, 2021 |
Jun. 27, 2020 |
Jun. 26, 2021 |
Jun. 27, 2020 |
|
| MOROCCO | ||||
| Foreign revenue by country | 0.00% | 0.00% | 63.00% | 0.00% |
| EGYPT | ||||
| Foreign revenue by country | 0.00% | 0.00% | 24.00% | 0.00% |
| Mid-East and Africa [Member] | ||||
| Foreign revenue by geographical area | 0.00% | 100.00% | 95.00% | 100.00% |
| PHILIPPINES | ||||
| Foreign revenue by country | 0.00% | 0.00% | 5.00% | 0.00% |
| SAUDI ARABIA | ||||
| Foreign revenue by country | 0.00% | 100.00% | 8.00% | 99.00% |
| Far East [Member] | ||||
| Foreign revenue by geographical area | 0.00% | 0.00% | 5.00% | 0.00% |
| Other Foreign Countries [Member] | ||||
| Foreign revenue by country | 0.00% | 0.00% | 0.00% | 1.00% |