TECHNICAL COMMUNICATIONS CORP (Form: 10-K, Received: 12/22/2014 16:33:07)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 27, 2014

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-34816

Technical Communications Corporation

(Exact name of registrant as specified in its charter)

Massachusetts

04-2295040

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


100 Domino Drive, Concord, MA		01742-2892
(Address of principal executive offices)		(Zip code)

(978) 287-5100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Common Stock, $0.10 par value		NASDAQ Capital Market
(Title of each class)		(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

Not applicable

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ¨ NO x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. YES ¨ NO x

x Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO x

Based on the closing price as of March 28, 2014, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $9,435,422.

The number of shares of the registrant’s common stock, par value $ 0.10 per share, outstanding as of December 12, 2014 was 1,838,921.

Portions of the Company’s Definitive Proxy Statement to be delivered to shareholders in connection with the Company’s 2015 Annual Meeting of Shareholders to be held February 9, 2015 are incorporated by reference into Part III of this Form 10-K.

TECHNICAL COMMUNICATIONS CORPORATION

Annual Report on Form 10-K

For the Year Ended September 27, 2014

Table of Contents


Part I
Item 1.	Business	1
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	15
Item 3.	Legal Proceedings	15
Item 4.	Mine Safety Disclosures	15

Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6.	Selected Financial Data	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 8.	Financial Statements and Supplementary Data	25
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	25
Item 9A.	Controls and Procedures	25
Item 9B.	Other Information	26

Part III
Item 10.	Directors, Executive Officers and Corporate Governance	27
Item 11.	Executive Compensation	27
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	27
Item 13.	Certain Relationships and Related Transactions, and Director Independence	27
Item 14.	Principal Accountant Fees and Services	27

Part IV
Item 15.	Exhibits and Financial Statement Schedules	28

Signatures		30

This annual report on Form 10-K contains or incorporates by reference not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections. We refer you to the information under the heading “Forward-Looking Statements.” As used in this annual report on Form 10-K, references to “Technical Communications Corp,” the “Company,” “we,” “our” or “us,” unless the context otherwise requires, refer to Technical Communications Corporation and our subsidiaries. All trademarks or trade names referred to in this report are the property of their respective owners.

PART I

Item 1.

BUSINESS

Technical Communications Corporation was organized in 1961 as a Massachusetts corporation to engage primarily in consulting activities. Since the late 1960s, the business has consisted entirely of the design, development, manufacture, distribution, marketing and sale of communications security devices, systems and services. The secure communications solutions provided by TCC protect vital information transmitted over a wide range of data, video and voice networks. TCC’s products have been sold into over 115 countries to governments, military agencies, telecommunications carriers, financial institutions and multinational corporations. The Company’s business consists of one industry segment, which is the design, development, manufacture, distribution, marketing and sale of communications security devices, systems and services.

Overview

The Company’s products consist of sophisticated electronic devices that enable users to transmit information in an encrypted format and permit recipients to reconstitute the information in a deciphered format if the recipient possesses the right decryption “key”. The Company’s products can be used to protect confidentiality in communications between radios, telephones, mobile phones, facsimile machines and data network equipment over wires, fiber optic cables, radio waves, and microwave and satellite links. The principal markets for the Company’s products are foreign and domestic governmental agencies, law enforcement and military agencies, financial institutions, and multinational companies requiring protection of mission-critical information.

TCC historically and presently designs and develops its own equipment and software to meet the requirements of general secure communications applications, as well as the custom-tailored requirements of specific users. A customer may order equipment that is specially programmed to encrypt transmissions in accordance with a code to which only the customer has access. Management believes the coordinated development of cryptographic software and associated hardware allows TCC to provide high-strength encryption security products with efficient processing and transmission. Both criteria, the Company believes, are essential to customer satisfaction.

TCC manufactures most of its products using third-party vendors for the supply of components and selected processing. Final assembly, software loading, testing and quality assurance are performed by TCC at its factory. This manufacturing approach allows TCC to competitively procure the components from multiple suppliers while maintaining control of the manufacture and performance of the final product.

TCC’s products are sold worldwide through a variety of channels depending on the country and the customer. Generally, TCC does not use stocking distributors because the Company’s products are required to be sold under an applicable U.S. government license, which generally requires end-user information. Rather, the Company sells directly to customers, original equipment manufacturers and value-added resellers using its in-house sales force as well as domestic and international representatives, consultants and distributors. The marketing and selling approach varies with each country and often involves extensive test and demonstration activity prior to the consummation of a sale. TCC has a network of in-country representatives and consultants who conduct performance demonstrations, market the products and close the sale, and who handle on behalf of TCC many of the ancillary requirements pertaining to importation duties, taxes, registration fees, and product receipt and acceptance. After-sale, in-country support by the representatives maintains customer satisfaction and provides a liaison for the Company’s customer support services.

Providing secure communications systems and services for government and military markets worldwide remains a principal focus for TCC, as the Company believes continued concerns over security will sustain demand for increased protection of both voice and data networks. Our focus in the government market also now includes law enforcement special operations customers. Additionally, we see increased interest for secure communications in the corporate industrial sector. Management has planned selected, evolutionary upgrades and product derivatives of our government/military products both to provide entry into these new markets and meet new requirements of our existing customers. We believe the ability of TCC to custom-tailor cryptographic functions and control systems to satisfy unique customer requirements will meet a growing demand as customers become more sophisticated in defining their communications security needs.

2014 Highlights and Recent Events

Delays in the receipt of certain foreign and domestic contracts, coupled with customer and production delivery requirements, resulted in lower than expected revenue for fiscal 2014. Delays were primarily the result of international political unrest, which diverted foreign government customers’ attention to domestic issues, as well as other factors associated with government procurements that often subject the Company to unpredictable and erratic delays in the processing of procurements and delivery of products. TCC did receive a significant foreign contract for $3.3 million from the Government of Egypt in the first quarter of fiscal 2015.

Revenues in fiscal 2014 were $6,139,000 with a net loss of $(2,565,000) or $(1.39) per share. The fiscal 2014 results reflect a partial shipment of our large contract received in fiscal 2013 for network encryption for use by the Government of Egypt, along with strong sales for radio applications during the year. TCC’s backlog at the end of the 2014 fiscal year was $402,000, as compared to $2.28 million at the end of fiscal 2013.

Offering high-end custom cryptographic services and solutions is an established market niche for the Company and we believe an important competitive differentiator. In fiscal 2014, custom TCC equipment and services continued to provide recurring revenue opportunities within the Company’s established government systems product line, as well as new market opportunities for network encryption, including the following:

•

In fiscal 2014, the Company delivered on contracts received in fiscal 2013 and fiscal 2014 of $1 million from Datron Worldwide Communications, Inc., a radio communications manufacturer, as part of an original equipment manufacturer (“OEM”) relationship for its DSP 9000 radio encryption equipment for deployment into Afghanistan and other countries. TCC provides a radio encryption card designed to be embedded in Datron radios, a DSP 9000 radio encryption handset sold with Datron radios, and other interoperable secure radio equipment.

•

In fiscal 2014, TCC delivered $1.28 million of secure radio and telephone equipment and customized services, tools and training orders that were received in both fiscal 2013 and fiscal 2014 from a domestic prime contractor supporting a government customer in North Africa. TCC provided the customer its DSP 9000 military radio encryption system as well as a secure telephone solution. Additionally, TCC delivered operation, maintenance and cryptography training services, as well as customized tools to enable customer-independent system maintenance and testing, and cryptographic validation.

•

TCC delivered the remaining $1.79 million of additional products and services in fiscal 2014 on a $3.6 million foreign military sales (“FMS”) contract received in fiscal 2013 from the U.S. Army Communications and Electronics Command (“CECOM”) to upgrade the DSD 72A-SP military bulk encryption system currently in use securing strategic-level military communications for the Government of Egypt. In addition to product upgrade kits, which were specifically designed for this customer requirement, TCC provided test equipment and training services both at TCC’s facility in Concord, Massachusetts as well as in-country. The Company expects future follow-on sales from the Government of Egypt as this customer proceeds to upgrade the balance of its network, as well as sales of new systems for additional communications security applications. As noted above, in the first quarter of fiscal 2015 the Company received the first of these follow-on orders: a $3.3 million order for its DSD 72A-SP bulk encryption systems.

•

TCC delivered $800,000 of an order received in fiscal 2014 from a government in the Middle East for TCC’s Cipher X 7211 IP encryption system with custom-developed capability to secure high-bandwidth satellite communications. The custom-developed capability is also marketable worldwide as an option on the Cipher X 7211.

•

TCC’s DLE 7050 link encryptor continues to provide incremental revenue from established customers. A $323,000 contract for the DLE 7050 link encryption system for deployment into Saudi Arabia was delivered in fiscal 2014. TCC received an additional contract in the first quarter of fiscal 2015 for the DLE 7050 for $432,000, also for deployment into Saudi Arabia.

TCC continued to increase sales and marketing efforts in fiscal 2014 with lead generation initiatives and strategic partnerships, and plans to continue such efforts in fiscal 2015. Technical work continued to focus on three principal areas: development of solutions that meet the needs of OEMs; product enhancements that include expanded features, planned capability and applications growth; and custom solutions that tailor our products and services to meet the unique needs of our customers. Going forward, the Company expects to continue technical efforts in these areas while also increasing our systems design and integration capabilities and services offering portfolio. The following are highlights of product development efforts in fiscal 2014:

•

Production readiness of the HSE 6000 headset radio encryptor for secure land mobile radio communications. Production of the HSE 6000 is complete and it is currently being field tested in several countries by military and first responder organizations.

•

Design and development of capability for TCC’s Cipher X 7211 IP encryptor to secure high-bandwidth satellite communications. The capability was developed for a customer-specific requirement and is now also marketable worldwide as an option for all customers.

•

Development to enhance the ability of TCC’s Cipher X 7211 IP encryption system to integrate custom and national algorithms without requiring modification to hardware. Development efforts are expected to continue in fiscal 2015 to offer a broader range of national algorithm solutions. TCC believes this is a competitive differentiator for the Company in foreign markets.

•

Development of KEYNET Lite-IP and KEYNET Lite-Optical key and device management systems. These KEYNET Lite systems are specifically designed to meet the needs of small networks and provide the same robust flexibility, security and ease of use of TCC’s fully featured KEYNET systems at a significantly lower price.

Escalating turmoil around the world presents both significant opportunities and challenges for TCC. The threat of terrorism and other political unrest increases the demand for security products that provide both strategic and tactical benefits, and are readily available. At the same time, political disruptions can cause unpredictable and erratic delays in the processing of procurements and delivery of products. The combined effects present a situation that challenges both our sales capture teams and our production capabilities. The Company believes these market conditions will provide opportunities to build a successful future through its efforts to enlarge and enhance its product line and expand its customer base by both identifying new customers for existing and new products and offering such products to current customers.

Products and Services

Described below is TCC’s portfolio of communications security solutions for mission-critical voice, data and video networks for military, government and corporate/industrial applications.

The Government Systems product line has traditionally been the Company’s core product base and generated more than 80% of the Company’s revenue during the 2013 and 2014 fiscal years. These products, such as the DSD 72A-SP military bulk encryptor, CSD 3324SE telephone/fax encryptor, and the DSP 9000 radio encryptor, have proven to be highly durable, which has led to significant repeat business from our government customers. The Company believes that these products and their derivatives will continue to be the Company’s most significant source of future revenues.

The Company’s Secure Office Systems product line primarily consists of products that were originally acquired through an asset and rights purchase from a subsidiary of AT&T in 1995. These products have produced modest revenues since their acquisition. Although some of these products are still available and remain profitable, demand for them has diminished in recent years. We will continue to offer our Secure Office Systems products from existing inventory, which we anticipate will be sufficient for several more

years. Offering CipherTalk ^® secure mobile phone communications since 2005, the Company in 2012 introduced its next-generation CipherTalk secure mobile IP-based phone as part of this product line. The market for high-end secure wireless mobile phones continues to develop modestly.

With the availability of our next-generation IP and SONET/SDH encryptors and ability to integrate customer-specific national algorithms, the Company believes that its Network Security Systems are competitive for a growing niche of mission-critical government and industrial/corporate network applications worldwide. TCC is hopeful that future derivatives of its IP encryptor and KEYNET IP Manager system will expand the market opportunity for these products.

The Company also provides customized tools, products and training upon a customer’s request, as well as designs solutions for OEM requirements. In addition, the Company actively sells its engineering services in support of funded research and development. These services are typically billed to a customer on a time and materials basis and can run for several months to several years depending on the scope of the project.

Government Systems

The Company’s DSD 72A-SP Military Bulk Ciphering System is a rugged military system that provides a high level of cryptographic security for data networks operating at up to 34 million bits per second. The product supports a wide variety of interfaces and is designed to integrate into existing networks. Reliable secure communication is achieved with communication synchronization methods built to maintain connections in error and jamming environments such as radio relay networks, missile systems and microwave systems.

TCC’s DSD 72A-SP (STM) SONET/SDH network encryptor meets the environmental and operational requirements for military environments and operates at 155 Mb/s and 622 Mb/s performance. It is designed to support customers with TCC’s DSD 72A-SP system that are transitioning to higher speed SONET/SDH networks.

The Company’s DSP 9000 Radio Security family of products offers strategic-level security for voice and data communications sent over HF, VHF and UHF channels. Designed for military environments, the Company believes these products provide high voice quality over poor line connections, making them an attractive security solution for military aircraft, naval, base station and manpack radio applications. These products provide automated key distribution for security and ease of use. They are also radio independent because software programmable interfaces allow radio interface levels to be changed without configuring the hardware. Base station, handset and implant board configurations are available options. All versions interoperate with TCC’s HSE 6000 Squad Radio Headset and Telephone Encryptor for cross-network secure voice conferencing. The base station model also interoperates with the Company’s CSD 3324 SE secure telephone system to enable “office-to-field” communications.

TCC’s HSE 6000 Squad Radio Headset and Telephone Encryptor is designed for public safety special operations land mobile radio applications, as well as military applications. With the optional Telephone Interconnect Kit, the HSE 6000 connects to corded handset telephones for secure voice communications and radio-to-telephone conferencing over Voice over IP, digital, and analog telephone networks. It is also interoperable with the DSP 9000 radio security product family, enabling secure voice communications and cross-network conferencing across and between air, land, sea and office.

The Company’s CSD 3324 SE Secure Telephone, Fax and Data system provides strategic-level communications security for voice, fax and data encryption in a telephone package designed for government applications needing high reliability. The product has a fallback mode, which was originally developed for poor HF channels. As a result, secure communications are possible even over poor line conditions. TCC’s high-level encryption and automated key distribution system protect sensitive information, and internal storage of 800 keys provides hands-off security.

The Company’s CSD 3324 SP telephone and fax system provides integrated secure voice and fax security in a telephone package designed for homeland security and U.S. and international government applications. The CSD 3324 SPF fax encryptor attaches to fax machines to secure transmissions and is compatible with the CSD 3324 SP.

Secure Office Systems

The Company’s CSD 3600 Secure Portable Telephone Attachment may be placed between any telephone and corded handset worldwide to provide digital security. The attachment is small and portable, operates over both digital and analog telephone lines, and is designed to ensure protection through new and unique random keys negotiated with each communication session.

The Company’s CSD 4100 Executive Secure Telephone offers strategic-level voice and data security in an executive telephone package. Exceptional voice quality can be achieved with three different voice-coding algorithms. The product provides ease-of-use security features such as automated key management, authentication, certification and access control.

The CipherTalk 8000 series of secure mobile phones is designed to provide encrypted mobile voice communications anywhere in the world. Introduced in fiscal 2012, the CipherTalk 8000 series of IP-based secure wireless phones is designed to set up secure calls with all GSM bands, GPRS, EDGE, and 3G. In addition, it can establish secure calls connecting directly to the Internet via Wi-Fi, USB and satellite links without needing a SIM card.

Network Security Systems

TCC offers network encryption systems with KEYNET centralized key and device management for IP, SONET/SDH and frame relay networks to secure data in transit from local area network to local area network and across wide area networks. During 2014 the Company introduced KEYNET Lite, a version of KEYNET for small networks. The Company supports the industry standard Advanced Encryption Standard (“AES”) 256-bit cryptographic algorithm and can integrate customer-specific national algorithms to meet customer-specific needs. All of TCC’s encryption systems are designed to seamlessly overlay onto existing networks without requiring infrastructure changes. Network performance impact is negligible and we believe the systems are easy to deploy, monitor and manage. Additionally, the Cipher X family offers scalable performance to higher speeds without changing hardware. This minimizes the entry cost of deploying a security solution and provides a cost-effective path to meet evolving business needs. Upgrades are licensed and made available on-demand via the KEYNET management system. All performance levels interoperate and have identical functionality.

Cipher X 7211 IP Encryption with KEYNET IP Manager provides strategic-level secure communications for large IP networks for point-to-point and multicast applications such as video conferencing. It offers a unique combination of flexibility, scalable 1 gigabit per second performance and KEYNET IP Manager for ease of use. The Cipher X 7211 is a hardware-based, FIPS 140-2 Level 3 designed encryption device.

The DSD 72B-SP and DSD 72A-SP (STM) encryption family with KEYNET Optical Manager provides strategic-level path encryption of voice, data and video transmitted over SONET/SDH networks at wirespeed 155 Mb/s and 622 Mb/s performance. It comes in rugged industrial and industrial versions to meet various environmental and operating requirements. Protocol agnostic, the DSD 72B-SP family interoperates with any standard SDH or SONET network element. Automated KEYNET key and device management provides ease of use. The DSD 72B-SP family is interoperable with the DSD 72A-SP (STM) SONET/SDH encryptor for military environments.

Our Cipher X 7100 Frame Relay Encryption with KEYNET key and device management secures data transmitted over frame relay networks at up to 2 megabits per second. Encryption based on both the Triple DES and AES 256-bit algorithm are available and the same KEYNET system manages both system types. This product was designed to enable customers with Triple DES systems to evolve their network to the latest AES 256-bit standard.

Competition

The market for communications security devices and systems is highly competitive and characterized by rapid technological change. The Company has several competitors, including foreign-based companies, in the communications security device field. The Company believes its principal competitors include Crypto AG, Thales Group, Motorola Solutions, Inc., General Dynamics Corporation, Omnisec AG, Cisco Systems, Inc., Certes Networks, Inc., SafeNet, Inc. and Alcatel-Lucent.

The Company competes based on its service, the operational and technical features of its products, its customization abilities, its sales expertise, and pricing. Many of TCC’s competitors have substantially greater financial, technical, sales and marketing, distribution and other resources, greater name recognition and longer standing relationships with customers. Competitors with greater financial resources can be more aggressive in marketing campaigns, can survive sustained price reductions in order to gain market share and can devote greater resources to support existing products and develop new competing products.

Our competitive position also depends on our ability to attract and retain qualified personnel, obtain and maintain intellectual property protection or otherwise develop proprietary products or processes, and secure sufficient capital resources for product, research and development efforts.

Sales and Backlog

In fiscal 2014, the Company had four customers representing 73% of total net sales. These sales consisted of sales of upgrade kits to our 72A-SP bulk encryptors to the US Army CECOM for deployment in Egypt representing 29% of sales, our radio encryptors to a radio manufacturer for deployment in Afghanistan representing 17% of sales, our narrowband radio encryptors and the supply of customized cryptographic services, tools and training to a domestic prime contractor supporting a government customer in North Africa representing 14% of sales, and our CipherX 7211 IP encryptors to a customer in the Middle East representing 13% of sales. In fiscal 2013, the Company had three customers representing 71% of total net sales. These sales consisted of sales of upgrade kits to our 72A-SP bulk encryptors to the US Army CECOM for deployment in Egypt representing 29% of sales, engineering services provided to the U.S. government representing 27% of sales, and our radio encryptors to a radio manufacturer for deployment in Afghanistan representing 15% of sales.

The Company sells directly to customers, original equipment manufacturers and value-added resellers using its in-house sales force as well as domestic and international representatives, consultants and distributors. International sales are made primarily through our main office. We seldom have long-term contractual relationships with our customers and, therefore, generally have no assurance of a continuing relationship within a given market.

Orders for our products are usually placed by customers on an as-needed basis and we typically ship products within 30 to 180 days of receipt of a customer’s firm purchase order. Our backlog consists of all orders received where the anticipated shipping date is within 12 months of the order date. Because of the possibility of customer changes in delivery schedules or the cancellation of orders, our backlog as of any particular date may not be indicative of sales in any future period. Our backlog as of September 27, 2014 and September 28, 2013 was approximately $402,000 and $2,285,000, respectively.

The Company expects that sales to relatively few customers will continue to account for a high percentage of the Company’s revenues in any accounting period for the foreseeable future. A reduction in orders from any such customer, or the cancellation of any significant order and failure to replace such order with orders from other customers, would have a material adverse effect on the Company’s financial condition and results of operations.

Regulatory Matters

All payments to the Company for work performed on contracts with agencies of the U.S. government are subject to adjustment upon audit by the U.S. Defense Contract Audit Agency, the U.S. Government Accountability Office, and other agencies. The Company could be required to return any payments received from U.S. government agencies if it is found to have violated federal regulations. There have been no government audits in recent years and the company believes the result of such audits, should they occur, will not have a material adverse effect on its financial position or results of operations. In addition, U.S. government contracts may be canceled at any time by the government with limited or no notice or penalty. Contract awards are also subject to funding approval from the U.S. government, which involves political, budgetary and other considerations over which the Company has no control.

The U.S. government controls, through a licensing process, the distribution of encryption technology and the sale of encryption products. The procedure for obtaining the applicable license from either the Department of Commerce or the Department of State (depending on the U.S. government’s determination of jurisdiction) is well documented. The Company submits a license request application, which contains information pertaining to: the type of equipment being sold; detailed technical description (if required); the buyer; the end-user and use; quantity; and destination location. The appropriate departments of the U.S. government review the application and a licensing decision is provided to the Company. Pursuant to the receipt of the license, the Company may ship the product.

Many of TCC’s products can be sold under existing “blanket” licenses which have been obtained through a variant of the licensing process that approves products for sale to certain classes of customers (e.g. financial institutions, civilian government entities and commercial users). The Company has obtained “blanket” licenses for its secure telephone and office system products and its family of network encryptors. Licenses for sales of certain other products and/or to certain end users must be submitted for specific approval as described above. Although the U.S. government retains the right and ability to restrict product exports, the Company does not believe that U.S. government licensing will become more restrictive or an impediment to its business. The trend has been for the U.S. government to reduce the restrictions on the foreign sale of cryptographic equipment. TCC believes this trend is driven by the government’s recognition of the technology available from foreign sources and the need to allow domestic corporations to compete in foreign markets. However, should the regulations become more restrictive, it would have a negative impact on the Company’s international business, the impact of which could be material.

The costs and effects of compliance by the Company with applicable environmental laws during fiscal 2014 were, and historically have been, immaterial. In 2003 the European Union adopted the “Restriction of Hazardous Substances Directive 2002/95/EC”. In the event the Company’s sales to Europe increase, the Company may have to incur additional costs to provide for the disposal of its products in compliance with that directive.

Manufacturing

TCC has several manufacturing subcontractors and suppliers that provide outside processing of electronic circuit boards, fabrication of metal components, and supply of electronic components. For the majority of purchased materials and services, TCC has multiple suppliers that are able to deliver materials and services under short-term delivery purchase orders. Payment is typically made after delivery, based upon standard credit arrangements. For a small minority of parts, there are limited sources of supply. In such cases, TCC monitors source availability and usually stocks for anticipated long-term requirements to assure manufacturing continuity. Notwithstanding the Company’s efforts to maintain material supplies, shortages can and do develop, resulting in delays in production, significant engineering development effort to find alternative solutions and, if production cannot be maintained, the discontinuation of the affected product design.

The Company’s internal manufacturing process consists primarily of adding critical components, final assembly, quality control, testing and system burn-in. Delivery times vary depending on the products and options ordered.

Technological Expertise

The Company’s technological expertise and experience, including certain proprietary rights which it has developed and maintains as trade secrets, are crucial to the conduct of the Company’s business. Management is of the opinion that, while patent protection is desirable with respect to certain of its products, none of the Company’s patents are material to the conduct of its business. Eight patents have been issued to the Company. The Company also has a number of registered and unregistered trademarks for various products, none of which are material to the conduct of TCC’s business.

TCC has an on-going technology license for communications protocol software used in the CipherONE family of Network Security System products. The license is royalty-based and runs without a specified termination date. The cost of this license is immaterial.

TCC has been designing and producing secure, cryptography-based communications systems for over 50 years, during which time the Company has developed many technological techniques and practices. This expertise and experience is in the areas of cryptographic algorithm design and implementation, key distribution and management systems, cryptographic processors, voice and fax encryption, and electronic hardware design. TCC relies on its internal technical expertise and experience, which TCC considers to be proprietary. These proprietary technologies are owned by TCC, are under TCC’s control, and have been documented consistent with standard engineering practices. It is estimated that the majority of sales during the past two years and during the next two years will be of products that are based upon TCC-proprietary designs.

Such technological experience and expertise are important as they enable an efficient design and development process. Loss of this experience and expertise would have an adverse impact on the Company. However, TCC’s practices governing the internal documentation of design data mitigate some of the risk associated with the loss of personnel who are skilled in the core competencies described above.

With the exception of the technology license referred to above, TCC has no material third party rights upon which the Company relies. Sales of the products associated with this license have not been and are not anticipated to be significant to the Company’s revenues.

Research and Development

Research and development efforts are undertaken by the Company primarily on its own initiative. In order to compete successfully, the Company must attract and retain qualified personnel, improve existing products and develop new products. 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 each of the years ended September 27, 2014 and September 28, 2013, the Company spent $2,729,000 on internal product development. The Company also spent $855,000 on billable development efforts during fiscal 2013. In fiscal 2014, the Company’s total product development costs were 23% lower than prior years but in line with its planned commitment to research and development, and reflected the costs of custom development, product capability enhancements and production readiness. It is expected that development expenses in fiscal 2015 will be approximately 10-15% lower than fiscal 2014 levels.

Research and development expenses (including internal product development and billable development efforts) in fiscal 2014 were lower than fiscal 2013 as major new product development efforts were previously completed and efforts focused on customer-specific requirements, product enhancements, production readiness and future product planning. The following are key fiscal 2014 research and development initiatives:

•

Design and development of capability for TCC’s Cipher X 7211 IP encryptor to secure high-bandwidth satellite communications. The capability was developed for a customer-specific requirement and is also marketable worldwide as an option for all customers.

•

Development to enhance the ability of TCC’s Cipher X 7211 IP encryption system to integrate custom and national algorithms without requiring modification to hardware. Development efforts are expected to continue in fiscal 2015 to offer a broader range of national algorithm solutions. TCC believes is a competitive differentiator for the Company in foreign markets.

•

In fiscal 2014, technical efforts continued to focus on three principal areas: development of solutions that meet the needs of OEMs; product enhancements that include expanded features, planned capability and applications growth; and custom solutions that tailor our products and services to meet the unique needs of our customers. Going forward, the Company expects to continue technical efforts in these areas while also increasing our systems design and integration capabilities and services offering portfolio.

Foreign Operations

The Company’s results of operations are dependent upon its foreign sales, including domestic sales shipped to foreign end-users. Although foreign sales were more profitable than domestic sales during fiscal years 2014 and 2013 because the mix of products sold abroad included a greater number of products with higher profit margins, this does not represent a predictable trend. Sales to foreign markets have been and will continue to be affected by, among other things, the stability of foreign governments, foreign and domestic economic conditions, export and other governmental regulations, and changes in technology. The Company attempts to minimize the financial risks normally associated with foreign sales by utilizing letters of credit confirmed by U.S. and foreign banks and by using foreign credit insurance. Foreign sales contracts are usually denominated in U.S. dollars.

The Company utilizes the services of sales representatives, consultants and distributors in connection with foreign sales. Typically, representatives are paid commissions and consultants are paid fixed amounts on a stipulated schedule in return for services rendered. Distributors are granted discounted pricing.

The export from the United States of many of the Company’s products may require the issuance of a license by the Department of State under the Arms Export Control Act of 1976, as amended, or by the Department of Commerce under the Export Administration Act as kept in force by the International Emergency Economic Powers Act of 1977, as amended. The licensing process is discussed in more detail under the “Regulatory Matters” section above.

In fiscal years 2014 and 2013, sales directly to international customers accounted for approximately 25.5% and 8.5%, respectively, of our net sales. During those periods a significant portion of domestic sales (17% and 15%, respectively) were made to a domestic radio manufacturer that shipped our radio encryption products overseas for use in Afghanistan. During fiscal year 2013, we initiated shipments of products delivered to the Government of Egypt representing 29% of sales under a contract with the U.S. Army. Based on our historical results we expect that international sales, including sales to domestic customers that ship to foreign end-users, will continue to account for a significant portion of our revenues for the foreseeable future. As a result, we are subject to the risks of doing business internationally, including:

•

changes in regulatory requirements,

•

domestic and foreign government policies, including requirements to expend a portion of program funds locally and governmental industrial cooperation requirements,

•

fluctuations in foreign currency exchange rates,

•

delays in placing orders,

•

the complexity and necessity of using foreign representatives, consultants and distributors,

•

the uncertainty of the ability of foreign customers to finance purchases,

•

uncertainties and restrictions concerning the availability of funding credit or guarantees,

•

imposition of tariffs or embargoes, export controls and other trade restrictions,

•

the difficulty of managing and operating an enterprise spanning several countries,

•

compliance with a variety of foreign laws, as well as U.S. laws affecting the activities of U.S. companies abroad, and

•

economic and geopolitical developments and conditions, including international hostilities, acts of terrorism and governmental reactions, inflation, trade relationships and military and political alliances.

While these factors and their impact are difficult to predict, any one or more of these factors could adversely affect our operations in the future.

We also may not be successful in obtaining the necessary licenses to conduct operations abroad, and the U.S. government may prevent proposed sales to foreign governments or other end-users.

Employees

As of September 27, 2014, the Company employed 33 full-time employees and three part-time employees, as well as several full and part-time consultants. The Company believes that its relationship with its employees is good.

Item 1A.

RISK FACTORS

You should carefully consider the following risk factors that affect our business. Such risks could cause our actual results to differ materially from those that are expressed or implied by forward-looking statements contained herein. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect us. If any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected. You should also consider the other information included in this Annual Report on Form 10-K for the fiscal year ended September 27, 2014 and subsequent quarterly reports filed with the SEC.

Our quarterly operating results typically fluctuate and our future revenues and profitability are uncertain.

We have experienced significant fluctuations in our quarterly operating results during the last five years and anticipate continued substantial fluctuations in our future operating results. A number of factors have contributed to these quarterly fluctuations including, but not limited to:

•

foreign political unrest;

•

budgeting cycles of customers, including the U.S. government;

•

introduction and market acceptance of new products and product enhancements by us and our competitors;

•

timing and execution of individual contracts;

•

competitive conditions in the communications security industry;

•

changes in general economic conditions; and

•

shortfalls of revenues in relation to expectations that formed the basis for the calculation of fixed expenses.

Our international operations expose us to additional risks.

The Company is dependent upon its foreign sales (including domestic sales shipped to foreign end-users) and we expect that sales to foreign end-users will continue to account for a significant portion of our revenues for the foreseeable future. As a result, we are subject to the risks of doing business internationally, including imposition of tariffs or embargoes, export controls, trade barriers and trade disputes, regulations related to customs and export/import matters, fluctuations in foreign economies and currency exchange rates, longer payment cycles and difficulties in collecting accounts receivable, the complexity and necessity of using foreign representatives, consultants and distributors, tax uncertainties and unanticipated tax costs due to foreign taxing regimes, the difficulty of managing and operating an enterprise spanning several countries, the uncertainty of protection for intellectual property rights and differing legal systems generally, compliance with a variety of laws, and economic and geopolitical developments and conditions, including international hostilities, armed conflicts, acts of terrorism and governmental reactions, inflation, trade relationships, and military and political alliances.

We also may not be successful in obtaining the necessary licenses to conduct operations abroad, including the export of many of the Company’s products, and the U.S. government may prevent proposed sales to foreign governments or certain international end-users. Export restrictions, compliance with which imposes additional burdens on the Company, may further provide a competitive advantage to foreign competitors facing less stringent controls on their products and services.

We continue to focus our efforts in emerging markets, including South America and Southwest Asia. In many of these emerging markets, we may be faced with risks that are more significant than if we were to do business in developed countries, including undeveloped legal systems, unstable governments and economies, and potential governmental actions affecting the flow of goods and currency.

We continue to face a number of risks related to current global economic and political conditions that could unfavorably impact our business.

Global economic conditions continue to be challenging for the secure communications markets, as many economies and financial markets remain in a recession resulting from a number of factors, including adverse credit conditions, low economic growth rates, continuing high rates of unemployment, and reduced corporate capital spending. Economic growth in the U.S. and many other countries has remained low and the length of time these adverse economic conditions may persist is unknown. In addition, conflicts in the Middle East and elsewhere have created many economic and political uncertainties that have impacted worldwide markets. These global economic and political conditions have impacted and could continue to impact our business in a number of ways, including:

•

Budgeting and forecasting are difficult: It is difficult to estimate changes in various parts of the U.S. and world economy, including the markets in which we participate. Components of our budgeting and forecasting are dependent upon estimates of demand for our products, and the prevailing economic and political uncertainties render estimates of future income and expenditures difficult.

•

Potential deferment or cancellation of purchases and orders by customers: Uncertainty about current and future global economic and political conditions may cause, and in some cases has caused, governments and businesses to defer or cancel purchases. If future demand for our products declines due to deteriorating global economic and political conditions, it will negatively impact our financial results.

•

Customers’ inability to obtain financing to make purchases: Some of our customers require substantial financing, including government financing, in order to fund their operations and make purchases from us. The inability of these customers to obtain sufficient credit or other funds to finance purchases of our products and/or meet their payment obligations could have a negative impact on our financial results.

Our future success will depend on our ability to respond to rapid technological changes in the markets in which we compete.

The markets for TCC’s products and services are characterized by rapid technological developments, changing customer technological requirements and preferences, frequent new product introductions, enhancements and modifications, and evolving industry standards. Our success will depend in large part on our ability to correctly identify emerging technological trends, enhance capabilities, and develop and manufacture new technologies and products quickly, in a cost-effective manner, and at competitive prices. The development of new and enhanced products is a complex and costly process. We may need to make substantial capital expenditures and incur significant research and development costs to develop and introduce such new products and enhancements. Our choices for developing technologies may prove incorrect if customers do not adopt the products we develop or if the technologies ultimately prove to be technically or commercially unviable. Development schedules also may be adversely affected as the result of the discovery of performance problems. If we fail to timely develop and introduce competitive new technologies, our business, financial condition and results of operations would be adversely affected.

Existing or new competitors may develop competing or superior technologies .

The industry in which the Company competes is highly competitive, and the Company has several domestic and foreign competitors. Many of these competitors have substantially greater financial, technical, sales and marketing, distribution and other resources, greater name recognition and longer standing relationships with customers. Competitors with greater financial resources can be more aggressive in marketing campaigns, can survive sustained price reductions in order to gain market share, and can devote greater resources to support existing products and develop new competing products. Any period of sustained price reductions for our products would have a material adverse effect on the Company’s financial condition and results of operations. TCC may not be able to compete successfully in the future and competitive pressures may result in price reductions, loss of market share or otherwise have a material adverse effect on the Company’s financial condition and results of operations. It is also possible that competing products will emerge that may be superior in quality and performance and/or less expensive than those of the Company, or that similar technologies may render TCC’s products obsolete or uncompetitive and prevent the Company from achieving or sustaining profitable operations.

The operating performance of our products is critical to our business and reputation.

The sale and use of our products entail a risk of product failure, product liability or other claims. Occasionally, some of our products have quality issues resulting from the design or manufacture of the product or the software used in the product. Often these issues are discovered prior to shipment and may result in shipping delays or even cancellation of orders by customers. Other times problems are discovered after the products have shipped, requiring us to resolve issues in a manner that is timely and least disruptive to our customers. Such pre-shipment and post-shipment problems have ramifications for TCC, including cancellation of orders, product returns, increased costs associated with product repair or replacement, and a negative impact on our goodwill and reputation.

Once our products are in use, any product failure, including software or hardware failure, which causes a breach of security with respect to our customer’s confidential communications, could have a material adverse effect on TCC. There is no guarantee of product performance or that our products are adequate to protect against all security breaches. While we attempt to mitigate such risks by maintaining insurance and including warranty disclaimers and liability limitation clauses in our arrangements with customers, such mitigation devices may not protect us against liability in all instances. If our products failed for any reason, our clients could experience data loss, financial loss, personal and property losses, harm to reputation, and significant business interruption. Such events may expose us to substantial liability, increased regulation and/or penalties, as well as loss of customer business and a diminished reputation. Any product liability claims and related litigation would likely be time-consuming and expensive, may not be adequately covered by insurance, and may delay or terminate research and development efforts, regulatory approvals and commercialization activities.

If our products and services do not interoperate with our end-users’ products, orders could be delayed or cancelled, which could significantly reduce our revenues.

Our products are designed to interface with our end-users’ existing products, each of which has different specifications and utilizes multiple protocol standards. Many of our end-users’ systems contain multiple generations of products that have been added over time as these systems have grown and evolved. Our products and services must interoperate with all of these products and services as well as with future products and services that might be added to meet our end-users’ requirements. If our products do not interface with those within our end-users’ products and systems, orders for our products could be delayed or cancelled, which could significantly reduce our revenues.

Government regulation and legal uncertainties could harm our business .

As a party to a number of contracts with the U.S. government and its agencies, the Company must comply with extensive regulations with respect to bid proposals and billing practices. Should the U.S. government or its agencies conclude that the Company has not adhered to federal regulations, any contracts to which the Company is a party could be canceled and the Company could be prohibited from bidding on or participating in future contracts. Moreover, payments to the Company for work performed on contracts with agencies of the U.S. government are subject to audit and adjustment. The Company could be required to return any payments received from U.S. government agencies if it is found to have violated federal regulations. There have been no government audits in recent years and the company believes the result of such audits, should they occur, will not have a material adverse effect on its financial position or results of operations. In addition, U.S. government contracts may be canceled at any time by the government with limited or no notice or penalty. Contract awards are also subject to funding approval from the U.S. government, which involves political, budgetary and other considerations over which the Company has no control.

The Company’s security products are subject to export restrictions administered by the U.S. Department of Commerce and Department of State, which license the export of encryption products, subject to certain technical restrictions. In addition, U.S. export laws prohibit the export of encryption products to a number of hostile countries and some end-users. Although to date the Company has been able to secure necessary U.S. government export licenses, there can be no assurance that the Company will continue to be able to secure such licenses in a timely manner in the future, or at all. Delays in obtaining necessary approvals could be costly in terms of lost sales opportunities and compliance costs. Should export restrictions increase or regulations become more restrictive, or should new laws be enacted, it could have a negative impact on the Company’s international business, which impact could be material.

Contracts with the U.S. government may not be fully funded at inception and are subject to termination .

A portion of our revenues has historically been generated under agreements with the U.S. government. Any changes or delays in the budget of the U.S. government, and in particular defense

spending, could affect our business, and funding levels are difficult to predict with any certainty. Moreover, certain multi-year contracts are conditioned on the continuing availability of appropriations. However, funds are typically appropriated on a fiscal-year basis, even though contract performance may extend over many years, making future sales and revenues under multi-year contracts uncertain. Changes in appropriations and budgets as well as economic conditions generally in subsequent years may impact the funding for these contracts. In addition, changes in funding and other factors may lead to the termination of such contracts. The U.S. government typically has the right to terminate agreements for convenience with little or no penalty. Adverse changes in funding and the termination of government contracts could have a material adverse impact on the Company’s financial condition and results of operations.

If the protection of our intellectual property is inadequate, our competitors may gain access to our technologies.

The Company’s technological expertise and experience, including certain proprietary rights that it has developed and maintains as trade secrets, are crucial to the conduct of the Company’s business and its ability to compete in the marketplace. Such technological expertise and experience are important as they enable an efficient design and development process. Loss of this experience and expertise would have an adverse impact on the Company. To protect our proprietary information, we rely primarily on a combination of internal procedures, contractual provisions, and patent, copyright, trademark and trade secret laws. Such internal procedures and contractual provisions may not prove sufficient to maintain the confidentiality and proprietary nature of such information and may not provide meaningful protection in the event of any unauthorized use or disclosure. Trade secret and copyright laws afford only limited protection. Current and potential patents and trademarks may not provide us with any competitive advantage and patents and trademarks must be enforced and maintained to provide protection, which may prove costly and time-consuming.

Despite our efforts to safeguard and maintain our proprietary rights, we may not be successful in doing so or the steps taken by us may be inadequate to deter unauthorized parties from misappropriating our technologies or prevent them from obtaining and using our proprietary information, products and technologies. Moreover, our competitors may independently develop similar technologies or design around patents issued to us.

Other parties may have patent rights relating to the same subject matter covered by our products or technologies, enabling them to prevent us from operating without obtaining a license and paying royalties. Third parties also may challenge our patents or proprietary rights or claim we are infringing on their rights. Any claims of infringement or misappropriation, with or without merit, would likely be time-consuming, result in costly litigation and diversion of resources, and cause delays in the development and commercialization of our products. We may be required to expend significant resources to develop non-infringing intellectual property, pay royalties, or obtain licenses to the intellectual property that is the subject of such litigation. Royalties may be costly and licenses, if required, may not be available on terms acceptable to us, the absence of which could seriously harm our business.

In addition, the laws and enforcement mechanisms of some foreign countries may not offer the same level of protection as do the laws of the United States. Legal protections of our rights may be ineffective in such countries, and technologies developed in such countries may not be protected in jurisdictions where protection is ordinarily available. Our inability to protect our intellectual property both in the United States and abroad would have a material adverse effect on our financial condition and results of operations.

The Company relies on a small number of customers for a large percentage of its revenues.

We will be successful only if a significant number of customers adopt our secure communications products. Historically the Company has had a small number of customers representing a large percentage of its total sales. Although the Company endeavors to expand its customer base, we expect that sales to a limited number of customers will continue to account for a high percentage of our revenues in any given period for the foreseeable future. This reliance makes us particularly susceptible to factors affecting those customers. If such customers’ business declines and as a result our sales to such customers decline without corresponding sales orders from other customers, our financial condition and results of operations would be adversely affected. It is difficult to predict the rate at which customers will use our products, even in the case of repeat customers, and we do not typically have long-term contractual arrangements.

We may not be able to maintain effective product distribution channels.

We rely on an in-house sales force as well as domestic and international representatives, consultants and distributors for the sale and distribution of our products. Our sales and marketing organization may be unable to successfully compete against more extensive and well-funded operations of certain of our competitors. In addition, we must manage sales and marketing personnel in numerous countries around the world with the concomitant difficulties in maintaining effective communications due to distance, language and cultural barriers. Further, certain of our distributors may carry competing products lines, which may negatively impact our sales revenues.

Our management has determined that the Company’s internal control over financial reporting is currently not effective.

Our management team, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of the end of the Company’s 2014 fiscal year. In the course of that assessment, management identified a control deficiency that was also identified in the course of its assessments for fiscal years 2008 through 2013. Specifically, management determined that TCC lacked sufficient staff to adequately segregate accounting duties, which could result in a misstatement of financial statement items that would not be detected. Management concluded that such control deficiency constituted a material weakness and that our internal control over financial reporting was not effective as of September 27, 2014.

Until we are able to remediate the material weakness identified, such material weakness may materially and adversely affect our ability to report accurately our financial condition and results of operations in the future in a timely and reliable manner. In addition, although we review and evaluate our internal control systems to allow management to report on the sufficiency of our internal control over financial reporting, we cannot assure you that we will not discover additional weaknesses in the future or that any corrective actions taken to remediate issues identified during the course of an assessment will be effective. Any such additional weaknesses or failure to remediate any existing weakness could materially adversely affect our financial condition or ability to comply with applicable financial reporting requirements.

We rely on single or limited sources for the manufacture and supply of certain product components.

For a small percentage of parts, we rely upon a single or limited number of manufacturers and suppliers. Moreover, because we depend on third party manufacturers and suppliers, we do not directly control product delivery schedules or product quality. In addition, we may not be able to maintain satisfactory contractual relations with our manufacturers and suppliers. A significant delay in delivering products to our customers, whether from unforeseen events such as natural disasters or otherwise, could have a material adverse effect on our results of operations and financial condition. If we lose any of the manufacturers or suppliers of certain product components, we expect that it would take from three to six months for a new manufacturer or supplier to begin full-scale production of one of our products. The delay and expense associated with qualifying a new manufacturer or supplier and commencing production could result in a material loss of revenue and reduced operating margins and harm our relationships with customers. While we have not experienced any significant supply problems or problems with the quality of the manufacturing process of our suppliers and there have been no materially late deliveries of components or parts to date, it is possible that in the future we may encounter problems in the manufacturing process or shortages in parts, components or other elements vital to the manufacture, production and sale of our products.

The loss of existing key management and technical personnel and the inability to attract new hires could have a detrimental effect on the Company .

Our success depends on identifying, hiring, training, and retaining qualified professionals. Competition for qualified employees in our industry is intense and we expect this to remain so for the foreseeable future. If we were unable to attract and hire a sufficient number of employees, or if a significant number of our current employees or any of our senior managers resign, we may be unable to complete or maintain existing projects or bid for new projects of similar scope and revenue. The Company’s success is particularly dependent on the retention of existing management and technical personnel, including Carl H.

Guild, Jr., the Company’s President and Chief Executive Officer. Although the Company has entered into an employment agreement with Mr. Guild, the loss or unavailability of his services could impede our ability to effectively manage our operations.

We may need to expand our operations and we may not effectively manage any future growth.

As of December 12, 2014, we employed 33 full-time and three part-time employees as well as several full-time and part-time consultants. In the event our products and services obtain greater market acceptance, we may be required to expand our management team and hire and train additional technical and skilled personnel. We may need to scale up our operations in order to service our customers, which may strain our resources, and we may be unable to manage our growth effectively. If our systems, procedures, and controls are inadequate to support our operations, growth could be delayed or halted, and we could lose our opportunity to gain significant market share. In order to achieve and manage growth effectively, we must continue to improve and expand our operational and financial management capabilities. Any inability to manage growth effectively could have a material adverse effect on our business, results of operations, and financial condition.

Item 1B.

UNRESOLVED STAFF COMMENTS

Not applicable.

Item 2.

PROPERTIES

On April 1, 2014, the Company entered into a new lease for its current facilities. This lease is for 22,800 square feet located at 100 Domino Drive, Concord, MA. The Company has been a tenant in this space since 1983. This is the Company’s only facility and houses all manufacturing, research and development, and corporate operations. The initial term of the lease is for five years through March 31, 2019 at an annual rate of $171,000. In addition, the lease contains options to extend the lease for two and one half years through September 30, 2021 and another two and one half years through March 31, 2024 at an annual rate of $171,000. Rent expense for each of the years ended September 27, 2014 and September 28, 2013 was $171,000.

Item 3.

LEGAL PROCEEDINGS

There are no current legal proceedings as to which TCC or its subsidiary is a party or as to which any of their property is subject.

Item 4.

MINE SAFETY DISCLOSURES

Not applicable.

PART II

Item 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Company’s common stock, $0.10 par value, trades on the NASDAQ Capital Market under the symbol “TCCO.” The following table presents low and high sales prices for the common stock for the time periods specified as reported by The NASDAQ Stock Market, Inc.


			Price
Title of Class	Quarter Ending		Low		High

Common Stock, $0.10 par value		9/27/2014	$	3.66	$	6.43
		6/28/2014		4.19		6.64
		3/29/2014		6.40		8.50
		12/28/2013		6.49		9.97

		9/28/2013	$	6.00	$	7.90
		6/29/2013		4.29		8.00
		3/30/2013		3.91		5.45
		12/29/2012		4.22		6.00

Holders

As of December 12, 2014, there were approximately 75 record holders of our Common Stock. We believe there are approximately 914 beneficial holders of our stock.

Dividends

The Company paid cash dividends on its common stock during the first quarter of fiscal year 2013 as follows:


Payment Date	Aggregate		Per Share
December 28, 2012	$	183,872	$	0.10

It is not the Company’s intention to pay dividends unless future profits warrant such actions. The Board of Directors decided on December 6, 2012 that it would suspend consideration of future dividends until such time as the Company’s revenue and profit performance justified it.

Equity Compensation Plan Information

The following table presents information about the Technical Communications Corporation 2010 Equity Incentive Plan, the Technical Communications Corporation 2005 Non-Statutory Stock Option Plan, and the Technical Communications Corporation 2001 Stock Option Plan as of the fiscal year ended September 27, 2014. For more information on these plans, see the discussion of the Company’s stock option plans and stock-based compensation plans included in Note 2 to the Company’s financial statements as of and for the year ended September 27, 2014, included herewith.


Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights			Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance
Equity compensation plans approved by stockholders		146,797	(1)	$	10.99		55,603

Equity compensation plans not approved by stockholders		122,688	(2)	$	6.04		19,723

Total		269,485		$	8.74		75,326

(1)	Of the 146,797 options outstanding as of September 27, 2014, 115,447 were exercisable as of such date at an average exercise price of $11.09 per share.

(2)	Of the 122,688 options outstanding as of September 27, 2014, 121,288 were exercisable as of such date at an average exercise price of $5.97 per share.

Sales of Unregistered Securities and Purchases by the Issuer and Affiliated Purchasers

There were no sales by the Company of unregistered shares of the Company’s common stock during the 2014 fiscal year and no purchases of TCC stock by or on behalf of the Company or any affiliated purchaser during the fourth fiscal quarter of the 2014 fiscal year.

Item 6.

SELECTED FINANCIAL DATA

Not applicable.

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the Company’s financial condition and results of operations should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto appearing elsewhere herein.

Forward-Looking Statements

The following discussion may contain statements that are not purely historical. Such statements contained herein or as may otherwise be incorporated by reference herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include but are not limited to statements regarding anticipated operating results, future earnings, and the ability to achieve growth and profitability. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, including but not limited to the 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 Securities and Exchange Commission, including this Form 10-K for the fiscal year ended September 27, 2014 and the “Risk Factors” section included herein.

Overview

TCC 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 have also sold these products to commercial entities and U.S. government agencies. In addition to product sales, we generate 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

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, inventory reserves, receivable reserves, impairment of long-lived assets, income taxes and stock-based compensation. Management bases its estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. By their nature estimates are subject to an inherent degree of uncertainty. Actual results may differ from these estimates under different assumptions or conditions and such differences may be material.

The accounting policies that management believes are most critical to aid in fully understanding and evaluating our reported financial results include those listed below. For a more detailed discussion, see Note 2 in the Notes to Consolidated Financial Statements included herewith.

Revenue Recognition

Product revenue is recognized when there is persuasive evidence of an arrangement, the fee is fixed or determinable, delivery of the product and passage of title to the customer has occurred and we have determined that collection of the fee is probable. Title to the product generally passes upon shipment of the product, as the products are shipped FOB shipping point, except for certain foreign shipments where title passes upon entry of the product into the first port in the buyer’s country. If the product requires installation to be performed by TCC, all revenue related to the product is deferred and recognized upon completion of the installation. We provide for a warranty reserve at the time the product revenue is recognized.

We perform funded research and development and technology development for commercial companies and government agencies under both cost reimbursement and fixed-price contracts. Cost reimbursement contracts provide for the reimbursement of allowable costs and, in some situations, the payment of a fee. These contracts may contain incentive clauses providing for increases or decreases in the fee depending on how actual costs compare with a budget. Revenue from reimbursement contracts is recognized as services are performed. On fixed-price contracts that are expected to exceed one year in duration, revenue is recognized pursuant to the proportional performance method based upon the proportion of actual costs incurred to the total estimated costs for the contract. In each type of contract, we receive periodic progress payments or payments upon reaching interim milestones, and we retain the rights to the intellectual property developed in government contracts. All payments to TCC for work performed on contracts with agencies of the U.S. government are subject to audit and adjustment by the Defense Contract Audit Agency. Adjustments are recognized in the period made. There have been no government audits in recent years and the company believes the result of such audits, should they occur, will not have a material adverse effect on its financial position or results of operations. When the current estimates of total contract revenue and contract costs for a product development contract indicate a loss, a provision for the entire loss on the contract is recorded. Any losses incurred in performing funded research and development projects are recognized as funded research and development expenses.

Cost of product revenue includes material, labor and overhead. Costs incurred in connection with funded research and development are included in cost of sales. Product development costs are charged to billable engineering services, bid and proposal efforts or business development activities, as appropriate. Product development costs charged to billable projects are recorded as cost of sales; engineering costs charged to bid and proposal efforts are recorded as selling expenses; and product development costs charged to business development activities are recorded as marketing expenses. Product development costs consist primarily of personnel costs, outside contractor and engineering services, supplies and materials.

Inventory

We value our inventory at the lower of actual cost (based on first-in, first-out (FIFO) method) to purchase and/or manufacture or the current estimated market value (based on the estimated selling prices, less the cost to sell) of the inventory. We periodically review inventory quantities on hand and record a provision for excess and/or obsolete inventory based primarily on our estimated forecast of product demand, as well as historical usage. Due to the custom and specific nature of certain of our products, demand and usage for products and materials can fluctuate significantly. A significant decrease in demand for our products could result in a short-term increase in the cost of inventory purchases and an increase in excess inventory quantities on hand. In addition, our industry is characterized by rapid technological change, frequent new product development and rapid product obsolescence, any of which could result in an increase in the amount of obsolete inventory quantities on hand. Therefore, although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a significant negative impact on the value of our inventory and would reduce our reported operating results.

Accounts Receivable

Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The estimated allowance for uncollectible amounts is based primarily on a specific analysis of accounts in the receivable portfolio and historical write-off experience. While management believes the allowance to be adequate, if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required, which would reduce net income.

Accounting for Income Taxes

The preparation of our consolidated financial statements requires us to estimate our income taxes in each of the jurisdictions in which we operate, including those outside the United States, which may subject the Company to certain risks that ordinarily would not be expected in the United States. The income tax accounting process involves estimating our actual current exposure together with assessing temporary differences resulting from differing treatments of items, such as inventory obsolescence and stock-based compensation, for tax and accounting purposes. These differences result in the recognition of deferred tax assets and liabilities. We must then record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against deferred tax assets. We have recorded a full valuation allowance against our deferred tax assets of approximately $2.4 million as of September 27, 2014 due to uncertainties related to our ability to realize these assets. The valuation allowance is based on our estimates of taxable income by jurisdiction and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to adjust our valuation allowance, which could materially impact our financial position and results of operation.

Due to the nature of our current operations in foreign countries (selling products into these countries with the assistance of local representatives), the Company has not been subject to any foreign taxes in recent years and it is not anticipated that we will be subject to foreign taxes in the near future.

Stock-Based Compensation

We record the compensation expense for all stock-based payments based on the grant date fair value. We expense stock-based compensation over the employee’s requisite service period, generally the vesting period of the award.

The choice of a valuation technique, and the approach utilized to develop the underlying assumptions for that technique, involve significant judgments. These judgments reflect management’s assessment of the most accurate method of valuing the stock options we issue, based on our historical experience, knowledge of current conditions, and beliefs of what could occur in the future given available information. Our judgments could change over time as additional information becomes available to us, or the facts underlying our assumptions change. Any change in our judgments could have a material effect on our financial statements. We believe that our estimates incorporate all relevant information available at the time made and represent a reasonable approximation in light of the difficulties involved in valuing non-traded stock options.

Results of Operations

Year ended September 27, 2014 as compared to year ended September 28, 2013

Net Sales

Net sales for the years ended September 27, 2014 and September 28, 2013 were $6,139,000 and $6,250,000, respectively, a decrease of $111,000 or 2%. Sales for fiscal 2014 consisted of $4,575,000, or 75%, from domestic sources and $1,564,000, or 25%, from international customers as compared to fiscal 2013, in which sales consisted of $5,720,000, or 92%, from domestic sources and $530,000, or 8%, from international customers.

Foreign sales consisted of shipments to three different countries during the year ended September 27, 2014 and five different countries during the year ended September 28, 2013. 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:


	2014		2013

Saudi Arabia	$	1,155,000	$	370,000
Egypt		164,000		149,000
Colombia		245,000		—
Other		—		11,000

	$	1,564,000	$	530,000

Delays in the receipt of certain foreign and domestic contracts, coupled with customer and production delivery requirements, resulted in lower than expected revenue for fiscal 2014. Delays were primarily the result of international political unrest, which diverted foreign government customer’s attention to domestic issues, as well as other factors associated with government procurements that often subject the Company to unpredictable and erratic delays in the processing of procurements and delivery of products.

For the year ended September 27, 2014, product sales revenue was derived from the Company making additional shipments, amounting to $1,788,000, to the U.S. Army Communications and Electronics Command to upgrade the DSD 72A-SP military bulk encryption system currently in use by the Government of Egypt. The Company made shipments of our narrowband radio encryptors, and supplied customized cryptographic services, tools and training, for a domestic prime contractor supporting a government customer in North Africa amounting to $1,280,000 and also made shipments of our narrowband radio encryptors to a U.S. radio manufacturer for deployment into Afghanistan amounting to $1,044,000 during the year. We also sold our Cipher X 7211 IP encryptor to a customer in the Middle East amounting to $800,000 for fiscal 2014. Sales of our data link encryptor for deployment into Saudi Arabia amounted to $323,000, and sales of our secure telephone, fax, and data encryptors to a foreign customer amounted to $245,000. In addition, the Company made shipments of our narrowband radio encryptors to supply the secure radio and telephone encryption solutions for a domestic customer supporting a government customer in North Africa amounting to $220,000 during the period. Royalty sales to a domestic radio manufacturer amounted to $128,000 during the year ended September 27, 2014.

For the year ended September 28, 2013, we derived $1,600,000 in service revenue from the sale of engineering services to select customers. Product sales revenue were derived from the Company making the initial shipments, amounting to $1,679,000, to CECOM to upgrade the DSD 72A-SP military bulk encryption system currently in use by the Government of Egypt during the fourth quarter of the year. The Company also made shipments of our narrowband radio encryptors to supply the secure radio and telephone encryption solutions, and supplied customized cryptographic services and tools, for a domestic prime contractor supporting a government customer in North Africa amounting to $982,000 during the year. We also had sales of the Company’s narrowband radio encryptors to a U.S. radio manufacturer for deployment into Afghanistan amounting to $961,000, our Ethernet IP encryptor for deployment into the Middle East amounting to $263,000, our link encryptor into the Middle East amounting to $204,000, a spare parts order shipped to Egypt amounting to $149,000, and a domestic order for our narrowband radio encryptors amounting to $65,000. Royalty income for fiscal 2013 amounted to $60,000.

Gross Profit

Gross profit for fiscal year 2014 was $4,105,000, a decrease of $35,000 from gross profit of $4,140,000 for fiscal year 2013. Gross profit expressed as a percentage of sales was 67% in fiscal year 2014 compared to 66% in the prior year.

Operating Costs and Expenses

Selling, General and Administrative

Selling, general and administrative expenses for fiscal 2014 were $2,980,000, compared to $2,956,000 for fiscal 2013. This increase of $24,000 was attributable to an increase in general and administrative expenses of $44,000 offset by a decrease in selling and marketing expenses of $20,000 during the 2014 fiscal year.

The increase in general and administrative costs for the year ended September 27, 2014 was attributable to increases in personnel-related costs of $69,000 and insurance costs of $6,000 for the year. These increases were offset by decreases in recruiting costs of $22,000, professional and other public company fees of $7,000 and bank and investment fees of $5,000 during the year.

The decrease in selling and marketing expenses during fiscal 2014 were attributable to decreases in product evaluation costs of $92,000, bid and proposal efforts of $47,000, engineering sales support expenses of $42,000 and travel related costs of $12,000 during the year. These decreases were offset by increases in customer support costs of $90,000, advertising and marketing costs of $53,000, product demonstration costs of $12,000, bank fees of $8,000 and personnel-related costs of $6,000 during the year.

Product Development Costs

Product development costs for fiscal years 2014 and 2013 were $2,729,000. There were decreases during the 2014 fiscal year as a result of decreases in outside contractor costs of $512,000, project material costs of $84,000 and personnel-related costs of $133,000. These decreases were offset by increases in engineering support of sales and business development activities and a decrease in billable engineering services work, which resulted in increased product development costs of approximately $734,000 for the year ended September 27, 2014.

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 invests in research and development to enhance its existing products or to develop new products, as it deems appropriate. There was $1,600,000 of billable engineering services revenue generated during fiscal 2013 and no such revenue generated during fiscal 2014.

Net Loss

The Company generated a net loss of $2,565,000 for fiscal 2014, as compared to a net loss of $714,000 for fiscal 2013. This $1,852,000 increase in net loss is primarily attributable to an increase in the income tax provision of $1,789,000 during fiscal 2014. During the year ended September 27, 2014, the Company established a valuation allowance against deferred tax assets of $894,000, which is included in the income tax provision for the year ended September 27, 2014. This compares to an income tax benefit of $799,000 during fiscal 2013 based on its expected effective tax rate of 52.8%. The Company received a refund in fiscal 2013 of $214,000 in connection with an abatement claim from a prior year, which contributed to the increase in the effective tax rate in fiscal 2013. There was uncertainty regarding the outcome of the claim, therefore a benefit was not recorded until fiscal 2013.

The effects of inflation and changing costs have not had a significant impact on sales or earnings in recent years. As of September 27, 2014, none of the Company’s monetary assets or liabilities was subject to foreign exchange risks. The Company usually includes an inflation factor in its pricing when negotiating multi-year contracts with customers.

Liquidity and Capital Resources

We believe that our overall financial condition remains strong. Our cash, cash equivalents and marketable securities at September 27, 2014 totaled $6,043,000 compared with $6,044,000 at September 28, 2013. We continue to have no long-term debt. It is anticipated that our cash balances and cash generated from operations will be sufficient to fund our near-term research and development and marketing activities.

Cash Requirements

We believe that the combination of existing cash, cash equivalents, and highly liquid short-term investments, together with future cash to be generated by operations, will be sufficient to meet our ongoing operating and capital expenditure requirements for the foreseeable future and at least through the end of fiscal year 2015. We also believe that, in the long term, an anticipated improvement of business prospects, current billable activities and cash from operations will be sufficient to meet the Company’s investment in product development, 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.

Sources and Uses of Cash

The following table presents our abbreviated cash flows for the years ended September 27, 2014 and September 28, 2013:


	2014			2013

Net loss	$	(2,565,000	)	$	(714,000	)
Changes not affecting cash		1,378,000			199,000
Changes in assets and liabilities		1,421,000			316,000


Cash provided by (used in) operating activities		234,000			(199,000	)
Cash provided by investing activities		165,000			1,138,000
Cash used in financing activities		—			(184,000	)


Net change in cash and cash equivalents		399,000			755,000
Cash and cash equivalents - beginning of period		2,811,000			2,056,000


Cash and cash equivalents - end of period	$	3,210,000		$	2,811,000

Operating Activities

The Company generated approximately $433,000 more cash from operating activities in fiscal 2014 compared to fiscal 2013. This increase was primarily attributable to higher collections of accounts and income taxes receivables, a decrease in deferred tax assets, as well as a reduction of inventories, offset by a decrease in customer deposits during the year.

Investing Activities

Cash provided by investing activities during fiscal 2014 decreased by approximately $973,000 to $165,000 compared to cash provided by investing activities of $1,138,000 during fiscal 2013. This change is primarily attributable to an increase in the purchase of short-term investments in marketable securities in fiscal 2014.

Financing Activities

Cash used in financing activities during fiscal 2013 was $184,000 compared to no activity during fiscal 2014. The reduction in activity is due to the suspension of dividend payments during the second quarter of fiscal 2013.

Debt Instruments and Related Covenants

The Company maintains a line of credit agreement with Bank of America (the “Bank”) for a line of credit not to exceed the principal amount of $600,000. The line is supported by a financing promissory note. The loan is a demand loan with interest payable at the Bank’s prime rate plus 2.75% on all outstanding balances. The loan is secured by all assets of the Company (excluding consumer goods) and requires the Company to maintain its deposit accounts with the Bank, as well as comply with certain other covenants. At September 27, 2014 the company was in violation of the agreements covenant to maintain a minimum level of tangible net worth. The bank has subsequently waived that requirement for the current year. The line is available to support new letters of credit issued by the Company, although any standby letters of credit are required to be secured with cash. There were no cash borrowings against the line during the fiscal years ended September 27, 2014 and September 28, 2013.

Backlog

Backlog at September 27, 2014 and September 28, 2013 amounted to $402,000 and $2,285,000, respectively. The orders in backlog at September 27, 2014 are expected to ship over the next six 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 September 27, 2014, the Company had three outstanding letters of credit in the amounts of $329,000, $16,000 and $4,000, which are secured by collateralized bank accounts totaling $349,000.

Research and Development

Research and development expenses in fiscal 2014 were lower than the prior as major new product development was completed during fiscal 2013 and efforts in fiscal 2014 focused on customer-specific requirements, product enhancements, production readiness and future product planning. The following are key fiscal 2014 research and development initiatives:

•

Design and development of capability for TCC’s Cipher X 7211 IP encryptor to secure high-bandwidth satellite communications. The capability was developed for a customer-specific requirement and is also marketable worldwide as an option for all customers.

•

It is anticipated that cash from operations will fund our near-term research and development and marketing activities through at least the end of fiscal year 2015. 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.

Capital Expenditures

Other than those stated above, there are no plans for significant internal product development or material commitments for capital expenditures in fiscal 2015.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

New Accounting Pronouncements

ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force)

In July 2013, the FASB issued guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This guidance requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and not combined with deferred tax assets. This guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013, with early adoption permitted. The Company is currently evaluating the impact of this guidance but does not expect its adoption will have a material effect on the Company’s consolidated financial statements. This guidance will become effective for TCC as of the beginning of our 2015 fiscal year and is consistent with our present practice.

ASU 2014-09, Revenue From Contracts With Customers (Topic 606)

In May 2014, the FASB and the International Accounting Standards Board issued guidance on the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards (“IFRS”) that would: (1) remove inconsistencies and weaknesses in revenue requirements, (2) provide a more robust framework for addressing revenue issues, (3) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, (4) provide more useful information to users of financial statements through improved disclosure requirements, and (5) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. This guidance is effective prospectively for annual reporting

periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The Company is currently evaluating the impact of this guidance but does not expect its adoption will have a material effect on the Company’s consolidated financial statements. This guidance will become effective for TCC as of the beginning of our 2018 fiscal year.

ASU 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern

In August 2014 the Financial Accounting Standards Board updated U.S. Generally Accepted Accounting Principles to eliminate a critical gap in existing standards. The new guidance clarifies the disclosures management must make in the organization’s financial statement footnotes when management has substantial doubt about its ability to continue as a “going concern.” The Company is currently evaluating the impact of this guidance but does not expect its adoption will have a material effect on the Company’s consolidated financial statements. The guidance applies to all companies and is effective for the annual reporting periods ending after December 15, 2016, including interim periods within that reporting period.

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material impact on the accompanying financial statements.

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and notes thereto listed in the accompanying index to financial statements (Item 15) are filed as part of this Annual Report on Form 10-K and are incorporated herein by reference.

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

Item 9A.

CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Annual Report on Form 10-K. Based on that review and evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s current disclosure controls and procedures, as designed and implemented, are effective to ensure that such officers are provided with information relating to the Company required to be disclosed in the reports the Company files or submits under the Exchange Act and that such information is recorded, processed, summarized and reported within the specified time periods.

Management’s annual report on internal control over financial reporting . Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of September 27, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework , established in 1992.

A goal of the assessment was to determine whether any material weaknesses or significant deficiencies existed with respect to the Company’s internal control over financial reporting. A “material weakness” is defined as a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. A “significant deficiency” is a control deficiency, or a combination of control deficiencies, that adversely affects a company’s ability to initiate, authorize, record, process or report

external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the annual or interim financial statements that is more than inconsequential will not be prevented or detected.

In the course of its assessment for fiscal year 2014, management identified a control deficiency that was also identified during its assessments for the 2008 through 2013 fiscal years. During the course of the previous years’ evaluations, and again during the evaluation for the 2014 fiscal year, management determined that the Company lacked sufficient staff to segregate accounting duties. Management believes this control deficiency is primarily the result of the Company employing, due to its limited size, the equivalent of only one and one-half persons performing all accounting-related on-site duties. As a result, TCC does not maintain adequate segregation of duties within its critical financial reporting applications, the related modules and financial reporting processes. This control deficiency could result in a misstatement of our interim or annual consolidated financial statements that would not be detected. Accordingly, management has determined that this control deficiency constituted a material weakness, and that the Company’s internal control over financial reporting was not effective, as of September 27, 2014.

Management has discussed the material weakness and related potential corrective actions with the Audit Committee and Board of Directors of the Company and TCC’s independent registered public accounting firm. As part of our 2015 assessment of internal control over financial reporting, our management will test and evaluate additional controls implemented, if any, to assess whether they are operating effectively. Our goal is to take all actions feasible given our financial condition to remediate any material weaknesses and enhance our internal controls, but we cannot guarantee that our efforts, if any, will result in the remediation of our material weakness or that new issues will not be exposed in the process. In designing and evaluating our internal control over financial reporting, management recognizes that any controls, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, with the Company will be detected.

Changes in internal control over financial reporting . There were no changes in the Company’s internal control over financial reporting that occurred during its fourth quarter of fiscal 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.

OTHER INFORMATION

Not applicable.

Part III

Item 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item 10 is incorporated herein by reference to our Definitive Proxy Statement, under the captions “Members of the Board of Directors, Nominees and Executive Officers,” “Certain Relationships and Related Person Transactions; Legal Proceedings,” “Corporate Governance,” and “ Section 16(a) Beneficial Ownership Reporting Compliance,” with respect to our 2015 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company’s 2014 fiscal year.

The Company has adopted a Code of Business Conduct and Ethics, which applies to all of its employees, officers and directors. A copy of this code can be found on the Company’s website at www.tccsecure.com/investors.

Item 11.

EXECUTIVE COMPENSATION

The information required by this Item 11 is incorporated herein by reference to our Definitive Proxy Statement, under the captions “Compensation” and “Compensation Discussion and Analysis” with respect to our 2015 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company’s 2014 fiscal year.

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item 12 is incorporated herein by reference to Part II, Item 5 herein under the caption “Equity Compensation Plan Information” and by reference to our Definitive Proxy Statement, under the caption “Security Ownership of Certain Beneficial Owners and Management,” with respect to our 2015 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company’s 2014 fiscal year.

Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item 13 is incorporated herein by reference to our Definitive Proxy Statement, under the captions “Certain Relationships and Related Person Transactions; Legal Proceedings” and “Corporate Governance” with respect to our 2015 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company’s 2014 fiscal year.

Item 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item 14 is incorporated herein by reference to our Definitive Proxy Statement, under the caption Proposal III – Ratification of Selection of Independent Registered Public Accounting Firm with respect to our 2015 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company’s 2014 fiscal year.

PART IV

Item 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(1)

Financial Statements The following Consolidated Financial Statements and Notes thereto are filed as part of Part II, Item 8 of this report:


	Page

Consolidated Balance Sheets as of September 27, 2014 and September 28, 2013		31

Consolidated Statements of Operations for the Years Ended September 27, 2014 and September 28, 2013		32

Consolidated Statements of Comprehensive Loss for the Years Ended September 27, 2014 and September 28, 2013		32

Consolidated Statements of Cash Flows for the Years Ended September 27, 2014 and September 28, 2013		33

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended September 27, 2014 and September 28, 2013		34

Notes to Consolidated Financial Statements		35-48

(2)

List of Exhibits



3.1		Articles of Organization of the Company (incorporated by reference to the Company’s Annual Report for 2005 on Form 10-KSB, filed with the Securities and Exchange Commission on December 21, 2005)

3.2		By-laws of the Company (incorporated by reference to the Company’s 8-K filed with the Securities and Exchange Commission on May 5, 1998)

4		Rights Agreement, dated as of August 7, 2014, by and between the Company and American Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to the Company’s 8-K filed with the Securities and Exchange Commission on August 11, 2014)

10.1 ⁺		Employment Agreement, effective November 19, 1998, with Carl H. Guild, Jr. (incorporated by reference to the Company’s Annual Report for 1998 on Form 10-K, as amended, filed with the Securities and Exchange Commission on December 21, 1998)

10.2 ⁺		Employment Agreement, effective February 12, 2001, with Michael P. Malone (incorporated by reference to the Company’s Form 10-QSB filed with the Securities and Exchange Commission on May 15, 2001)

10.3 ⁺		Amendment to Employment Agreement between the Company and Carl H. Guild Jr., as of November 8, 2001 (incorporated by reference to the Company’s Form 10-QSB filed with the Securities and Exchange Commission on August 13, 2002)

10.4 ⁺		1995 Employee Stock Purchase Plan (incorporated by reference to the Company’s Registration Statement on Form S-8, filed with the Securities and Exchange Commission on May 23, 1996)

10.5 ⁺		2001 Stock Option Plan (incorporated by reference to the Company’s Registration Statement on Form S-8, filed with the Securities and Exchange Commission on December 28, 2001)

10.6		Standard Form Commercial Lease, dated March 27, 2014, between the Company and Batstone LLC (incorporated by reference to the Company’s 8-K filed with the Securities and Exchange Commission on April 2, 2014)

10.7*		Loan Agreement, dated February 22, 2012, between the Company and Bank of America, N.A.

10.8*		Security Agreement, dated February 22, 2012, between the Company and Bank of America, N.A.

10.9 ⁺		2005 Non-Statutory Stock Option Plan (incorporated by reference to the Company’s Form 10-QSB filed with the Securities and Exchange Commission on May 10, 2005.)

10.10 ⁺		2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.17 to the Company’s Form 10-K filed with the Securities and Exchange Commission on December 22, 2010.)



10.11		Contract with U.S. Army Contracting Command, dated May 2, 2013, contract No. W15P7T-13-C-D519 (Confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.) (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed with the Securities and Exchange Commission on August 13, 2013.)

10.12		Purchase Order from Datron World Communications dated October 8, 2013 (Confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.) (incorporated by reference to Exhibit 10.22 to the Company’s Form 10-K filed with the Securities and Exchange Commission on December 19, 2013.)

10.13*		Contract with the Egyptian Armament Authority with an effective date of November 25, 2014 (Confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.)

14		Code of Business Conduct and Ethics (incorporated by reference to the Company’s Annual Report for 2003 on Form 10-KSB, filed with the Securities and Exchange Commission on December 22, 2004.)

21*		List of Subsidiaries of the Company

23.1*		Consent of Independent Registered Public Accounting Firm

31.1*		Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32*		Certifications of Chief Executive and Chief Financial Officers pursuant to 18 U.S.C. Section 1350

101.INS		XBRL Report Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Calculation Linkbase Document

101.LAB		XBRL Taxonomy Label Linkbase Document

101.PRE		XBRL Presentation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

Footnotes:

*	Attached to this filing

+	Denotes a management contract or compensatory plan or arrangement

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


TECHNICAL COMMUNICATIONS CORPORATION

	By:	/s/ Carl H. Guild, Jr.
		Carl H. Guild, Jr.
	Chief Executive Officer and President Chairman of the Board, Director

	Date:	December 22, 2014

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date

/s/ Carl H. Guild, Jr.	Chief Executive Officer and President	December 22, 2014
Carl H. Guild, Jr.	Chairman of the Board, Director
	(Principal Executive Officer)

/s/ Michael P. Malone	Treasurer and Chief Financial Officer	December 22, 2014
Michael P. Malone	(Principal Financial and Accounting Officer)

/s/ Mitchell B. Briskin	Director	December 22, 2014
Mitchell B. Briskin

/s/ Thomas E. Peoples	Director	December 22, 2014
Thomas E. Peoples

/s/ Francisco F. Blanco	Director	December 22, 2014
Francisco F. Blanco

Technical Communications Corporation and Subsidiary

Consolidated Balance Sheets

September 27, 2014 and September 28, 2013


	2014			2013
ASSETS
Current assets:
Cash and cash equivalents	$	3,210,237		$	2,810,923
Marketable securities:
Available for sale securities		1,416,890			1,247,384
Held to maturity securities		310,437			522,856
Accounts receivable - trade, less allowance of $25,000 at September 27, 2014 and September 28, 2013		403,139			1,375,764
Inventories		2,721,313			2,618,604
Income taxes receivable		—			723,988
Deferred income taxes		—			894,459
Other current assets		210,379			225,583

Total current assets		8,272,395			10,419,561


Marketable securities:
Held to maturity securities		1,105,140			1,462,622

Equipment and leasehold improvements		4,465,096			4,300,304
Less accumulated depreciation and amortization		(4,033,233	)		(3,831,402	)

Equipment and leasehold improvements, net		431,863			468,902


	$	9,809,398		$	12,351,085


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	173,553		$	261,588
Accrued liabilities:
Compensation and related expenses		163,410			241,003
Customer deposits		169,943			259,602
Other current liabilities		157,784			166,848
Income taxes payable		76,859			—

Total current liabilities		741,549			929,041


Commitments and contingencies (Note 12)

Stockholders’ equity
Common stock - par value $0.10 per share; 7,000,000 shares authorized, 1,838,921 issued and outstanding at September 27, 2014 and 1,838,716 issued and outstanding at September 28, 2013		183,892			183,872
Additional paid-in capital		3,986,996			3,774,759
Accumulated other comprehensive loss		(3,598	)		(2,020	)
Retained earnings		4,900,559			7,465,433

Total stockholders’ equity		9,067,849			11,422,044

	$	9,809,398		$	12,351,085

The accompanying notes are an integral part of these consolidated financial statements.

Technical Communications Corporation and Subsidiary

Consolidated Statements of Operations

Years ended September 27, 2014 and September 28, 2013


	2014			2013

Net sales	$	6,138,575		$	6,249,649
Cost of sales		2,033,961			2,109,394

Gross profit		4,104,614			4,140,255


Operating expenses:
Selling, general and administrative		2,980,388			2,956,465
Product development		2,729,276			2,729,473

Total operating expenses		5,709,664			5,685,938


Operating loss		(1,605,050	)		(1,545,683	)

Other income
Investment income		30,289			32,752


Loss before provision (benefit) for income taxes		(1,574,761	)		(1,512,931	)

Provision (benefit) for income taxes		990,113			(798,802	)


Net loss	$	(2,564,874	)	$	(714,129	)


Net loss per common share
Basic	$	(1.39	)	$	(0.39	)
Diluted	$	(1.39	)	$	(0.39	)

Weighted average shares
Basic		1,838,866			1,838,716
Diluted		1,838,866			1,838,716

Dividends paid per common share		—		$	0.10

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Years ended September 27, 2014 and September 28, 2013


	2014			2013

Net loss	$	(2,564,874	)	$	(714,129	)
Other comprehensive loss, net of tax		(1,578	)		(12,062	)

Comprehensive loss	$	(2,566,452	)	$	(726,191	)

The accompanying notes are an integral part of these consolidated financial statements.

Technical Communications Corporation and Subsidiary

Consolidated Statements of Cash Flows

Years ended September 27, 2014 and September 28, 2013


	2014			2013

Operating activities:
Net loss	$	(2,564,874	)	$	(714,129	)
Adjustments to reconcile net income to cash (used in) provided by operating activities:
Depreciation and amortization		201,831			199,114
Stock-based compensation		213,243			205,028
Deferred income taxes		894,459			(276,381	)
Amortization of premium on held to maturity securities		70,394			83,716
Unrealized (loss) gain on available for sale securities		(1,578	)		(12,062	)

Changes in current assets and current liabilities:
Accounts receivable		972,625			4,708
Inventories		(102,709	)		14,804
Income taxes receivable		723,988			135,348
Other current assets		15,204			(54,854	)
Customer deposits		(89,659	)		207,230
Accounts payable and accrued liabilities		(98,819	)		9,094

Cash provided by (used in) operating activities		234,105			(198,924	)


Investing activities:
Additions to equipment and leasehold improvements		(164,792	)		(215,418	)
Proceeds from maturities of marketable securities		2,909,001			2,957,501
Purchases of marketable securities		(2,579,000	)		(1,604,675	)

Cash provided by investing activities		165,209			1,137,408


Financing activities:
Dividends paid		—			(183,872	)

Cash used in financing activities		—			(183,872	)


Net increase in cash and cash equivalents		399,314			754,612
Cash and cash equivalents at beginning of year		2,810,923			2,056,311


Cash and cash equivalents at end of year	$	3,210,237		$	2,810,923


Supplemental disclosures:

Income taxes paid	$	4,942		$	576

The accompanying notes are an integral part of these consolidated financial statements.

Technical Communications Corporation and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity

Years ended September 27, 2014 and September 28, 2013


	2014			2013

Stockholders’ Equity

Shares of common stock:
Beginning balance		1,838,716			1,838,716
Cashless exercise of stock options		205			—

Ending balance		1,838,921			1,838,716


Common stock at par value:
Beginning balance	$	183,872		$	182,732
Cashless exercise of stock options		20			—

Ending balance		183,892			183,872


Additional paid-in capital:
Beginning balance	$	3,774,759		$	3,569,731
Cashless exercise of stock options		(1,006	)		—
Stock-based compensation		213,243			205,028

Ending balance		3,986,996			3,774,759


Other comprehensive income (loss):
Beginning balance		(2,020	)		10,042
Unrealized loss on available for sale securities		(1,578	)		(12,062	)

Ending balance		(3,598	)		(2,020	)


Retained earnings:
Beginning balance	$	7,465,433		$	8,363,434
Dividends paid		—			(183,872	)
Net loss		(2,564,874	)		(714,129	)

Ending balance		4,900,559			7,465,433


Total stockholders’ equity	$	9,067,849		$	11,422,044

The accompanying notes are an integral part of these consolidated financial statements.

Notes to Consolidated Financial Statements

(1)

Company Operations

Technical Communications Corporation was incorporated in Massachusetts in 1961; its wholly-owned subsidiary, TCC Investment Corp., was organized in that jurisdiction in 1982. 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, 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.

The Company’s revenues have historically included significant transactions with foreign governments, U.S. government agencies and other organizations. The Company expects this to continue. The timing of these transactions has in the past and will in the future have a significant impact on the cash flow and the earnings of the Company. Delays in the timing of significant expected sales transactions would have a significant negative effect on the Company’s operations. The Company has some ability to mitigate this effect through cost-cutting measures. The Company has incurred losses of approximately $4.1 million during the past three years, however we believe we will have sufficient cash resources through at least the end of fiscal year 2015.

(2)

Summary of Significant Accounting Policies

We follow accounting standards set by the Financial Accounting Standards Board, commonly referred to as the FASB. The FASB sets generally accepted accounting principles (GAAP) that we follow to ensure we consistently report our financial condition, results of operations, and cash flows. References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification ^TM , sometimes referred to as the Codification or ASC.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, TCC Investment Corp., a Massachusetts corporation. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant judgments and estimates include those related to revenue recognition, receivable reserves, inventory reserves, impairment of long-lived assets, income taxes and stock-based compensation. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include demand deposits at banks and other investments (including mutual funds) readily convertible into cash. Cash equivalents are stated at cost, which approximates market value. At September 27, 2014, the Company had restrictions on the use of cash which was used as collateral to secured three outstanding letters of credit totaling $348,695.

Accounts Receivable

Notes to Consolidated Financial Statements (continued)

Inventories

The Company values its inventory at the lower of actual cost (based on first-in, first-out (FIFO) method) to purchase and/or manufacture or the current estimated market value (based on estimated selling prices, less the cost to sell) of the inventory. The Company periodically reviews inventory quantities on hand and records a provision for excess and/or obsolete inventory based primarily on our estimated forecast of product demand, as well as historical usage. The Company evaluates the carrying value of inventory on a quarterly basis to determine if the carrying value is recoverable at estimated selling prices. To the extent that estimated selling prices are less than the associated carrying values, inventory carrying values are written down. In addition, the Company makes judgments as to future demand requirements and compares those with the current or committed inventory levels. Reserves are established for inventory levels that exceed future demand. It is possible that additional reserves above those already established may be required in the future if market conditions for our products should deteriorate.

Equipment and Leasehold Improvements

Equipment and leasehold improvements are stated at cost. Depreciation and amortization are computed using the straight-line method over the lesser of the estimated useful life of the asset or the applicable lease term. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in operations for the period. The costs of maintenance and repairs are charged to operations as incurred; significant renewals and betterments are capitalized.

Long-lived Assets

The Company’s only long-lived assets are equipment and leasehold improvements. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These events include, a significant decrease in the market price of a long-lived asset, a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition, a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset, a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset, among other items. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by such asset. If the carrying amount of the asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset. Although an indicator did exist at September 27, 2014 we determined that no impairment charge was required as an estimate of our future undiscounted cash flows was sufficient to recover the assets.

Revenue Recognition

The Company recognizes product revenue when there is persuasive evidence of an arrangement, the fee is fixed or determinable, delivery of the product and passage of title to the customer has occurred and the Company has determined that collection of the fee is probable. Title to the product generally passes upon shipment of the product, as the products are shipped FOB shipping point, except for certain foreign shipments where title passes upon entry of the product into the first port in the buyer’s country. If the product requires installation to be performed by TCC, all revenue related to the product is deferred and recognized upon completion of the installation. The Company provides for a warranty reserve at the time the product revenue is recognized.

The Company performs funded research and development and technology development for commercial companies and government agencies under both cost reimbursement and fixed-price contracts. Cost reimbursement contracts provide for the reimbursement of allowable costs and, in some situations, the payment of a fee. These contracts may contain incentive clauses providing for increases or decreases in the fee depending on how actual costs compare with a budget. Revenue from reimbursement contracts is recognized as services are performed. On fixed-price contracts that are expected to exceed one year in duration, revenue is recognized pursuant to the proportional performance method based upon the proportion of actual costs incurred to the total estimated costs for the contract. In each type of contract, the Company receives periodic progress payments or payments upon reaching interim milestones. All payments to the Company for work performed on contracts with agencies of the U.S. government are subject to audit and adjustment by the Defense Contract

Notes to Consolidated Financial Statements (continued)

Audit Agency. Adjustments are recognized in the period made. There have been no audits in recent years and the company believes the result of such audits, should they occur, will not have a material adverse effect on its financial position or results of operations. If the current estimates of total contract revenue and contract costs for a product development contract indicate a loss, a provision for the entire loss on the contract is recorded. Any losses incurred in performing funded research and development projects are recognized as funded research and development expenses.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the calculated fair value of the award. The expense is recognized over the employee’s requisite service period, generally the vesting period of the award. The related excess tax benefit received upon the exercise of stock options, if any, is reflected in the Company’s statement of cash flows as a financing activity rather than an operating activity. There were no excess tax benefits for the years ended September 27, 2014 and September 28, 2013.

The Company uses the Black-Scholes option pricing model as the method for determining the estimated fair value of its stock awards. The Black-Scholes method of valuation requires several assumptions: (1) the expected term of the stock award, (2) the expected future stock price volatility over the expected term, (3) a risk-free interest rate and (4) the expected dividend rate. The expected term represents the expected period of time the Company believes the options will be outstanding based on historical information. Estimates of expected future stock price volatility are based on the historic volatility of the Company’s common stock and the risk free interest rate is based on the U.S. Treasury Note rate. The Company utilizes a forfeiture rate based on an analysis of its actual experience. The forfeiture rate is not material to the calculation of stock-based compensation. The fair value of options at date of grant was estimated with the following assumptions:


	September 27, 2014	September 28, 2013
Assumptions:
Option life	6.5 years	5 to 6.5 years
Risk-free interest rate	1.33% to 1.88%	0.71% to 0.79%
Stock volatility	60% to 65%	66%
Dividend yield	0%	0%

There were 15,700 options granted during the year ended September 27, 2014 and 16,500 options granted during the year ended September 28, 2013. The following table summarizes stock-based compensation costs included in the Company’s consolidated statements of income for the years ended September 27, 2014 and September 28, 2013:


	2014		2013

Cost of sales	$	16,287	$	16,295
Selling, general and administrative		111,067		87,613
Product development		85,889		101,120

Total stock-based compensation expense before taxes	$	213,243	$	205,028

Notes to Consolidated Financial Statements (continued)

As of September 27, 2014, there was $141,213 of unrecognized compensation cost related to options outstanding. The unrecognized compensation cost will be recognized as the options vest. The weighted average period over which the stock-based compensation cost is expected to be recognized is 1.34 years.

The Company had the following stock option plans outstanding as of September 27, 2014: the Technical Communications Corporation 2001 Stock Option Plan, the 2005 Non-Statutory Stock Option Plan and the 2010 Equity Incentive Plan. There were an aggregate of 750,000 shares authorized for issuance under these plans, of which options to purchase 269,485 shares were outstanding at September 27, 2014. Vesting periods are at the discretion of the Board of Directors and typically range between zero and five years. Options under these plans are granted with an exercise price equal to fair market value at time of grant and have a term of ten years from the date of grant.

As of September 27, 2014, there were no shares available for new grants under the 2001 Stock Option Plan; there were 19,723 shares available for grant under the 2005 Non-Statutory Stock Option Plan and 55,603 available for grant under the 2010 Equity Plan.

The following tables summarize stock option activity during fiscal years 2013 and 2014:


	Options Outstanding
	Number of Shares									Weighted Average Exercise Price		Weighted Average Contractual Life
	Unvested			Vested			Total			Weighted Average Exercise Price		Weighted Average Contractual Life

Outstanding, September 29, 2012		93,418			151,784			245,202		$	9.12		6.99 years

Grants		2,500			14,000			16,500			4.73
Vested		(33,319	)		33,319			—			10.46
Cancellations/forfeitures		(2,111	)		(2,009	)		(4,120	)		9.98


Outstanding, September 28, 2013		60,488			197,094			257,582		$	8.83		6.21 years


Grants		1,700			14,000			15,700			7.50
Vested		(28,239	)		28,239			—			11.06
Exercises		—			(900	)		(900	)		5.00
Cancellations/forfeitures		(1,210	)		(1,687	)		(2,897	)		11.21


Outstanding, September 27, 2014		32,739			236,746			269,485		$	8.74		5.46 years

Information related to the stock options vested or expected to vest as of September 27, 2014 is as follows:


Range of Exercise Prices	Number of Shares		Weighted- Average Remaining Contractual Life (years)		Weighted- Average Exercise Price		Exercisable Number of Shares		Exercisable Weighted- Average Exercise Price
$2.01 - $3.00		15,288		.94	$	3.00		15,288	$	3.00
$3.01 - $4.00		16,600		1.83		3.66		16,600		3.66
$4.01 - $5.00		28,000		6.55		4.78		26,800		4.78
$5.01 - $10.00		69,900		5.79		7.48		65,500		7.46
$10.01 - $15.00		139,697		6.00		11.41		112,558		11.39

		269,485		5.46	$	8.74		236,746	$	8.47

The aggregate intrinsic value of the Company’s “in-the-money” outstanding and exercisable options as of September 27, 2014 was $29,987. There were 900 options exercised during the year ended September 27, 2014. Nonvested common stock options are subject to the risk of forfeiture until the fulfillment of specified conditions.

Notes to Consolidated Financial Statements (continued)

Income Taxes

The Company accounts for income taxes using the asset/liability method. Under the asset/liability method, deferred income taxes are recognized at current income tax rates to reflect the tax effect of temporary differences between the consolidated financial reporting basis and tax basis of assets and liabilities. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

The Company follows the appropriate guidance relative to uncertain tax positions. This standard provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Uncertain tax positions must meet a recognition threshold of more-likely-than-not in order for those tax positions to be recognized in the financial statements. For fiscal year 2014 the Company had $80,829 of uncertain tax positions and for fiscal year 2013, the Company had no uncertain tax positions or unrecognized tax benefits.

The Company’s policy is to record estimated interest and penalties related to the underpayment of income taxes as a component of its income tax provision. For the year ended September 27, 2014 the Company recorded $19,000 in interest and tax penalties, and for the year ended September 28, 2013, the Company had no interest or tax penalties.

Warranty Costs

The Company provides for estimated warranty costs at the time product revenue is recognized based in part upon historical experience.

Fair Value of Financial Instruments

In determining the fair value of financial instruments, the Company follows the provisions of FASB ASC 820, Fair Value Measurements and Disclosures . FASB ASC 820 defines fair value, establishes a framework for measuring fair value under GAAP, and enhances disclosures about fair value measurements. The topic provides a consistent definition of fair value which focuses on an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The topic also prioritizes, within the measurement of fair value, the use of market-based information over entity-specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date. The three level hierarchy is as follows:


Level 1 -		Pricing inputs are quoted prices available in active markets for identical investments as of the reporting date.

Level 2 -		Pricing inputs are quoted prices for similar investments, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data.

Level 3 -		Pricing inputs are unobservable for the investment, that is, inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

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

The Company’s held to maturity securities are comprised of investments in municipal bonds. These securities represent ownership in individual bonds in municipalities within the United States, certificates of deposit in U.S. banks, and money market funds held in a brokerage account.

Notes to Consolidated Financial Statements (continued)

The fair value of these investments is based on quoted prices from recognized pricing services (e.g. Standard & Poor’s, Bloomberg, etc.), or in the case of mutual funds, at their closing net asset value.

The Company assesses the levels of the investments at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Company’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. During the fiscal years ended September 27, 2014 and September 28, 2013, there were no transfers between levels.

The following table sets forth by level, within the fair value hierarchy, the financial instruments carried at fair value as of September 27, 2014 and September 28, 2013, in accordance with the fair value hierarchy as defined above. As of September 27, 2014 and September 28, 2013, the Company did not hold any assets classified as Level 3.


	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
September 28, 2013

Debt and certificates of deposits:
Certificates of deposit	$	1,247,384		—	$	1,247,384

Total debt instruments		1,247,384		—		1,247,384


Mutual funds:
Money market funds		880,230		880,230		—

Total mutual funds		880,230		880,230		—


Total investments	$	2,127,614	$	880,230	$	1,247,384


September 27, 2014

Debt and certificates of deposits:
Certificates of deposit	$	1,416,890		—	$	1,416,890

Total debt instruments		1,416,890		—		1,416,890


Mutual funds:
Money market funds		1,801,443		1,801,443		—

Total mutual funds		1,801,443		1,801,443		—


Total investments	$	3,218,333	$	1,801,443	$	1,416,890

There were no assets or liabilities measured on a nonrecurring basis at September 27, 2014 and September 28, 2013.

Earnings per Share (EPS)

The Company presents both a “basic” and a “diluted” EPS. Basic EPS is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. In computing diluted EPS, stock options that are dilutive (those that reduce earnings per share) are included in the calculation of EPS using the treasury stock method. The exercise of outstanding stock options is not included if the result would be antidilutive, such as when a net loss is reported for the period or the option exercise price is greater than the average market price for the period presented.

Notes to Consolidated Financial Statements (continued)

Research and Development

Research and development costs are included in product development expenses in our consolidated statements of operations. Expenditures for Company-sponsored research and development projects are expensed as incurred, and were $2,729,276 and $2,729,473 in 2014 and 2013, respectively. Customer-sponsored research and development projects performed under contracts are accounted for as contract costs as the work is performed and included in cost of sales and were $855,370 in FY 2013. There was no customer-sponsored research and development in FY 2014.

Fiscal Year-End Policy

The Company’s by-laws call for its fiscal year to end on the Saturday closest to the last day of September, unless otherwise decided by its Board of Directors. The 2014 and 2013 fiscal years ended on September 27, 2014 and September 28, 2013, respectively, and each included 52 weeks.

Comprehensive Income (loss)

Comprehensive income (loss) consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains (losses) on securities available for sale.

Other comprehensive income (loss) is as follows, for the years ended:


	September 27, 2014			September 28, 2013
Change in net unrealized gain (loss) on available-for-sale securities	$	(1,578	)	$	(12,062	)

The component of accumulated other comprehensive income is as follows for the years ended:


	September 27, 2014			September 28, 2013
Net unrealized gain (loss) on available-for-sale securities	$	(3,598	)	$	(2,020	)

Operating Segments

The Company reports on operating segments in accordance with standards for public companies to report information about operating segments and geographic distribution of sales in financial statements. The Company currently has only one operating segment, which is the design, development, manufacture, distribution, marketing and sale of communications security devices, systems and services.

New Accounting Pronouncements

Notes to Consolidated Financial Statements (continued)

ASU 2014-09, Revenue From Contracts With Customers (Topic 606)

In May 2014, the FASB and the International Accounting Standards Board issued guidance on the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS that would: (1) remove inconsistencies and weaknesses in revenue requirements, (2) provide a more robust framework for addressing revenue issues, (3) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, (4) provide more useful information to users of financial statements through improved disclosure requirements, and (5) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. This guidance is effective prospectively for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The Company is currently evaluating the impact of this guidance but does not expect its adoption will have a material effect on the Company’s consolidated financial statements. This guidance will become effective for TCC as of the beginning of our 2018 fiscal year.

ASU 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern

In August 2014 the Financial Accounting Standards Board (FASB) updated U.S. Generally Accepted Accounting Principles (GAAP) to eliminate a critical gap in existing standards. The new guidance clarifies the disclosures management must make in the organization’s financial statement footnotes when management has substantial doubt about its ability to continue as a “going concern.” The Company is currently evaluating the impact of this guidance but does not expect its adoption will have a material effect on the Company’s consolidated financial statements. The guidance applies to all companies and is effective for the annual reporting periods ending after December 15, 2016, including interim periods within that reporting period.

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material impact on the accompanying financial statements.

(3)

Net Loss Per Share

Basic and diluted EPS were calculated as follows:


	September 27, 2014			September 28, 2013

Net loss	$	(2,564,874	)	$	(714,129	)


Weighted Average Shares Outstanding - Basic		1,838,866			1,838,716
Dilutive effect of stock options		—			—

Weighted Average Shares Outstanding - Diluted		1,838,866			1,838,716


Basic Net Loss Per Share	$	(1.39	)	$	(0.39	)
Diluted Net Loss Per Share	$	(1.39	)	$	(0.39	)

Outstanding potentially dilutive stock options, which were not included in the above calculations for the respective fiscal years because their effect would have been anti-dilutive, were as follows: 269,485 in fiscal year 2014 and 257,582 in fiscal year 2013.

(4)

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. All marketable securities must be classified as one of the following: held to maturity, available for sale, or trading. The Company classifies its marketable securities as either available for sale or held to maturity.

Notes to Consolidated Financial Statements (continued)

Available for sale securities are carried at fair value, with unrealized holding gains and losses reported in stockholders’ equity as a separate component of accumulated other comprehensive income (loss). Held to maturity securities are carried at amortized cost. The cost of securities sold is determined based on the specific identification method. Realized gains and losses, and declines in value judged to be other than temporary, are included in investment income. During fiscal year 2013, the Company determined it would hold its investment in municipal bonds until maturity and subsequently reclassified these securities from available for sale to held to maturity. These securities are now carried at amortized cost.

As of September 27, 2014, available for sale securities consisted of the following:


			Accrued		Gross Unrealized				Estimated
	Cost		Interest		Gains		Losses		Fair Value

Money market funds	$	1,801,443	$	—	$	—	$	—	$	1,801,443
Certificates of deposit		1,418,000		2,488		—		3,598		1,416,890

	$	3,219,443	$	2,488	$	—	$	3,598	$	3,218,333

As of September 27, 2014, held to maturity securities consisted of the following:


	Cost		Accrued Interest		Amortization Bond Premium		Amortized Cost		Unrealized Gains		Estimated Fair Value

Municipal bonds	$	1,506,653	$	17,963	$	109,039	$	1,415,577	$	15,331	$	1,430,908

As of September 28, 2013, available for sale securities consisted of the following:


			Accrued		Gross Unrealized				Estimated
	Cost		Interest		Gains		Losses		Fair Value

Money market funds	$	880,230	$	—	$	—	$	—	$	880,230
Certificates of deposit		1,248,043		1,186		—		1,845		1,247,384

	$	2,128,273	$	1,186	$	—	$	1,845	$	2,127,614

As of September 28, 2013, held to maturity securities consisted of the following:


	Cost		Accrued Interest		Amortization Bond Premium		Amortized Cost		Unrealized Gains		Estimated Fair Value

Municipal bonds	$	2,056,276	$	24,087	$	94,885	$	1,985,478	$	10,425	$	1,995,903

The contractual maturities of available for sale investments as of September 27, 2014 were all due within fourteen months. The contractual maturities of held to maturity investments as of September 27, 2014 were as follows:


	Cost		Amortized Cost
Within 1 year	$	336,678	$	310,437
After 1 year through 5 years		1,169,975		1,105,140

	$	1,506,653	$	1,415,577

The Company’s available for sale securities were included in the following captions in the consolidated balance sheets:


	September 27, 2014		September 28, 2013

Cash and cash equivalents	$	1,801,443	$	880,230
Marketable securities		1,416,890		1,247,384

	$	3,218,333	$	2,127,614

Notes to Consolidated Financial Statements (continued)

(5)

Inventories

Inventories consist of the following:


	September 27, 2014		September 28, 2013

Finished goods	$	8,014	$	10,295
Work in process		1,126,365		1,110,169
Raw materials and supplies		1,586,934		1,498,140

Total inventories	$	2,721,313	$	2,618,604

(6)

Equipment and Leasehold Improvements

Equipment and leasehold improvements consist of the following:


	September 27, 2014			September 28, 2013			Estimated Useful Life

Engineering and manufacturing equipment	$	2,074,488		$	2,011,821		3-8 years
Demonstration equipment		832,056			781,790		3 years
Furniture and fixtures		1,014,602			962,743		3-8 years
Automobile		49,441			49,441		5 years
Leasehold improvements		494,509			494,509		Lesser of useful life or term of lease


Total equipment and leasehold improvements		4,465,096			4,300,304

Less accumulated depreciation and amortization		(4,033,233	)		(3,831,402	)


Equipment and leasehold improvements, net	$	431,863		$	468,902

Depreciation expense was $201,831 and $199,114 for the fiscal years ended September 27, 2014 and September 28, 2013, respectively.

(7)

Other Current Liabilities


	September 27, 2014		September 28, 2013

Product warranty costs	$	41,532	$	28,639
Professional service fees		72,464		107,236
Annual report and investor relations fees		18,032		11,853
Customer support agreements and commissions		25,756		19,120


Total other current liabilities	$	157,784	$	166,848

(8)

Leases

On April 1, 2014, the Company entered into a new lease for its current facilities. This lease is for 22,800 square feet located at 100 Domino Drive, Concord, MA. The Company has been a tenant in this space since 1983. This is the Company’s only facility and houses all manufacturing, research and development, and corporate operations. The initial term of the lease is for five years through March 31, 2019 at an annual rate of $171,000. In addition the lease contains options to extend the lease for two and one half years through September 30, 2021 and another two and one half years through March 31, 2024 at an annual rate of $171,000. Rent expense for each of the years ended September 27, 2014 and September 28, 2013 was $171,000.

Notes to Consolidated Financial Statements (continued)

(9)

Guarantees

The Company’s products generally carry a standard 15 month warranty. The Company sets aside a reserve based on anticipated warranty claims at the time product revenue is recognized. Factors that affect the Company’s product warranty liability include the number of installed units, the anticipated cost of warranty repairs and historical and anticipated rates of warranty claims.

The following table reflects changes in the Company’s accrued warranty account:


	September 27, 2014			September 28, 2013

Beginning balance	$	28,639		$	61,702
Plus: accruals related to new sales		27,928			22,207
Less: payments and adjustments to prior period accruals		(15,035	)		(55,270	)


Ending balance	$	41,532		$	28,639

(10)

Income Taxes

The provision (benefit) for income taxes consists of the following:


	September 27, 2014		September 28, 2013
Current:
Federal	$	94,660	$	(304,307	)
State		994		(218,114	)

Total current taxes		95,654		(522,421	)

Deferred:
Federal		590,943		(260,678	)
State		303,516		(15,703	)

Total deferred taxes		894,459		(276,381	)


Total provision (benefit) for income taxes	$	990,113	$	(798,802	)

The provision (benefit) for income taxes are different from those that would be obtained by applying the statutory federal income tax rate to income before income taxes due to the following:


	September 27, 2014						September 28, 2013
	Amount			Percent			Amount			Percent

Tax benefit at U.S. statutory rate	$	(535,419	)		(34.0	%)	$	(514,397	)		(34.0	%)
State income tax provision, net of federal benefit		(36,235	)		(2.3	%)		(81,859	)		(5.4	%)
Federal tax credits		—			—			(71,799	)		(4.8	%)
State refund from prior years		—			—			(141,034	)		(9.3	%)
Change in state effective rate		39,616			2.5	%		99,428			6.6	%
Stock compensation		41,992			2.7	%		42,562			2.8	%
Prior year true-up		32,691			2.1	%		(56,822	)		(3.8	%)
Uncertain tax positions		80,829			5.1	%		—			—
Other		54,809			3.5	%		2,752			.2	%
Valuation allowance		1,311,830			83.3	%		(77,633	)		(5.1	%)


Total provision (benefit) for income taxes	$	990,113			62.9	%	$	(798,802	)		(52.8	%)

Notes to Consolidated Financial Statements (continued)

Deferred income taxes consist of the following:


	September 27,			September 28,
	2014			2013

Inventory differences	$	1,067,748		$	1,073,398
Net operating losses		682,031			44,315
Payroll-related accruals		44,715			54,777
Other		590,734			795,367

Total		2,385,228			1,967,857
Less: valuation allowance		(2,385,228	)		(1,073,398	)


Total	$	—		$	894,459

The Company established a valuation allowance against deferred tax assets and as a result recorded an income tax provision as a result of this allowance of $894,459. The valuation allowance is related to uncertainty with respect to the Company’s ability to realize its deferred tax assets. Deferred tax assets consist of net operating loss carryforwards, tax credits, inventory differences and other temporary differences. During fiscal year 2014 the change in the valuation allowance was $1,311,830 and related to the establishment of a full valuation allowance. During fiscal year 2013 the change in the valuation allowance was $(77,633) and related to the inventory differences.

The Company had previously determined that the tax benefit related to its obsolete inventory will not likely be realized, and therefore provided a full valuation allowance against the related deferred tax asset. It is the Company’s intention to maintain the related inventory items for the foreseeable future to support equipment in the field, and therefore cannot determine when the tax benefit, if any, will be realized.

Due to the nature of the Company’s current operations in foreign countries (selling products into these countries with the assistance of local representatives), the Company has not been subject to any foreign taxes in recent years. Also, it is not anticipated that the Company will be subject to foreign taxes in the near future.

The Company files income tax returns in the U.S. federal jurisdiction and in the states of Massachusetts and New Hampshire. For U.S. federal purposes, the tax years 2012 through 2013 and for state purposes 2010 through 2013 remain open to examination. In addition, the amount of the Company’s federal and state net operating loss carryforwards utilized in prior periods may be subject to examination and adjustment. The Company has federal research credits of $72,186 available through fiscal year 2033 and net operating loss carryforwards of $1,858,270 available through fiscal year 2034. In addition, the Company has Massachusetts research credits of $80,315 available through fiscal year 2027 and net operating loss carryforwards of $2,094,864 available through fiscal year 2034.

The below table details the changes in uncertain tax positions, which if recognized would favorably impact our effective tax rate:


Balance at September 28, 2013	$	—
Addition for tax positions of prior year year		80,829

Balance at September 27, 2014	$	80,829

The increase in the Company’s total uncertain tax positions relates to research credits taken on a prior year state tax return.

Notes to Consolidated Financial Statements (continued)

(11)

Employee Benefit Plans

The Company has a qualified, contributory, profit sharing plan covering substantially all employees. The Company’s policy is to fund contributions as they are accrued. The contributions are allocated based on the employee’s proportionate share of total compensation. The Company’s contributions to the plan are determined by the Board of Directors and are subject to other specified limitations. There were no Company profit sharing contributions during fiscal years 2014 or 2013. The Company’s matching contributions were $81,936 and $85,630 in fiscal years 2014 and 2013, respectively.

The Company has an Executive Incentive Bonus Plan for the benefit of key management employees. The bonus pool is determined based on the Company’s performance as defined by the plan. Under the plan, there was $10,000 of bonuses accrued for executives at September 28, 2013 and there were no bonuses accrued at September 27, 2014. Bonus expense is included in selling, general and administrative expense.

(12)

Commitments and contingencies

At September 27, 2014, the Company had three outstanding letters of credit in the amounts of $328,732, $16,363 and $3,600, which are secured by collateralized bank accounts totaling $348,695. At September 28, 2013, the Company had two outstanding letters of credit in the amounts of $17,883 and $14,903, which were secured by collateralized bank accounts totaling $32,786.

The Company maintains its cash and cash equivalents in bank deposit accounts and money market accounts that, at times, may exceed federally insured limits. The Company holds marketable securities consisting of certificates of deposit and municipal bonds. The certificates of deposit are maintained in accounts that are within the federal insurance limits. The municipal bonds are considered investment grade but may be subject to the issuing entities’ default on interest or principal repayments. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on its cash, cash equivalents or marketable securities.

(13)

Major Customers and Export Sales

In fiscal year 2014, the Company had four customers representing 73% (29%, 17%, 14% and 13%) of total net sales and at September 27, 2014 had three customers representing 69% (38%, 19% and 12%) of accounts receivable. In fiscal year 2013, the Company had three customers representing 71% (29%, 27% and 15%) of total net sales and at September 28, 2013 had three customers representing 89% (32%, 29% and 28%) of accounts receivable.

A breakdown of net sales is as follows:


	September 27, 2014		September 28, 2013

Domestic	$	4,574,733	$	5,719,765
Foreign		1,563,842		529,884


Total Sales	$	6,138,575	$	6,249,649

Notes to Consolidated Financial Statements (continued)

A summary of foreign sales, as a percentage of total foreign revenue, by geographic area, is as follows:


	September 27, 2014			September 28, 2013

North America (excluding the U.S.)		—			0.6	%
Central and South America		15.7	%		—
Mid-East and Africa		84.3	%		99.4	%
Far East		—			—

The Company sold products to three different countries during the year ended September 27, 2014 and five different countries during the year ended September 28, 2013. 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 foreign revenues by country as a percentage of total foreign revenue.


	September 27, 2014			September 28, 2013

Saudi Arabia		73.8	%		69.8	%
Colombia		15.7	%		—
Egypt		10.5	%		28.1	%
Other		—			2.1	%

(14)

Shareholder Rights Plan

On August 7, 2014, the Board of Directors of the Company adopted a Stockholder Rights Plan to replace the company’s former plan, which had expired on August 5, 2014. The new plan is substantially similar to the former plan, and was not adopted in response to any specific takeover threat. In adopting the plan, the Board declared a dividend distribution of one common stock purchase right for each outstanding share of common stock of the Company, payable to stockholders of record at the close of business on August 18, 2014. Until the rights become exercisable, which occurs with certain exceptions when a person or affiliated group acquires 15% or more of TCC’s common stock, they will trade automatically with the common stock and separate rights certificates will not be issued. Each right, once exercisable, will entitle the holder (other than rights owned by the acquiring person or group) to buy one share of the common stock at a price of $25 per share, subject to certain adjustments. The rights can generally be redeemed by the Company at $.001 per right at any time prior to the close of business on the 10th business day after there has been a public announcement of the acquisition of beneficial ownership by any person or group of 15% or more of the company’s outstanding common stock, subject to certain exceptions. The rights will expire on August 6, 2024 unless earlier redeemed.

(15)

Subsequent Events

On October 30, 2014 the Company made an equity investment of $275,000 in PulsedLight, Inc., an early stage start-up company located in Bend, Oregon. Our investment represented an 11% ownership stake in PulsedLight at the time of the investment.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Technical Communications Corporation:

We have audited the accompanying consolidated balance sheets of Technical Communications Corporation and subsidiary (the “Company”) as of September 27, 2014 and September 28, 2013, and the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Technical Communications Corporation and subsidiary as of September 27, 2014 and September 28, 2013, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

/s/ McGladrey LLP

Boston, Massachusetts

December 22, 2014

Exhibit 10.7

LOGO

LOAN AGREEMENT

This Agreement dated as of February 22, 2012, is between Bank of America, N.A. (the “Bank”) and Technical Communications Corporation (the “Borrower”).

1.	FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS

1.1 Line of Credit Amount .

(a)	During the availability period described below, the Bank will provide a line of credit to the Borrower. The amount of the line of credit (the “Facility No. 1 Commitment”) is Six Hundred Thousand and 00/100 Dollars ($600,000.00).

(b)	This is a revolving line of credit. During the availability period, the Borrower may repay principal amounts and reborrow them.

(c)	The Borrower agrees not to permit the principal balance outstanding to exceed the Facility No. 1 Commitment. If the Borrower exceeds this limit, the Borrower will immediately pay the excess to the Bank upon the Bank’s demand.

1.2 Availability Period . The line of credit is available between the date of this Agreement and February 28, 2014, or such earlier date as the availability may terminate as provided in this Agreement (the “Facility No. 1 Expiration Date”).

The availability period for this line of credit will be considered renewed if and only if the Bank has sent to the Borrower a written notice of renewal for the line of credit (the “Renewal Notice”). If this line of credit is renewed, it will continue to be subject to all the terms and conditions set forth in this Agreement except as modified by the Renewal Notice. If this line of credit is renewed, the term “Expiration Date” shall mean the date set forth in the Renewal Notice as the Expiration Date and the same process for renewal will apply to any subsequent renewal of this line of credit. A renewal fee may be charged at the Bank’s option. The amount of the renewal fee will be specified in the Renewal Notice.

1.3 Repayment Terms .

(a)	The Borrower will pay interest on March 31, 2012, and then on the last day of each month thereafter until payment in full of any principal outstanding under this facility.

(b)	The Borrower will repay in full any principal, interest or other charges outstanding under this facility no later than the Facility No. 1 Expiration Date.

1.4 Interest Rate .

(a)	The interest rate is a rate per year equal to the Bank’s Prime Rate plus 1.0 percentage point(s).

(b)

The Prime Rate is the rate of interest publicly announced from time to time by the Bank as its Prime Rate. The Prime Rate is set by the Bank based on various factors, including the Bank’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans. The Bank may price loans to its customers at, above, or below the Prime Rate. Any change in the Prime Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Bank’s Prime Rate.

1.5 Letters of Credit .

(a)	During the availability period, at the request of the Borrower, the Bank will issue:

(i)

standby letters of credit with a maximum maturity of three hundred sixty-five (365) days but not to extend more than ninety (90) days beyond the Facility No. 1 Expiration Date. The standby letters of credit may include a provision providing that the maturity date will be automatically extended each year for an additional year unless the Bank gives written notice to the contrary.


Ref #: 1000800236 : - Technical Communications Corporation
Standard Loan Agreement		1

(b)	The amount of the letters of credit outstanding at any one time (including the drawn and unreimbursed amounts of the letters of credit) may not exceed Six Hundred Thousand and 00/100 Dollars ($600,000.00).

(c)	In calculating the principal amount outstanding under the Facility No. 1 Commitment, the calculation shall include the amount of any letters of credit outstanding, including amounts drawn on any letters of credit and not yet reimbursed.

(d)	The Borrower agrees:

(i)

Any sum drawn under a letter of credit may, at the option of the Bank, be added to the principal amount outstanding under this Agreement. The amount will bear interest and be due as described elsewhere in this Agreement.

(ii)

If there is a default under this Agreement, to immediately prepay and make the Bank whole for any outstanding letters of credit.

(iii)

The issuance of any letter of credit and any amendment to a letter of credit is subject to the Bank’s written approval and must be in form and content satisfactory to the Bank and in favor of a beneficiary acceptable to the Bank.

(iv)

To sign the Bank’s form Application and Agreement for Commercial Letter of Credit or Application and Agreement for Standby Letter of Credit, as applicable.

(v)

To pay any issuance and/or other fees that the Bank notifies the Borrower will be charged for issuing and processing letters of credit for the Borrower.

(vi)

To allow the Bank to automatically charge its checking account for applicable fees, discounts, and other charges.

(vii)

To pay the Bank a non-refundable fee equal to 2% per annum of the outstanding undrawn amount of each standby letter of credit, payable quarterly in advance, calculated on the basis of the face amount outstanding on the day the fee is calculated.

2.	COLLATERAL

2.1 Personal Property . The personal property listed below now owned or owned in the future by the parties listed below will secure the Borrower’s obligations to the Bank under this Agreement. The collateral is further defined in security agreement(s) executed by the owners of the collateral. In addition, all personal property collateral owned by the Borrower securing this Agreement shall also secure all other present and future obligations of the Borrower to the Bank and to any affiliate of the Bank (excluding any consumer credit covered by the federal Truth in Lending law, unless the Borrower has otherwise agreed in writing or received written notice thereof). All personal property collateral securing any other present or future obligations of the Borrower to the Bank shall also secure this Agreement.

(a)	Equipment and fixtures owned by the Borrower.

(b)	Inventory owned by the Borrower.

(c)	Receivables owned by the Borrower.

3.	FEES AND EXPENSES

3.1 Fees .

(a)	Loan Fee . The Borrower agrees to pay a loan fee in the amount of Three Thousand and 00/100 Dollars ($3,000.00). This fee is due on the date of this Agreement.


Ref #: 1000800236 : - Technical Communications Corporation
Standard Loan Agreement		2

(b)

Waiver Fee . If the Bank, at its discretion, agrees to waive or amend any terms of this Agreement, the Borrower will, at the Bank’s option, pay the Bank a fee for each waiver or amendment in an amount advised by the Bank at the time the Borrower requests the waiver or amendment. Nothing in this paragraph shall imply that the Bank is obligated to agree to any waiver or amendment requested by the Borrower. The Bank may impose additional requirements as a condition to any waiver or amendment.

(c)

Late Fee . To the extent permitted by law, the Borrower agrees to pay a late fee in an amount not to exceed four percent (4%) of any payment that is more than fifteen (15) days late; provided that such late fee shall be reduced to three percent (3%) of any required principal and interest payment that is not paid within fifteen (15) days of the date it is due if the loan is secured by a first or subordinate lien on real property consisting of four or fewer separate households. The imposition and payment of a late fee shall not constitute a waiver of the Bank’s rights with respect to the default.

3.2 Expenses . The Borrower agrees to immediately repay the Bank for expenses that include, but are not limited to, filing, recording and search fees, appraisal fees, title report fees, and documentation fees.

3.3 Reimbursement Costs .

(a)

The Borrower agrees to reimburse the Bank for any expenses it incurs in the preparation of this Agreement and any agreement or instrument required by this Agreement. Expenses include, but are not limited to, reasonable attorneys’ fees, including any allocated costs of the Bank’s in-house counsel to the extent permitted by applicable law.

(b)

The Borrower agrees to reimburse the Bank for the cost of periodic field examinations of the Borrower’s books, records and collateral, and appraisals of the collateral, at such intervals as the Bank may reasonably require. The actions described in this paragraph may be performed by employees of the Bank or by independent appraisers.

4.	DISBURSEMENTS, PAYMENTS AND COSTS

4.1 Disbursements and Payments .

(a)

Each payment by the Borrower will be made in U.S. Dollars and immediately available funds, without setoff or counterclaim. Payments will be made by debit to a deposit account, if direct debit is provided for in this Agreement or is otherwise authorized by the Borrower. For payments not made by direct debit, payments will be made by mail to the address shown on the Borrower’s statement, or by such other method as may be permitted by the Bank.

(b)	The Bank may honor instructions for advances or repayments given by the Borrower (if an individual), or by any one of the individuals authorized to sign loan agreements on behalf of the Borrower, or any other individual designated by any one of authorized signers (each an “Authorized Individual”).

(c)

For any payment under this Agreement made by debit to a deposit account, the Borrower will maintain sufficient immediately available funds in the deposit account to cover each debit. If there are insufficient immediately available funds in the deposit account on the date the Bank enters such debit authorized by this Agreement, the Bank may reverse the debit.

(d)	Each disbursement by the Bank and each payment by the Borrower will be evidenced by records kept by the Bank. In addition, the Bank may, at its discretion, require the Borrower to sign one or more promissory notes.

(e)

Prior to the date each payment of principal and interest and any fees from the Borrower becomes due (the “Due Date”), the Bank will send to the Borrower a statement of the amounts that will be due on that Due Date (the “Billed Amount”). The calculations in the bill will be made on the assumption that no new extensions of credit or payments will be made between the date of the billing statement and the Due Date, and that there will be no changes in the applicable interest rate. If the Billed Amount differs from the actual amount due on the Due Date (the “Accrued Amount”), the discrepancy will be treated as follows:

(i)

If the Billed Amount is less than the Accrued Amount, the Billed Amount for the following Due Date will be increased by the amount of the discrepancy. The Borrower will not be in default by reason of any such discrepancy.

(ii)

If the Billed Amount is more than the Accrued Amount, the Billed Amount for the following Due Date will be decreased by the amount of the discrepancy.


Ref #: 1000800236 : - Technical Communications Corporation
Standard Loan Agreement		3

Regardless of any such discrepancy, interest will continue to accrue based on the actual amount of principal outstanding without compounding. The Bank will not pay the Borrower interest on any overpayment.

4.2 Borrower’s Instructions .

(a)

The Bank may honor instructions for advances or repayments, and may honor requests for the issuance of letters of credit, given, or purported to be given, by any one of the Authorized Individuals. Such instructions may be given in writing or by telephone, telefax or Internet and intranet websites designated by the Bank with respect to separate products or services offered by the Bank. The Bank’s obligation to act on such instructions is subject to the terms, conditions and procedures stated elsewhere in this Agreement.

(b)

Except as specified elsewhere in this Agreement or as otherwise agreed between the Bank and the Borrower, advances will be deposited in and repayments will be withdrawn from account number MA-009419954701 owned by the Borrower or such other of the Borrower’s accounts with the Bank as designated in writing by the Borrower.

(c)

The Borrower will indemnify and hold the Bank harmless from all liability, loss, and costs in connection with any act resulting from instructions the Bank reasonably believes are made by any Authorized Individual, whether such instructions are given in writing or by telephone, telefax or electronic communications (including e-mail, Internet and intranet websites). This paragraph will survive this Agreement’s termination, and will benefit the Bank and its officers, employees, and agents.

4.3 Direct Debit .

(a)	The Borrower agrees that on the Due Date the Bank will debit the Billed Amount from deposit account number MA-009419954701 owned by the Borrower or such other of the Borrower’s accounts with the Bank as designated in writing by the Borrower (the “Designated Account”).

(b)

The Borrower may terminate this direct debit arrangement at any time by sending written notice to the Bank at the address specified at the end of this Agreement. If the Borrower terminates this arrangement, then the principal amount outstanding under this Agreement will at the option of the Bank bear interest at a rate per annum which is 1.0 percentage point(s) higher than the rate of interest otherwise provided under this Agreement.

4.4 Banking Days . Unless otherwise provided in this Agreement, a banking day is a day other than a Saturday, Sunday or other day on which commercial banks are authorized to close, or are in fact closed, in the state where the Bank’s lending office is located, and, if such day relates to amounts bearing interest at an offshore rate (if any), means any such day on which dealings in dollar deposits are conducted among banks in the offshore dollar interbank market. All payments and disbursements which would be due on a day which is not a banking day will be due on the next banking day. All payments received on a day which is not a banking day will be applied to the credit on the next banking day.

4.5 Interest Calculation . Except as otherwise stated in this Agreement, all interest and fees, if any, will be computed on the basis of a 360-day year and the actual number of days elapsed. This results in more interest or a higher fee than if a 365-day year is used. Installments of principal which are not paid when due under this Agreement shall continue to bear interest until paid.

4.6 Default Rate . Upon the occurrence of any default or after maturity or after judgment has been rendered on any obligation under this Agreement, all amounts outstanding under this Agreement, including any unpaid interest, fees, or costs, will at the option of the Bank bear interest at a rate which is 6.0 percentage point(s) higher than the rate of interest otherwise provided under this Agreement. This may result in compounding of interest. This will not constitute a waiver of any default.


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Standard Loan Agreement		4

4.7 Additional Costs .

The Borrower will pay the Bank, on demand, for the Bank’s costs or losses arising from any Change in Law which are allocated to this Agreement or any credit outstanding under this Agreement. The allocation will be made as determined by the Bank, using any reasonable method. The costs include, without limitation, the following:

(a)	any reserve or deposit requirements (excluding any reserve requirement already reflected in the calculation of the interest rate in this Agreement); and

(b)	any capital requirements relating to the Bank’s assets and commitments for credit.

“Change in Law” means the occurrence, after the date of this Agreement, of the adoption or taking effect of any new or changed law, rule, regulation or treaty, or the issuance of any request, rule, guideline or directive (whether or not having the force of law) by any governmental authority; provided that (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives issued in connection with that Act, and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor authority) or the United States regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law,” regardless of the date enacted, adopted or issued.

5.	CONDITIONS

Before the Bank is required to extend any credit to the Borrower under this Agreement, it must receive any documents and other items it may reasonably require, in form and content acceptable to the Bank, including any items specifically listed below.

5.1 Authorizations . If the Borrower or any guarantor is anything other than a natural person, evidence that the execution, delivery and performance by the Borrower and/or such guarantor of this Agreement and any instrument or agreement required under this Agreement have been duly authorized.

5.2 Governing Documents . If required by the Bank, a copy of the Borrower’s organizational documents.

5.3 Security Agreements . Signed original security agreements covering the personal property collateral which the Bank requires.

5.4 Perfection and Evidence of Priority . Evidence that the security interests and liens in favor of the Bank are valid, enforceable, properly perfected in a manner acceptable to the Bank and prior to all others’ rights and interests, except those the Bank consents to in writing. All title documents for motor vehicles which are part of the collateral must show the Bank’s interest.

5.5 Payment of Fees . Payment of all fees and other amounts due and owing to the Bank, including without limitation payment of all accrued and unpaid expenses incurred by the Bank as required by the paragraph entitled “Reimbursement Costs.”

5.6 Good Standing . Certificates of good standing for the Borrower from its state of formation and from any other state in which the Borrower is required to qualify to conduct its business.

5.7 Landlord Agreement For any personal property collateral located at 100 Domino Drive, Concord, Massachusetts 01742, an agreement for the removal of the collateral, signed by the owner of the real property and the holder of any mortgage or deed of trust on the real property.

5.8 Insurance . Evidence of insurance coverage, as required in the “Covenants” section of this Agreement.

6.	REPRESENTATIONS AND WARRANTIES

When the Borrower signs this Agreement, and until the Bank is repaid in full, the Borrower makes the following representations and warranties. Each request for an extension of credit constitutes a renewal of these representations and warranties as of the date of the request:

6.1 Formation . If the Borrower is anything other than a natural person, it is duly formed and existing under the laws of the state or other jurisdiction where organized.


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Standard Loan Agreement		5

6.2 Authorization . This Agreement, and any instrument or agreement required hereunder, are within the Borrower’s powers, have been duly authorized, and do not conflict with any of its organizational papers.

6.3 Enforceable Agreement . This Agreement is a legal, valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms, and any instrument or agreement required hereunder, when executed and delivered, will be similarly legal, valid, binding and enforceable.

6.4 Good Standing . In each state in which the Borrower does business, it is properly licensed, in good standing, and, where required, in compliance with fictitious name statutes.

6.5 No Conflicts . This Agreement does not conflict with any law, agreement, or obligation by which the Borrower is bound.

6.6 Financial Information . All financial and other information that has been or will be supplied to the Bank is sufficiently complete to give the Bank accurate knowledge of the Borrower’s (and any guarantor’s) financial condition, including all material contingent liabilities. Since the date of the most recent financial statement provided to the Bank, there has been no material adverse change in the business condition (financial or otherwise), operations, properties or prospects of the Borrower (or any guarantor). If the Borrower is comprised of the trustees of a trust, the foregoing representations shall also pertain to the trustor(s) of the trust.

6.7 Lawsuits . There is no lawsuit, tax claim or other dispute pending or threatened against the Borrower which, if lost, would impair the Borrower’s financial condition or ability to repay the loan, except as have been disclosed in writing to the Bank.

6.8 Collateral . All collateral required in this Agreement is owned by the grantor of the security interest free of any title defects or any liens or interests of others, except those which have been approved by the Bank in writing.

6.9 Permits, Franchises . The Borrower possesses all permits, memberships, franchises, contracts and licenses required and all trademark rights, trade name rights, patent rights, copyrights and fictitious name rights necessary to enable it to conduct the business in which it is now engaged.

6.10 Other Obligations . The Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation, except as have been disclosed in writing to the Bank.

6.11 Tax Matters . The Borrower has no knowledge of any pending assessments or adjustments of its income tax for any year and all taxes due have been paid, except as have been disclosed in writing to the Bank.

6.12 No Event of Default . There is no event which is, or with notice or lapse of time or both would be, a default under this Agreement.

6.13 Insurance . The Borrower has obtained, and maintained in effect, the insurance coverage required in the “Covenants” section of this Agreement.

6.14 Assignment of Claims Act . The Borrower hereby covenants and agrees that the Borrower will promptly, upon request by the Bank, comply with any and all of the requirements of the Assignment of Claims Act (Title 31 Section 3727 and Title 41 Section 15 of the United States Code), where such statutes are applicable to any Eligible Receivables, and shall take all such other action as may be necessary to facilitate the direct assignment to the Bank of the payments due or to become due under any Eligible Receivables which has at least One Thousand and 00/100 Dollars ($1,000) in payment obligations to the Borrower and which has a duration of at least six (6) months, and such further action as may be necessary to facilitate the creation and perfection of the Bank’s security interest in such payments.

COVENANTS

The Borrower agrees, so long as credit is available under this Agreement and until the Bank is repaid in full:

7.1 Use of Proceeds .

(a)	To use the proceeds of Facility No. 1 only for working capital and issuances of letters of credit.


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Standard Loan Agreement		6

7.2 Financial Information . To provide the following financial information and statements in form and content acceptable to the Bank, and such additional information as requested by the Bank from time to time. The Bank reserves the right, upon written notice to the Borrower, to require the Borrower to deliver financial information and statements to the Bank more frequently than otherwise provided below, and to use such additional information and statements to measure any applicable financial covenants in this Agreement.

(a)	Within 120 days of the fiscal year end, the annual financial statements of the Borrower. These financial statements must be audited (with an opinion satisfactory to the Bank) by a Certified Public Accountant acceptable to the Bank.

(b)

Within 120 days of the end of each fiscal year, a compliance certificate of the Borrower in the format as shown in Exhibit A, signed by an authorized financial officer and setting forth whether there existed as of the date of such financial statements and whether there exists as of the date of the certificate, any default under this Agreement and, if any such default exists, specifying the nature thereof and the action the Borrower is taking and proposes to take with respect thereto.

7.3 Unencumbered Liquid Assets . To maintain Unencumbered Liquid Assets having an aggregate market value of not less than Three Million Five Hundred Thousand and 00/100 Dollars ($3,500,000.00), measured annually.

“Unencumbered Liquid Assets” means the following assets (excluding assets of any retirement plan) which (i) are not the subject of any lien, pledge, security interest or other arrangement with any creditor to have his claim satisfied out of the asset (or proceeds thereof) prior to the general creditors of the owner of the asset, (ii) are held solely in the name of one or more credit parties subject to this covenant (with no other persons or entities having ownership rights therein);

(a)	Cash or cash equivalents held in the United States and denominated in United States dollars;

(b)	United States Treasury or governmental agency obligations which constitute full faith and credit of the United States of America;

(c)	Commercial paper rated P-1 or A1 by Moody’s or S&P, respectively;

(d)	Medium and long-term securities rated investment grade by one of the rating agencies described in (c) above;

(e)	Eligible Stocks; and

(f)	Mutual funds quoted in The Wall Street Journal which invest primarily in the assets described in (a) – (e) above.

“Eligible Stocks” includes any common or preferred stock which (i) is not control or restricted stock under Rule 144 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended, or subject to any other regulatory or contractual restrictions on sales, (ii) is traded on a U. S. national stock exchange, including NASDAQ, with a liquidity on such exchange for such stock acceptable to the Bank and (iii) has, as of the close of trading on the applicable exchange (excluding after hours trading), a per share price of at least Fifteen Dollars ($15).

7.4 Tangible Net Worth . To maintain on a consolidated basis Tangible Net Worth equal to at least Thirteen Million and 00/100 Dollars ($13,000,000.00), measured annually.

“Tangible Net Worth” means the value of total assets (including leaseholds and leasehold improvements and reserves against assets but excluding goodwill, patents, trademarks, trade names, organization expense, unamortized debt discount and expense, capitalized or deferred research and development costs, deferred marketing expenses, and other like intangibles, and monies due from affiliates, officers, directors, employees, shareholders, members or managers) less total liabilities, including but not limited to accrued and deferred income taxes, but excluding the non-current portion of Subordinated Liabilities.

“Subordinated Liabilities” means liabilities subordinated to the Borrower’s obligations to the Bank in a manner acceptable to the Bank in its sole discretion.

7.5 Bank as Principal Depository . To maintain the Bank or one of its affiliates as its principal depository bank, including for the maintenance of business, cash management, operating and administrative deposit accounts.


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Standard Loan Agreement		7

7.6 Other Debts . Not to have outstanding or incur any direct or contingent liabilities or lease obligations (other than those to the Bank or to any affiliate of the Bank), or become liable for the liabilities of others, without the Bank’s written consent. This does not prohibit:

(a)	Acquiring goods, supplies, or merchandise on normal trade credit.

(b)	Endorsing negotiable instruments received in the usual course of business.

(c)	Obtaining surety bonds in the usual course of business.

(d)	Liabilities, lines of credit and leases in existence on the date of this Agreement disclosed in writing to the Bank.

(e)	Additional debts and lease obligations for the acquisition of fixed assets, to the extent permitted elsewhere in this Agreement.

7.7 Other Liens . Not to create, assume, or allow any security interest or lien (including judicial liens) on property the Borrower now or later owns, except:

(a)	Liens and security interests in favor of the Bank or any affiliate of the Bank.

(b)	Liens for taxes not yet due.

(c)	Liens outstanding on the date of this Agreement disclosed in writing to the Bank.

(d)	Additional purchase money security interests in assets acquired after the date of this Agreement.

7.8 Maintenance of Assets .

(a)	Not to sell, assign, lease, transfer or otherwise dispose of any part of the Borrower’s business or the Borrower’s assets except in the ordinary course of the Borrower’s business.

(b)	Not to sell, assign, lease, transfer or otherwise dispose of any assets for less than fair market value, or enter into any agreement to do so.

(c)	Not to enter into any sale and leaseback agreement covering any of its fixed assets.

(d)	To maintain and preserve all rights, privileges, and franchises the Borrower now has.

(e)	To make any repairs, renewals, or replacements to keep the Borrower’s properties in good working condition.

7.9 Investments . Not to have any existing, or make any new, investments in any individual or entity, or make any capital contributions or other transfers of assets to any individual or entity, except for:

(a)	Existing investments disclosed to the Bank in writing.

(b)	Investments in the Borrower’s current subsidiaries.

(c)	Investments in any of the following:

(i)

certificates of deposit;

(ii)

U.S. treasury bills and other obligations of the federal government;

(iii)

readily marketable securities (including commercial paper, but excluding restricted stock and stock subject to the provisions of Rule 144 of the Securities and Exchange Commission).


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Standard Loan Agreement		8

7.10 Loans . Not to make any loans, advances or other extensions of credit to any individual or entity, except for:

(a)	Existing extensions of credit disclosed to the Bank in writing.

(b)	Extensions of credit to the Borrower’s current subsidiaries.

(c)	Extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business to non-affiliated entities.

7.11 Change of Management . Not to make any substantial change in the present executive or management personnel of the Borrower.

7.12 Change of Ownership . Not to cause, permit, or suffer any change in capital ownership such that there is a change of more than 25% in the direct or indirect capital ownership of the Borrower.

7.13 Additional Negative Covenants . Not to, without the Bank’s written consent:

(a)	Enter into any consolidation, merger, or other combination, or become a partner in a partnership, a member of a joint venture, or a member of a limited liability company.

(b)	Acquire or purchase a business or its assets.

(c)	Engage in any business activities substantially different from the Borrower’s present business.

(d)	Liquidate or dissolve the Borrower’s business.

(e)	Voluntarily suspend the Borrower’s business.

7.14 Notices to Bank . To promptly notify the Bank in writing of:

(a)	Any substantial dispute between any governmental authority and the Borrower or any Obligor.

(b)	Any event of default under this Agreement, or any event which, with notice or lapse of time or both, would constitute an event of default.

(c)	Any material adverse change in the Borrower’s or any Obligor’s business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit.

(d)	Any change in the Borrower’s or any Obligor’s name, legal structure, principal residence (for an individual), state of registration (for a registered entity), place of business, or chief executive office if the Borrower or any Obligor has more than one place of business.

(e)	Any actual contingent liabilities of the Borrower or any Obligor, and any such contingent liabilities which are reasonably foreseeable.

For purposes of this Agreement, “Obligor” shall mean any guarantor, or any party pledging collateral to the Bank, or, if the Borrower is comprised of the trustees of a trust, any trustor.

7.15 Insurance .

(a)

General Business Insurance . To maintain insurance satisfactory to the Bank as to amount, nature and carrier covering property damage (including loss of use and occupancy) to any of the Borrower’s properties, business interruption insurance, public liability insurance including coverage for contractual liability, product liability and workers’ compensation, and any other insurance which is usual for the Borrower’s business. Each policy shall provide for at least 30 days prior notice to the Bank of any cancellation thereof.

(b)

Insurance Covering Collateral . To maintain all risk property damage insurance policies (including without limitation windstorm coverage, and hurricane coverage as applicable) covering the tangible property comprising the collateral. Each insurance policy must be for the full replacement cost of the collateral and include a replacement cost endorsement. The insurance must be issued by an insurance company acceptable to the Bank and must include a lender’s loss payable endorsement in favor of the Bank in a form acceptable to the Bank.

(c)	Evidence of Insurance . Upon the request of the Bank, to deliver to the Bank a copy of each insurance policy, or, if permitted by the Bank, a certificate of insurance listing all insurance in force.


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Standard Loan Agreement		9

7.16 Compliance with Laws . To comply with the laws (including any fictitious or trade name statute), regulations, and orders of any government body with authority over the Borrower’s business. The Bank shall have no obligation to make any advance to the Borrower except in compliance with all applicable laws and regulations and the Borrower shall fully cooperate with the Bank in complying with all such applicable laws and regulations.

7.17 ERISA Plans . Promptly during each year, to pay and cause any subsidiaries to pay contributions adequate to meet at least the minimum funding standards under ERISA with respect to each and every Plan; file each annual report required to be filed pursuant to ERISA in connection with each Plan for each year; and notify the Bank within ten (10) days of the occurrence of any Reportable Event that might constitute grounds for termination of any capital Plan by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a trustee to administer any Plan. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time. Capitalized terms in this paragraph shall have the meanings defined within ERISA.

7.18 Books and Records . To maintain adequate books and records.

7.19 Audits . To allow the Bank and its agents to inspect the Borrower’s properties and examine, audit, and make copies of books and records at any reasonable time. If any of the Borrower’s properties, books or records are in the possession of a third party, the Borrower authorizes that third party to permit the Bank or its agents to have access to perform inspections or audits and to respond to the Bank’s requests for information concerning such properties, books and records.

7.20 Perfection of Liens . To help the Bank perfect and protect its security interests and liens, and reimburse it for related costs it incurs to protect its security interests and liens.

7.21 Cooperation . To take any action reasonably requested by the Bank to carry out the intent of this Agreement.

7.22 Assignment Of Claims Act . To promptly comply, upon request by the Bank, with any and all of the requirements of Title 31 Section 3727 and Title 41 Section 15 of the United States Code and all rules and regulations relating thereto, as amended, where such statutes, rules and regulations are, at the option of the Bank, applicable to particular contracts, and shall at all times take all such other action as may be necessary to facilitate and/or ensure perfection of the Bank’s security interest in and the assignment of the contracts.

8.	DEFAULT AND REMEDIES

If any of the following events of default occurs, the Bank may do one or more of the following: declare the Borrower in default, stop making any additional credit available to the Borrower, and require the Borrower to repay its entire debt immediately and without prior notice. If an event which, with notice or the passage of time, will constitute an event of default has occurred and is continuing, the Bank has no obligation to make advances or extend additional credit under this Agreement. In addition, if any event of default occurs, the Bank shall have all rights, powers and remedies available under any instruments and agreements required by or executed in connection with this Agreement, as well as all rights and remedies available at law or in equity. If an event of default occurs under the paragraph entitled “Bankruptcy,” below, with respect to the Borrower, then the entire debt outstanding under this Agreement will automatically be due immediately.

8.1 Failure to Pay . The Borrower fails to make a payment under this Agreement when due.

8.2 Other Bank Agreements . Any default occurs under any other agreement the Borrower (or any Obligor) or any of the Borrower’s related entities or affiliates has with the Bank or any affiliate of the Bank.

8.3 Cross-default . Any default occurs under any agreement in connection with any credit the Borrower (or any Obligor) or any of the Borrower’s related entities or affiliates has obtained from anyone else or which the Borrower (or any Obligor) or any of the Borrower’s related entities or affiliates has guaranteed.


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Standard Loan Agreement		10

8.4 False Information . The Borrower or any Obligor has given the Bank false or misleading information or representations.

8.5 Bankruptcy . The Borrower, any Obligor, or any general partner of the Borrower or of any Obligor files a bankruptcy petition, a bankruptcy petition is filed against any of the foregoing parties, or the Borrower, any Obligor, or any general partner of the Borrower or of any Obligor makes a general assignment for the benefit of creditors.

8.6 Receivers . A receiver or similar official is appointed for a substantial portion of the Borrower’s or any Obligor’s business, or the business is terminated, or, if any Obligor is anything other than a natural person, such Obligor is liquidated or dissolved.

8.7 Lien Priority . The Bank fails to have an enforceable first lien (except for any prior liens to which the Bank has consented in writing) on or security interest in any property given as security for this Agreement (or any guaranty).

8.8 Judgments . Any judgments or arbitration awards are entered against the Borrower or any Obligor, or the Borrower or any Obligor enters into any settlement agreements with respect to any litigation or arbitration, in an aggregate amount of Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) or more in excess of any insurance coverage.

8.9 Material Adverse Change . A material adverse change occurs, or is reasonably likely to occur, in the Borrower’s (or any Obligor’s) business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit; or the Bank determines that it is insecure for any other reason.

8.10 Government Action . Any government authority takes action that the Bank believes materially adversely affects the Borrower’s or any Obligor’s financial condition or ability to repay.

8.11 Default under Related Documents . Any default occurs under any guaranty, subordination agreement, security agreement, deed of trust, mortgage, or other document required by or delivered in connection with this Agreement or any such document is no longer in effect, or any guarantor purports to revoke or disavow the guaranty; or any representation or warranty made by any guarantor is false when made or deemed to be made.

8.12 ERISA Plans . Any one or more of the following events occurs with respect to a Plan of the Borrower subject to Title IV of ERISA, provided such event or events could reasonably be expected, in the judgment of the Bank, to subject the Borrower to any tax, penalty or liability (or any combination of the foregoing) which, in the aggregate, could have a material adverse effect on the financial condition of the Borrower:

(a)	A reportable event shall occur under Section 4043(c) of ERISA with respect to a Plan.

(b)	Any Plan termination (or commencement of proceedings to terminate a Plan) or the full or partial withdrawal from a Plan by the Borrower or any ERISA Affiliate.

8.13 Other Breach Under Agreement . A default occurs under any other term or condition of this Agreement not specifically referred to in this Article. This includes any failure or anticipated failure by the Borrower (or any other party named in the Covenants section) to comply with the financial covenants set forth in this Agreement, whether such failure is evidenced by financial statements delivered to the Bank or is otherwise known to the Borrower or the Bank.

9.	ENFORCING THIS AGREEMENT; MISCELLANEOUS

9.1 GAAP . Except as otherwise stated in this Agreement, all financial information provided to the Bank and all financial covenants will be made under generally accepted accounting principles, consistently applied.

9.2 Governing Law . This Agreement is governed by and shall be interpreted according to federal law and the laws of Massachusetts. If state or local law and federal law are inconsistent, or if state or local law is preempted by federal law, federal law governs. If the Bank has greater rights or remedies under federal law, whether as a national bank or otherwise, this paragraph shall not be deemed to deprive the Bank of such rights and remedies as may be available under federal law.

9.3 Successors and Assigns . This Agreement is binding on the Borrower’s and the Bank’s successors and assignees. The Borrower agrees that it may not assign this Agreement without the Bank’s prior consent. The Bank may sell participations in or assign this loan, and may exchange information about the Borrower (including, without limitation, any information regarding any hazardous substances) with actual or potential participants or assignees. If a participation is sold or the loan is assigned, the purchaser will have the right of set-off against the Borrower.


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Standard Loan Agreement		11

9.4 Dispute Resolution Provision . This paragraph, including the subparagraphs below, is referred to as the “Dispute Resolution Provision.” This Dispute Resolution Provision is a material inducement for the parties entering into this agreement.

(a)

This Dispute Resolution Provision concerns the resolution of any controversies or claims between the parties, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to: (i) this agreement (including any renewals, extensions or modifications); or (ii) any document related to this agreement (collectively a “Claim”). For the purposes of this Dispute Resolution Provision only, the term “parties” shall include any parent corporation, subsidiary or affiliate of the Bank involved in the servicing, management or administration of any obligation described or evidenced by this agreement.

(b)	At the request of any party to this agreement, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U.S. Code) (the “Act”). The Act will apply even though this agreement provides that it is governed by the law of a specified state.

(c)

Arbitration proceedings will be determined in accordance with the Act, the then-current rules and procedures for the arbitration of financial services disputes of the American Arbitration Association or any successor thereof (“AAA”), and the terms of this Dispute Resolution Provision. In the event of any inconsistency, the terms of this Dispute Resolution Provision shall control. If AAA is unwilling or unable to (i) serve as the provider of arbitration or (ii) enforce any provision of this arbitration clause, the Bank may designate another arbitration organization with similar procedures to serve as the provider of arbitration.

(d)

The arbitration shall be administered by AAA and conducted, unless otherwise required by law, in any U.S. state where real or tangible personal property collateral for this credit is located or if there is no such collateral, in the state specified in the governing law section of this agreement. All Claims shall be determined by one arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims shall be decided by three arbitrators. All arbitration hearings shall commence within ninety (90) days of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of the close of the hearing. However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days. The arbitrator(s) shall provide a concise written statement of reasons for the award. The arbitration award may be submitted to any court having jurisdiction to be confirmed and have judgment entered and enforced.

(e)

The arbitrator(s) will give effect to statutes of limitation in determining any Claim and shall dismiss the arbitration if the Claim is barred under the applicable statutes of limitation. For purposes of the application of any statutes of limitation, the service on AAA under applicable AAA rules of a notice of Claim is the equivalent of the filing of a lawsuit. Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s), except as set forth at subparagraph (h) of this Dispute Resolution Provision. The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this agreement.

(f)

This paragraph does not limit the right of any party to: (i) exercise self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or non-judicial foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies.

(g)	The filing of a court action is not intended to constitute a waiver of the right of any party, including the suing party, thereafter to require submittal of the Claim to arbitration.

(h)

Any arbitration or court trial (whether before a judge or jury) of any Claim will take place on an individual basis without resort to any form of class or representative action (the “Class Action Waiver”). The Class Action Waiver precludes any party from participating in or being represented in any class or representative action regarding a Claim. Regardless of anything else in this Dispute Resolution Provision, the validity and effect of the Class Action Waiver may be determined only by a court and not by an arbitrator. The parties to this agreement acknowledge that the Class Action Waiver is material and essential to the arbitration of any disputes between the parties and is nonseverable from the agreement to arbitrate Claims. If the Class Action Waiver is limited, voided or found unenforceable, then the parties’ agreement to arbitrate shall be null and void with respect to such proceeding, subject to the right to appeal the limitation or invalidation of the Class Action Waiver. The Parties acknowledge and agree that under no circumstances will a class action be arbitrated.


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(i)

By agreeing to binding arbitration, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of any Claim. Furthermore, without intending in any way to limit this agreement to arbitrate, to the extent any Claim is not arbitrated, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of such Claim. This waiver of jury trial shall remain in effect even if the Class Action Waiver is limited, voided or found unenforceable. WHETHER THE CLAIM IS DECIDED BY ARBITRATION OR BY TRIAL BY A JUDGE, THE PARTIES AGREE AND UNDERSTAND THAT THE EFFECT OF THIS AGREEMENT IS THAT THEY ARE GIVING UP THE RIGHT TO TRIAL BY JURY TO THE EXTENT PERMITTED BY LAW.

9.5 Severability; Waivers . If any part of this Agreement is not enforceable, the rest of the Agreement may be enforced. The Bank retains all rights, even if it makes a loan after default. If the Bank waives a default, it may enforce a later default. Any consent or waiver under this Agreement must be in writing.

9.6 Attorneys’ Fees . The Borrower shall reimburse the Bank for any reasonable costs and attorneys’ fees incurred by the Bank in connection with the enforcement or preservation of any rights or remedies under this Agreement and any other documents executed in connection with this Agreement, and in connection with any amendment, waiver, “workout” or restructuring under this Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing party is entitled to recover costs and reasonable attorneys’ fees incurred in connection with the lawsuit or arbitration proceeding, as determined by the court or arbitrator. In the event that any case is commenced by or against the Borrower under the Bankruptcy Code (Title 11, United States Code) or any similar or successor statute, the Bank is entitled to recover costs and reasonable attorneys’ fees incurred by the Bank related to the preservation, protection, or enforcement of any rights of the Bank in such a case. As used in this paragraph, “attorneys’ fees” includes the allocated costs of the Bank’s in-house counsel.

9.7 Set-Off .

(a)

In addition to any rights and remedies of the Bank provided by law, upon the occurrence and during the continuance of any event of default under this Agreement, the Bank is authorized, at any time, to set off and apply any and all Deposits of the Borrower or any Obligor held by the Bank or its affiliates against any and all Obligations owing to the Bank. The set-off may be made irrespective of whether or not the Bank shall have made demand under this Agreement or any guaranty, and although such Obligations may be contingent or unmatured or denominated in a currency different from that of the applicable Deposits and without regard for the availability or adequacy of other collateral. Any Deposits may be converted, sold or otherwise liquidated at prevailing market prices in order to effect such set-off.

(b)

The set-off may be made without prior notice to the Borrower or any other party, any such notice being waived by the Borrower (on its own behalf and on behalf of each Obligor) to the fullest extent permitted by law. The Bank agrees promptly to notify the Borrower after any such set-off and application; provided , however , that the failure to give such notice shall not affect the validity of such set-off and application.

(c)

For the purposes of this paragraph, “Deposits” means any deposits (general or special, time or demand, provisional or final, individual or joint) as well as any money, instruments, securities, credits, claims, demands, income or other property, rights or interests owned by the Borrower or any Obligor which come into the possession or custody or under the control of the Bank or its affiliates. “Obligations” means all obligations, now or hereafter existing, of the Borrower to the Bank under this Agreement and under any other agreement or instrument executed in connection with this Agreement, and the obligations to the Bank of any Obligor. TO THE EXTENT PERMITTED BY LAW, ANY AND ALL RIGHTS TO REQUIRE THE BANK TO EXERCISE ITS REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS PRIOR TO EXERCISING ITS RIGHT OF SET OFF WITH RESPECT TO SUCH DEPOSITS ARE HEREBY VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVED.

9.8 One Agreement . This Agreement and any related security or other agreements required by this Agreement, collectively:

(a)	represent the sum of the understandings and agreements between the Bank and the Borrower concerning this credit;


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Standard Loan Agreement		13

(b)	replace any prior oral or written agreements between the Bank and the Borrower concerning this credit; and

(c)	are intended by the Bank and the Borrower as the final, complete and exclusive statement of the terms agreed to by them.

In the event of any conflict between this Agreement and any other agreements required by this Agreement, this Agreement will prevail. Any reference in any related document to a “promissory note” or a “note” executed by the Borrower and dated as of the date of this Agreement shall be deemed to refer to this Agreement, as now in effect or as hereafter amended, renewed, or restated.

9.9 Additional Remedy for Failure to Assign Payments as Requested . The Borrower acknowledges that the Bank will be irreparably harmed if the Borrower fails, after request by the Bank, to promptly assign payments due or to become due under any Eligible Receivables when required by the Bank, pursuant to this Agreement, and that the Bank shall have no adequate remedy at law. Therefore, the Borrower agrees that the Bank shall be entitled to the following remedies, in addition to all other remedies allowed by law or under this Agreement:

(a)	an injunction compelling the Borrower’s compliance with the provisions of this Agreement requiring the Borrower to assign payments due or to become due under any Eligible Receivables;

(b)	the appointment of a receiver, with instructions that the receiver shall comply, in the Borrower’s name and on its behalf, with the provisions of this Agreement requiring the Borrower to assign payments due or to become due under any Eligible Receivables; and

(c)	such other or further equitable relief as may be necessary or desirable to secure to the Bank the benefits of the rights of an assignee under the Assignment of Claims Act (Title 31 Section 3727 and Title 41 Section 15 of the United States Code).

9.10 Waiver of Confidentiality . The Borrower authorizes the Bank to discuss the Borrower’s financial affairs and business operations with any accountants, auditors, business consultants, or other professional advisors employed by the Borrower, and authorizes such parties to disclose to the Bank such financial and business information or reports (including management letters) concerning the Borrower as the Bank may request.

9.11 Indemnification . The Borrower will indemnify and hold the Bank harmless from any loss, liability, damages, judgments, and costs of any kind relating to or arising directly or indirectly out of (a) this Agreement or any document required hereunder, (b) any credit extended or committed by the Bank to the Borrower hereunder, (c) any claim, whether well-founded or otherwise, that there has been a failure to comply with any law regulating the Borrower’s sales or leases to or performance of services for debtors obligated upon the Borrower’s Eligible Receivables and disclosures in connection therewith, and (d) any litigation or proceeding related to or arising out of this Agreement, any such document, any such credit, or any such claim. This indemnity includes but is not limited to attorneys’ fees (including the allocated cost of in-house counsel). This indemnity extends to the Bank, its parent, subsidiaries, affiliates and all of their directors, officers, employees, agents, successors, attorneys, and assigns. This indemnity will survive repayment of the Borrower’s obligations to the Bank. All sums due to the Bank hereunder shall be obligations of the Borrower, due and payable immediately without demand.

9.12 Notices . Unless otherwise provided in this Agreement or in another agreement between the Bank and the Borrower, all notices required under this Agreement shall be personally delivered or sent by first class mail, postage prepaid, or by overnight courier, to the addresses on the signature page of this Agreement, or sent by facsimile to the fax numbers listed on the signature page, or to such other addresses as the Bank and the Borrower may specify from time to time in writing. Notices and other communications shall be effective (i) if mailed, upon the earlier of receipt or five (5) days after deposit in the U.S. mail, first class, postage prepaid, (ii) if telecopied, when transmitted, or (iii) if hand-delivered, by courier or otherwise (including telegram, lettergram or mailgram), when delivered.

9.13 Headings . Article and paragraph headings are for reference only and shall not affect the interpretation or meaning of any provisions of this Agreement.

9.14 Counterparts . This Agreement may be executed in as many counterparts as necessary or convenient, and by the different parties on separate counterparts each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same agreement. Delivery of an executed counterpart of this Agreement (or of any agreement or document required by this Agreement and any amendment to this Agreement) by telecopy or other


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Standard Loan Agreement		14

electronic imaging means shall be as effective as delivery of a manually executed counterpart of this Agreement; provided, however, that the telecopy or other electronic image shall be promptly followed by an original if required by the Bank.

9.15 Borrower Information; Reporting to Credit Bureaus . The Borrower authorizes the Bank at any time to verify or check any information given by the Borrower to the Bank, check the Borrower’s credit references, verify employment, and obtain credit reports. The Borrower agrees that the Bank shall have the right at all times to disclose and report to credit reporting agencies and credit rating agencies such information pertaining to the Borrower and/or all guarantors as is consistent with the Bank’s policies and practices from time to time in effect.

9.16 Amendment and Restatement of Prior Agreement . This Agreement is an amendment and restatement, in its entirety, of the Loan Agreement entered into as of February 2, 2007, between the Bank and the Borrower, and any indebtedness outstanding thereunder shall be deemed to be outstanding under this Agreement. Nothing in this Agreement shall be deemed to be a repayment or novation of the indebtedness, or to release or otherwise adversely affect any lien, mortgage or security interest securing such indebtedness or any rights of the Bank against any guarantor, surety or other party primarily or secondarily liable for such indebtedness.

9.17 Limitation of Interest and Other Charges . If, at any time, the rate of interest, together with all amounts which constitute interest and which are reserved, charged or taken by the Bank as compensation for fees, services or expenses incidental to the making, negotiating or collection of the loan evidenced hereby, shall be deemed by any competent court of law, governmental agency or tribunal to exceed the maximum rate of interest permitted to be charged by the Bank to the Borrower under applicable law, then, during such time as such rate of interest would be deemed excessive, that portion of each sum paid attributable to that portion of such interest rate that exceeds the maximum rate of interest so permitted shall be deemed a voluntary prepayment of principal. As used herein, the term “applicable law” shall mean the law in effect as of the date hereof; provided, however, that in the event there is a change in the law which results in a higher permissible rate of interest, then this Agreement shall be governed by such new law as of its effective date.


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Standard Loan Agreement		15

The Borrower executed this Agreement as of the date stated at the top of the first page, intending to create an instrument executed under seal.


Bank:

Bank of America, N.A.

By:
	Laurence C. Harrington, Senior Vice President

Borrower:

Technical Communications Corporation

By:		(Seal)
	Michael P. Malone, Chief Financial Officer and Treasurer


Witness


Address where notices to Technical Communications Corporation are to be sent:				Address where notices to the Bank are to be sent:

100 Domino Drive				Doc Retention - GCF
Concord, MA 01742-2817				CT2-515-BB-03
				70 Batterson Park Road
				Farmington, CT 06032

				Facsimile: (866) 255-9922

Federal law requires Bank of America, N.A. (the “Bank”) to provide the following notice. The notice is not part of the foregoing agreement or instrument and may not be altered. Please read the notice carefully.

(1)

USA PATRIOT ACT NOTICE

Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account or obtains a loan. The Bank will ask for the Borrower’s legal name, address, tax ID number or social security number and other identifying information. The Bank may also ask for additional information or documentation or take other actions reasonably necessary to verify the identity of the Borrower, guarantors or other related persons.


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Standard Loan Agreement		16

Exhibit 10.8

LOGO

SECURITY AGREEMENT

(Multiple Use)

1. THE SECURITY. The undersigned Technical Communications Corporation (the “Pledgor”) hereby assigns and grants to Bank of America, N.A., its successors and assigns (“BANA”), and to Bank of America Corporation and its subsidiaries and affiliates (BANA and all such secured parties, collectively, the “Bank”) a security interest in the following described property now owned or hereafter acquired by the Pledgor (“Collateral”):

(a) All accounts, contract rights, chattel paper, instruments, deposit accounts, letter of credit rights, payment intangibles and general intangibles, including all amounts due to the Pledgor from a factor; rights to payment of money from the Bank under any Swap Contract (as defined in Paragraph 2 below); and all returned or repossessed goods which, on sale or lease, resulted in an account or chattel paper.

(b) All inventory, including all materials, work in process and finished goods.

(c) All machinery, furniture, fixtures and other equipment of every type now owned or hereafter acquired by the Pledgor, (including, but not limited to, the equipment described in the attached Equipment Description, if any).

(d) All negotiable and nonnegotiable documents of title covering any Collateral.

(e) All accessions, attachments and other additions to the Collateral, and all tools, parts and equipment used in connection with the Collateral.

(f) All substitutes or replacements for any Collateral, all cash or non-cash proceeds, product, rents and profits of any Collateral, all income, benefits and property receivable on account of the Collateral, all rights under warranties and insurance contracts, letters of credit, guaranties or other supporting obligations covering the Collateral, and any causes of action relating to the Collateral and all proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the Collateral and sums due from a third party which has damaged or destroyed the Collateral or from that party’s insurer, whether due to judgment, settlement or other process.

(g) All books data and records pertaining to any Collateral whether in the form of a writing, photograph, microfilm or electronic media, including but not limited to any computer-readable memory and any computer hardware or software necessary to process such memory (“Books and Records”).

2. THE INDEBTEDNESS. The Collateral secures and will secure all Indebtedness of the Pledgor to the Bank. Each party obligated under any Indebtedness is referred to in this Agreement as a “Debtor.” “Indebtedness” means all debts, obligations or liabilities now or hereafter existing, absolute or contingent of the Debtor or any one or more of them to the Bank, whether voluntary or involuntary, whether due or not due, or whether incurred directly or indirectly or acquired by the Bank by assignment or otherwise. Indebtedness shall include, without limitation, all obligations of the Debtor arising under any Swap Contract and any Treasury Services Contract “Swap Contract” means any interest rate, credit, commodity or equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, securities puts,


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Security Agreement (Multiple Use)		- 1 -

calls, collars, options or forwards or any combination of, or option with respect to, these or similar transactions now or hereafter entered into between the Debtor and the Bank. “Treasury Services Contract” means any contract between the Debtor and the Bank covering treasury management services, including, but not limited to, intraday credit, Automated Clearing House (ACH) services, foreign exchange services, daylight overdrafts, corporate credit card programs, wire transfers, electronic funds transfers, electronic trade services, controlled disbursement and zero balance arrangements.

3. PLEDGOR’S COVENANTS. The Pledgor represents, covenants and warrants that unless compliance is waived by the Bank in writing:

(a) The Pledgor will properly preserve the Collateral; defend the Collateral against any adverse claims and demands; and keep accurate Books and Records.

(b) The Pledgor resides (if the Pledgor is an individual), or the Pledgor’s chief executive office (if the Pledgor is not an individual) is located, in the state specified on the signature page hereof. In addition, the Pledgor (if not an individual or other unregistered entity), is incorporated in or organized under the laws of the state specified on such signature page. The Pledgor shall give the Bank at least thirty (30) days notice before changing its residence or its chief executive office or state of incorporation or organization. The Pledgor will notify the Bank in writing prior to any change in the location of any Collateral, including the Books and Records.

(c) The Pledgor will notify the Bank in writing prior to any change in the Pledgor’s name, identity or business structure.

(d) Unless otherwise agreed, the Pledgor has not granted and will not grant any security interest in any of the Collateral except to the Bank, and will keep the Collateral free of all liens, claims, security interests and encumbrances of any kind or nature except the security interest of the Bank.

(e) The Pledgor will promptly notify the Bank in writing of any event which affects the value of the Collateral, the ability of the Pledgor or the Bank to dispose of the Collateral, or the rights and remedies of the Bank in relation thereto, including, but not limited to, the levy of any legal process against any Collateral and the adoption of any marketing order, arrangement or procedure affecting the Collateral, whether governmental or otherwise.

(f) The Pledgor shall pay all costs necessary to preserve, defend, enforce and collect the Collateral, including but not limited to taxes, assessments, insurance premiums, repairs, rent, storage costs and expenses of sales, and any costs to perfect the Bank’s security interest (collectively, the “Collateral Costs”). Without waiving the Pledgor’s default for failure to make any such payment, the Bank at its option may pay any such Collateral Costs, and discharge encumbrances on the Collateral, and such Collateral Costs payments shall be a part of the Indebtedness and bear interest at the rate set out in the Indebtedness. The Pledgor agrees to reimburse the Bank on demand for any Collateral Costs so incurred.

(g) Until the Bank exercises its rights to make collection, the Pledgor will diligently collect all Collateral.

(h) If any Collateral is or becomes the subject of any registration certificate, certificate of deposit or negotiable document of title, including any warehouse receipt or bill of lading, the Pledgor shall immediately deliver such document to the Bank, together with any necessary endorsements.

(i) The Pledgor will not sell, lease, agree to sell or lease, or otherwise dispose of any Collateral except with the prior written consent of the Bank; provided, however, that the Pledgor may sell inventory in the ordinary course of business.

(j) The Pledgor will maintain and keep in force all risk insurance covering the Collateral against fire, theft, liability and extended coverages (including without limitation windstorm coverage, and


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Security Agreement (Multiple Use)		- 2 -

hurricane coverage as applicable), to the extent that any Collateral is of a type which can be so insured. Such insurance shall be in form, amounts, coverages and basis reasonably acceptable to the Bank, shall require losses to be paid on a replacement cost basis, shall be issued by insurance companies acceptable to the Bank and include a loss payable endorsement in favor of the Bank in a form acceptable to the Bank. Upon the request of the Bank, the Pledgor will deliver to the Bank a copy of each insurance policy, or, if permitted by the Bank, a certificate of insurance listing all insurance in force.

(k) The Pledgor will not attach any Collateral to any real property or fixture in a manner which might cause such Collateral to become a part thereof unless the Pledgor first obtains the written consent of any owner, holder of any lien on the real property or fixture, or other person having an interest in such property to the removal by the Bank of the Collateral from such real property or fixture. Such written consent shall be in form and substance acceptable to the Bank and shall provide that the Bank has no liability to such owner, holder of any lien, or any other person.

4. ADDITIONAL OPTIONAL REQUIREMENTS. The Pledgor agrees that the Bank may at its option at any time, whether or not the Pledgor is in default:

(a) Require the Pledgor to deliver to the Bank (i) copies of or extracts from the Books and Records, and (ii) information on any contracts or other matters affecting the Collateral.

(b) Examine the Collateral, including the Books and Records, and make copies of or extracts from the Books and Records, and for such purposes enter at any reasonable time upon the property where any Collateral or any Books and Records are located.

(c) Require the Pledgor to deliver to the Bank any instruments, chattel paper or letters of credit which are part of the Collateral, and to assign to the Bank the proceeds of any such letters of credit.

(d) Notify any account debtors, any buyers of the Collateral, or any other persons of the Bank’s interest in the Collateral.

5. DEFAULTS. Any one or more of the following shall be a default hereunder:

(a) Any Indebtedness is not paid when due, or any default occurs under any agreement relating to the Indebtedness, after giving effect to any applicable grace or cure periods.

(b) The Pledgor breaches any term, provision, warranty or representation under this Agreement, or under any other obligation of the Pledgor to the Bank, and such breach remains uncured after any applicable cure period.

(c) The Bank fails to have an enforceable first lien (except for any prior liens to which the Bank has consented in writing) on or security interest in the Collateral.

(d) Any custodian, receiver or trustee is appointed to take possession, custody or control of all or a substantial portion of the property of the Pledgor or of any guarantor or other party obligated under any Indebtedness.

(e) The Pledgor or any guarantor or other party obligated under any Indebtedness becomes insolvent, or is generally not paying or admits in writing its inability to pay its debts as they become due, fails in business, makes a general assignment for the benefit of creditors, dies, or commences any case, proceeding or other action under any bankruptcy or other law for the relief of, or relating to, debtors.

(f) Any case, proceeding or other action is commenced against the Pledgor or any guarantor or other party obligated under any Indebtedness under any bankruptcy or other law for the relief of, or relating to, debtors.


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Security Agreement (Multiple Use)		- 3 -

(g) Any involuntary lien of any kind or character attaches to any Collateral, except for liens for taxes not yet due.

(h) The Pledgor has given the Bank any false or misleading information or representations.

6. BANK’S REMEDIES AFTER DEFAULT. In the event of any default, the Bank may do any one or more of the following, to the extent permitted by law:

(a) Declare any Indebtedness immediately due and payable, without notice or demand.

(b) Enforce the security interest given hereunder pursuant to the Uniform Commercial Code and any other applicable law.

(c) Enforce the security interest of the Bank in any deposit account of the Pledgor maintained with the Bank by applying such account to the Indebtedness.

(d) Require the Pledgor to obtain the Bank’s prior written consent to any sale, lease, agreement to sell or lease, or other disposition of any Collateral consisting of inventory.

(e) Require the Pledgor to segregate all collections and proceeds of the Collateral so that they are capable of identification and deliver daily such collections and proceeds to the Bank in kind.

(f) Require the Pledgor to direct all account debtors to forward all payments and proceeds of the Collateral to a post office box under the Bank’s exclusive control.

(g) Require the Pledgor to assemble the Collateral, including the Books and Records, and make them available to the Bank at a place designated by the Bank.

(h) Enter upon the property where any Collateral, including any Books and Records, are located and take possession of such Collateral and such Books and Records, and use such property (including any buildings and facilities) and any of the Pledgor’s equipment, if the Bank deems such use necessary or advisable in order to take possession of, hold, preserve, process, assemble, prepare for sale or lease, market for sale or lease, sell or lease, or otherwise dispose of, any Collateral.

(i) Demand and collect any payments on and proceeds of the Collateral. In connection therewith the Pledgor irrevocably authorizes the Bank to endorse or sign the Pledgor’s name on all checks, drafts, collections, receipts and other documents, and to take possession of and open the mail addressed to the Pledgor and remove therefrom any payments and proceeds of the Collateral.

(j) Grant extensions and compromise or settle claims with respect to the Collateral for less than face value, all without prior notice to the Pledgor.

(k) Use or transfer any of the Pledgor’s rights and interests in any Intellectual Property now owned or hereafter acquired by the Pledgor, if the Bank deems such use or transfer necessary or advisable in order to take possession of, hold, preserve, process, assemble, prepare for sale or lease, market for sale or lease, sell or lease, or otherwise dispose of, any Collateral. The Pledgor agrees that any such use or transfer shall be without any additional consideration to the Pledgor. As used in this paragraph, “Intellectual Property” includes, but is not limited to, all trade secrets, computer software, service marks, trademarks, trade names, trade styles, copyrights, patents, applications for any of the foregoing, customer lists, working drawings, instructional manuals, and rights in processes for technical manufacturing, packaging and labeling, in which the Pledgor has any right or interest, whether by ownership, license, contract or otherwise.


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Security Agreement (Multiple Use)		- 4 -

(l) Have a receiver appointed by any court of competent jurisdiction to take possession of the Collateral. The Pledgor hereby consents to the appointment of such a receiver and agrees not to oppose any such appointment.

(m) Take such measures as the Bank may deem necessary or advisable to take possession of, hold, preserve, process, assemble, insure, prepare for sale or lease, market for sale or lease, sell or lease, or otherwise dispose of, any Collateral, and the Pledgor hereby irrevocably constitutes and appoints the Bank as the Pledgor’s attorney-in-fact to perform all acts and execute all documents in connection therewith.

(n) Without notice or demand to the Pledgor, set off and apply against any and all of the Indebtedness any and all deposits (general or special, time or demand, provisional or final) and any other indebtedness, at any time held or owing by the Bank or any of the Bank’s agents or affiliates to or for the credit of the account of the Pledgor or any guarantor or endorser of the Pledgor’s Indebtedness.

(o) Exercise any other remedies available to the Bank at law or in equity.

7. DISPUTE RESOLUTION PROVISION. This paragraph, including the subparagraphs below, is referred to as the “Dispute Resolution Provision.” This Dispute Resolution Provision is a material inducement for the parties entering into this agreement.

(a) This Dispute Resolution Provision concerns the resolution of any controversies or claims between the parties, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to: (i) this agreement (including any renewals, extensions or modifications); or (ii) any document related to this agreement (collectively a “Claim”). For the purposes of this Dispute Resolution Provision only, the term “parties” shall include any parent corporation, subsidiary or affiliate of the Bank involved in the servicing, management or administration of any obligation described or evidenced by this agreement.

(b) At the request of any party to this agreement, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U.S. Code) (the “Act”). The Act will apply even though this agreement provides that it is governed by the law of a specified state.

(c) Arbitration proceedings will be determined in accordance with the Act, the then- current rules and procedures for the arbitration of financial services disputes of the American Arbitration Association or any successor thereof (“AAA”), and the terms of this Dispute Resolution Provision. In the event of any inconsistency, the terms of this Dispute Resolution Provision shall control. If AAA is unwilling or unable to (i) serve as the provider of arbitration or (ii) enforce any provision of this arbitration clause, the Bank my designate another arbitration organization with similar procedures to serve as the provider of arbitration.

(d) The arbitration shall be administered by AAA and conducted, unless otherwise required by law, in any U.S. state where real or tangible personal property collateral for this credit is located or if there is no such collateral, in the state specified in the governing law section of this agreement. All Claims shall be determined by on arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims shall be decided by three arbitrators. All arbitration hearings shall commence within ninety (90) days of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of the close of the hearing. However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days. The arbitrator(s) shall provide a concise written statement of reasons for the award. The arbitration award may be submitted to any court having jurisdiction to be confirmed and have judgment entered and enforced.

(e) The arbitrator(s) will give effect to statutes of limitation in determining any Claim and shall dismiss the arbitration if the Claim is barred under the applicable statutes of limitation. For purposes of the application of any statutes of limitation, the service on AAA under applicable AAA rules of a notice


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Security Agreement (Multiple Use)		- 5 -

of Claim is the equivalent of the filing of a lawsuit. Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s), except as set forth at subparagraph (h) of this Dispute Resolution Provision. The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this agreement.

(f) This paragraph does not limit the right of any party to: (i) exercise self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or non-judicial foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies.

(g) The filing of a court action is not intended to constitute a waiver of the right of any party, including the suing party, thereafter to require submittal of the Claim to arbitration.

(h) Any arbitration or court trial (whether before a judge or jury) of any Claim will take place on an individual basis without resort to any form of class or representative action (the “Class Action Waiver”). The Class Action Waiver precludes any party from participating in or being represented in any class or representative action regarding a Claim. Regardless of anything else in this Dispute Resolution Provision, the validity and effect of the Class Action Waiver may be determined only by a court and not by an arbitrator. The parties to this agreement acknowledge that the Class Action Waiver is material and essential to the arbitration of any disputes between the parties and is nonseverable from the agreement to arbitrate Claims. If the Class Action Waiver is limited, voided or found unenforceable, then the parties’ agreement to arbitrate shall be null and void with respect to such proceeding, subject to the right to appeal the limitation or invalidation of the Class Action Waiver. The Parties acknowledge and agree that under no circumstances will a class action be arbitrated.

(i) By agreeing to binding arbitration, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of any Claim. Furthermore, without intending in any way to limit this agreement to arbitrate, to the extent any Claim is not arbitrated, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of such Claim. This waiver of jury trial shall remain in effect even if the Class Action Waiver is limited, voided or found unenforceable. WHETHER THE CLAIM IS DECIDED BY ARBITRATION OR BY TRIAL BY A JUDGE, THE PARTIES AGREE AND UNDERSTAND THAT THE EFFECT OF THIS AGREEMENT IS THAT THEY ARE GIVING UP THE RIGHT TO TRIAL BY JURY TO THE EXTENT PERMITTED BY LAW.

8. MISCELLANEOUS .

(a) Any waiver, express or implied, of any provision hereunder and any delay or failure by the Bank to enforce any provision shall not preclude the Bank from enforcing any such provision thereafter.

(b) The Pledgor shall, at the request of the Bank, execute such other agreements, documents, instruments, or financing statements in connection with this Agreement as the Bank may reasonably deem necessary.

(c) All notes, security agreements, subordination agreements and other documents executed by the Pledgor or furnished to the Bank in connection with this Agreement must be in form and substance satisfactory to the Bank.

(d) This Agreement is governed by and shall be interpreted according to federal law and the laws of Massachusetts. If state or local law and federal law are inconsistent, or if state or local law is preempted by federal law, federal law governs. If the Bank has greater rights or remedies under federal law, whether as a national bank or otherwise, this paragraph shall not be deemed to deprive the Bank of such rights and remedies as may be available under federal law. Jurisdiction and venue for any action or proceeding to enforce this Agreement shall be the forum appropriate for such action or proceeding against the Debtor, to which jurisdiction the Pledgor irrevocably submits and to which venue the Pledgor waives to the fullest extent permitted by law any defense asserting an inconvenient forum in connection therewith.


Ref #: 1000800238 : - Technical Communications Corporation
Security Agreement (Multiple Use)		- 6 -

(e) All rights and remedies herein provided are cumulative and not exclusive of any rights or remedies otherwise provided by law. Any single or partial exercise of any right or remedy shall not preclude the further exercise thereof or the exercise of any other right or remedy.

(f) All terms not defined herein are used as set forth in the Uniform Commercial Code.

(g) In the event of any action by the Bank to enforce this Agreement or to protect the security interest of the Bank in the Collateral, or to take possession of, hold, preserve, process, assemble, insure, prepare for sale or lease, market for sale or lease, sell or lease, or otherwise dispose of, any Collateral, the Pledgor agrees to pay immediately the costs and expenses thereof, together with reasonable attorneys’ fees and allocated costs for in-house legal services to the extent permitted by law.

(h) In the event the Bank seeks to take possession of any or all of the Collateral by judicial process, the Pledgor hereby irrevocably waives any bonds and any surety or security relating thereto that may be required by applicable law as an incident to such possession, and waives any demand for possession prior to the commencement of any such suit or action.

(i) This Agreement shall constitute a continuing agreement, applying to all future as well as existing transactions, whether or not of the character contemplated at the date of this Agreement, and if all transactions between the Bank and the Pledgor shall be closed at any time, shall be equally applicable to any new transactions thereafter.

(j) The Bank’s rights hereunder shall inure to the benefit of its successors and assigns. In the event of any assignment or transfer by the Bank of any of the Indebtedness or the Collateral, the Bank thereafter shall be fully discharged from any responsibility with respect to the Collateral so assigned or transferred, but the Bank shall retain all rights and powers hereby given with respect to any of the Indebtedness or the Collateral not so assigned or transferred. All representations, warranties and agreements of the Pledgor if more than one are joint and several and all shall be binding upon the personal representatives, heirs, successors and assigns of the Pledgor.

(k) As stated in the preamble to this Agreement, the secured parties covered by this Agreement include BANA as well as Bank of America Corporation and its subsidiaries and affiliates. Such secured parties are collectively referred to as the “Bank.” If, from time to time, any of the Indebtedness covered by this Agreement includes obligations to entities other than BANA, then BANA shall act as collateral agent for itself and all such other secured parties. Any financing statements, control agreements and other steps taken to perfect the security interests under this Agreement may be made solely in the name of BANA, without expressly disclosing BANA’s role as collateral agent. Unless the context otherwise requires, each reference to “Bank” in this Agreement shall refer to each secured party covered by this Agreement. Any enforcement actions under this Agreement will be taken by BANA as collateral agent, unless otherwise agreed by BANA and one or more of the other secured parties. BANA shall have the right to apply proceeds of the Collateral against debts, obligations or liabilities constituting all or part of the Indebtedness in such order as BANA may determine in its sole discretion, unless otherwise agreed by BANA and one or more of the other secured parties.

9 . FINAL AGREEMENT . BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT: (A) THIS DOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, (B) THIS DOCUMENT SUPERSEDES ANY COMMITMENT LETTER, TERM SHEET, OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS RELATING TO THE SUBJECT MATTER HEREOF, UNLESS SUCH COMMITMENT LETTER, TERM SHEET, OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS EXPRESSLY PROVIDES TO THE CONTRARY, (C) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (D) THIS DOCUMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.


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Security Agreement (Multiple Use)		- 7 -

The parties executed this Agreement as of February 22, 2012 intending to create an instrument executed under seal.


BANK OF AMERICA, N.A.

By:
		Laurence C. Harrington, Senior Vice President


Address for Notices:
Doc Retention - GCF
CT2-515-BB-03
70 Batterson Park Road
Farmington, CT 06032

Witness:	Technical Communications Corporation

	By:		(Seal)
		Michael P. Malone, Chief Financial Officer and Treasurer

Pledgor’s Location (principal residence, if the Pledgor is an individual; chief executive office, if the Pledgor is not an individual):

100 Domino Drive

Concord, Massachusetts 01742-2817

Pledgor’s state of incorporation or organization (if Pledgor is a corporation, partnership, limited liability company or other registered entity): Massachusetts

Mailing Address (if different from above):


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Security Agreement (Multiple Use)		- 8 -

EXHIBIT 10.13

Publication N F MARCH 2001

GOVERNMENT OF THE

ARAB REPUBLIC OF

EGYPT

MINISTRY OF DEFENSE

ARMAMENT AUTHORITY

CONTRACT

FOR

SUPPLY OF EQUIPMENT

CONTRACT No.: CAIRO/N/AM/Technical Communications Corp./2014/19

PUBLICATION N F S E MARCH 01

“ THE REGISTRANT HAS APPLIED FOR CONFIDENTIAL TREATMENT OF CERTAIN PROVISIONS OF THIS EXHIBIT WITH THE SECURITIES AND EXCHANGE COMMISSION. THE CONFIDENTIAL PORTIONS OF THIS EXHIBIT ARE MARKED WITH ASTERISKS (***) AND HAVE BEEN OMITTED. THE OMITTED PORTIONS OF THIS EXHIBIT WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.”

TABLE OF CONTENTS

ARTICLES


I.	OBJECT AND STRUCTURE OF THE CONTRACT	5

II.	PRICE	5

III.	TAXES AND DUTIES	6

IV.	GUARANTEE DEPOSITS	6

V.	DELIVERY TERMS:	7

VI.	PAYMENT	7

VII.	TRANSFER OF CONTRACT	7

VIII.	QUALITY CONTROL, INSPECTION, TESTS AND ACCEPTANCE	8

IX.	PACKAGING AND DELIVERY	10

X.	TRAINING AND TECHNICAL ASSISTANCE	11

XI.	DELAY IN PERFORMANCE AND PENALTY FOR DELAY	11

XII.	FORCE MAJEURE	11

XIII.	TERMINATION OF THE CONTRACT.	12

XIV.	WARRANTY	13

XV.	NEW MATERIAL:	13

XVI.	ORIGIN OF EQUIPMENT	13

XVII.	CONTRACT CHANGES	13

XVIII.	EXPORT LICENSE	13

XIX.	DISPUTES AND ARBITRATION	14

XX.	LANGUAGE	15

XXI.	SECURITY	15

XXII.	EFFECTIVE DATE	16

XXIII.	DOMICILE AND NOTICES	16

XXIV.	CONTENTS OF THE CONTRACT AND ORDER OF PRECEDENCE	17



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APPENDICES


APPENDIX A :	ITEMS DESCRIPTION AND SPECIFICATIONS	18

APPENDIX B :	PRICE STRUCTURE OF THE CONTRACT	20

APPENDIX C :	SHIPPING AND MARKING	21

APPENDIX D :	NOTICE OF AVAILABILITY	22

APPENDIX E :	CERTIFICATE OF RECEIPT	24

APPENDIX F :	FORM LETTER OF GUARANTEE FOR PERFORMANCE (LGP)	25

APPENDIX G :	FORM LETTER OF GUARANTEE FOR ADVANCE PAYMENT (LGAP) (N/A)	26

APPENDIX H :	PAYMENT TERMS	27

APPENDIX I :	PAYMENT SCHEDULE	28

APPENDIX J :	CERTIFICATE OF CONFORMANCE (COC)	29

APPENDIX K :	CERTIFICATE OF MATERIAL ACCEPTANCE (COMA)	30

APPENDIX L :	CERTIFICATE OF MATERIAL REJECTION (COMR)	31

APPENDIX M :	CERTIFICATE OF SERVICE COMPLETION	32

APPENDIX N :	TRAINING AND TECHNICAL ASSISTANCE	33

APPENDIX O :	ACCEPTANCE TEST PROCEDURES	34

APPENDIX P :	FORM NOTIFICATION OF GOE NON-PARTICIPATION IN INSPECTION	35



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COMPLETE AGREEMENT

This contract is signed on / / 2014 , between :

The Armament Authority [representing the Ministry of defense of the Government of the Arab Republic of Egypt] as represented by…Brigadier Ahmed Kamal El Dinn Ibrahim…………, hereinafter referred to as GoE or Buyer, on the first part, AND:

Represented by: Mohamed Hany Aly Fahmy ElShamy By virtue of the Power of Attorney issued on May 29, 2014 By: Consulate General of the Arab Republic of Egypt hereinafter referred to as the Supplier, The Contractor , or the Seller, on the other part.

The two parties, hereinafter, shall be collectively referred to as the parties.

AND IN CONSIDERATION OF THE MUTUAL PROMISES AND AGREEMENTS HEREIN, THE TWO PARTIES AGREE AS FOLLOWS:

I.	OBJECT AND STRUCTURE OF THE CONTRACT

The object of this contract is that the Supplier shall supply, all the contracted items (Materials and/ or services as described by Appendix A “Items Description and Specification”) that perform in accordance with the requirements stipulated in the contract (including all appendices that form an integral part of this contract). And the GoE accepts to buy in conformity with the conditions of the contract, the contracted items at the Firm Fixed Price agreed to in the Article II, “Price”, of which full price details are specified in Appendix B “Price Structure of the Contract”.

Under this contract, the Supplier shall be solely responsible for meeting the requirements specified in this contract.

The GoE reserves the right to purchase on the same terms, conditions, and prices stated herein, additional quantities of up to one hundred percent (100%) of any or each item specified by this contract, providing that the additional quantities of each item are ordered with the Supplier prior to the completion of the Contract.

The GoE also reserves the right within 10 years from the date of signing this contract, to purchase under the same terms and conditions the spare parts covered by this contract and at a price negotiated on the date of the new order.

II.

PRICE

This is a Firm Fixed Price contract.

The total price agreed upon is $3,287,323.08 USD only . The price of the Contract is for the supply and delivery to the GoE of the items contracted for as indicated in this contract. It is agreed that the above price includes the following:

Price of the items (materials/ services) contracted for, specified in Appendix A.

Any other charges and expenses incidental to the performance of this contract, and



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Any and all royalties and/or license fees or payments, if any, which may be or became due on the inclusion of any patented, copyrighted, trade secrets or other proprietary materials, designs, inventions or information ………..etc.

In return for this price, the Supplier assumes all cost and schedule risks for delivering the materials/ services associated with this contract in accordance with the requirements agreed to in this contract, including all Appendices.

contractor certifies that the contract price, including subcontracts awarded thereunder does not include any direct or indirect costs of sales, commissions to assure the conclusion of the sale of any equipment or material called for in this contract. if it is proven that, at any time, the contractor has paid any amount to any party as sales commission or fees to conclude the contract, the GOE reserves the right to reduce the total value of this contract, or to deduct from the deserved money the same amount as that paid as the sale commission or fees and may be terminate this contract immediately according to article (termination of the contract for default)

Supplier certifies that the contract price, including subcontracts awarded thereunder, does not include any Non-Recurring Cost Charges.

III.

TAXES AND DUTIES

All taxes, duties, and charges outside the geographical borders of EGYPT, to which the Supplier becomes liable in connection with the execution of this contract shall be the sole responsibility of the Supplier, and shall be borne entirely by the Supplier.

All taxes, duties, and charges within the geographical borders of EGYPT, to which the Supplier becomes liable in connection with the materials and services delivered under this contract shall be the sole responsibility of the GoE, and shall be borne entirely by the GoE.

Banking fees and charges or commissions connected with confirmation/ indorsing of the Letter of Credit/ Letter of Guarantee for Performance, or any request for validity extension thereof shall be borne by the Supplier. As an exception, the GoE shall bear the banking fees for opening the L/C.

The Supplier warrants that all supplies for which duty-free entry is to be claimed are intended to be delivered to the GoE or incorporated into the end items to be delivered under this contract, and that duty shall be paid to the extent that these supplies, or any portion of them, are diverted to non-GoE use, other than scrap or salvage.

IV.

GUARANTEE DEPOSITS

All Letters of Guarantee (L/Gs) established for the purpose of this contract shall be unconditional, written in English, be of the same currency as of the contract, and shall be issued by a first class bank which is chartered and doing business in Egypt. If the Supplier elects to issue the L/Gs by a bank in his country, the Supplier shall have them endorsed by a first-class bank, which is chartered and doing business in Egypt.

Performance Guarantee (LGP)

As security for the due execution of the Contract, the Supplier shall deposit to the GoE, within 21 calendar days from the contract signature, a Letter of Guarantee for



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Performance in the form presented in Appendix F, [Form Letter of Guarantee for Performance (LGP)]. The amount of the LGP shall be equal to 10% of the price of the Contract identified in Article II [Price].

The LGP shall be held and maintained at its full amount by the GoE, subject to conditions and stipulations of the contract, as pecuniary guarantee for the due execution and proper performance of the Contract, and for the recovery of over payment and of any penalties and damage, associated with the performance of the Contract, to which the Supplier may become liable.

The LGP will expire on the same date that the warranty for the items delivered under the Contract expires in accordance with the provisions set forth in Article XIV [Warranty].

In the event of delays in performance or the filing of claims by either party, the GoE shall have the right to extend the period of validity of the LGP by a period(s) equal to the period(s) of the delay in performance or until the claims are resolved. The GoE’s right to extend the period of validity shall be enforceable by the sole fact that the delay in performance occurred, or that a claim has been filed and without prior notification to the Supplier or other formalities or recourse to judicial proceedings.

Upon expiration of the LGP, both parties agree that each party has completed all responsibilities in accordance with the requirements of this contract and that no claims will be brought against the other party to this contract after the date of the expiration of the said LGP. Upon expiration, the GoE will return LGP to the issuing bank.

If at any time, prior to the expiration of the LGP, any sum is reduced (drawn down) from the guarantee deposit by the GoE due to Supplier non-performance in accordance with the conditions of this contract, the Supplier shall, within 15 calendar days of receipt of written demand from the GoE, increase the guarantee to its full amount.

V.	DELIVERY TERMS:

All deliverable items shall be delivered DAP, Cairo, Egypt, via Air Freight (Cairo Airport), according to ICC INCOTERMS 2010.

VI.

PAYMENT

Payment of the total price shall be made in accordance with the terms of payment agreed upon between the Supplier and the GoE as expressed in appendix H “Payment Terms”.

VII.

TRANSFER OF CONTRACT

The Supplier shall not, without the written consent of the GoE, transfer this contract, in whole or in part, to any third party. However, the Supplier retains the complete right to purchase any part or portion form his duly designated sub-Supplier(s) on his account.

The contract, or any sum due on account of this contract, may only be transferred through formal contract amendment, which must be signed by the two parties prior to becoming effective. Violation of this condition will give the GoE the right to cancel the contract by a simple notice, provided to the Supplier by registered letter and without further formalities.



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VIII.

QUALITY CONTROL, INSPECTION, TESTS AND ACCEPTANCE

QUALITY CONTROL:

The Supplier, and all subcontractors, shall adhere to all quality control standards for all supplies being delivered under this contract.

The Supplier shall only tender for inspection those Supplies that have been produced in accordance with contractually compliant quality control procedures and have been found by the Supplier to be in conformity with the contract requirements.

INSPECTION

For all supplies, the Supplier shall submit a Certificate of Conformance (CoC) in accordance with appendix “J” with all his documents supporting any request for payment.

The Supplier shall inspect, on his own responsibility and expenses, all the contracted items before delivering them to the GoE. The Supplier, further, certifies that he shall reject any item that does not fully comply with the contract specification.

The Government has the right to perform inspections to ascertain Supplier’s compliance with the Contract requirements.

Inspection of the contracted supplies shall be made by inspectors designated by the GoE and shall start, for each consignment, within 60-63 calendar days from the date of receiving the Supplier’s notification to the GoE stating that all (or part if partial shipment is allowed) of the contracted supplies are ready for inspection.

If the GoE’s designated inspectors did not show up in the Supplier’s premises on the 63 ^rd day, from the date of receiving the Supplier’s notification, the Supplier shall have the right to inspect (using the same procedures indicated in Appendix (O) “Acceptance Test Procedures” and dispatch the contracted supplies (ready for inspection), to the designated freight forwarder, on his own responsibility and without participation from the GoE’s side.

The Supplier’s right to dispatch the Supplies, as indicated by paragraph 5 above, does not relieve him of the responsibility to correct any defects (shortage in delivery- deficiencies in specification-…etc.) discovered with the Supplies after being receipt on site.

Inspection shall be made on the charge of the Supplier in his factory. The Supplier shall provide at his own expense all facilities, tools, and technical assistance necessary for the inspection and tests, and will provide administrative support in the form of office space, internal communications, and transportation from the point of the inspectors lodging to the inspection site and return. Inspectors will be granted full access to proceed to any place where the materials contracted for are manufactured and inspected.



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Supplier shall set aside the contract items, make them well identified as duly appropriated to the contract and place them at the disposal of the inspectors

The decision of the inspectors designated by the Government, concerning the results of the inspections, shall be final and binding for the Supplier, subject to the following provisions:

In case the inspection and tests prove that the materials are compliant with the specifications agreed upon in this contract, the parties shall proceed in the following order:

Supplier shall re-pack the items that were used as inspection samples (unless it is usual for the particular trade to send the goods of the contract description unpacked), seal and appropriately mark the packages of the whole consignment in accordance with Appendix C “Shipping and Marking”.

The inspectors, designated by the Government, shall submit to the Supplier a certificate for material acceptance (CoMA), as indicated by Appendix “K”.

II.

In case the inspection proves that the goods inspected, in whole or in part, are not in conformity with the contract specifications, the parties shall proceed in the following order:

The inspectors, designated by the Government, shall submit to the Supplier a certificate of material rejection (CoMR), as indicated by Appendix “L”.

The Supplier undertakes to replace any rejected material and presents the item(s) for re-inspection.

Regardless of the quantity inspected and found not in conformity with the contract specification, the GoE shall have the right to re-inspect 100% of the quantity of Contract Line Items listed in the CoMR. Re-inspection shall take place in the EGYPT.

In no event shall the GoE accept any material that have been rejected by its designated inspectors. The Supplier neither shall invoice nor be paid for items listed in the CoMR unless they are re-inspected in the EGYPT and found in conformity with the contract specification.

10.

In no event shall the GoE be responsible for any extension or delays in the scheduled deliveries or periods of performance of this contract that result, directly or indirectly, from the GoE rejection on the grounds on non-compliance with contract requirements. The Supplier’s obligations to correct and present the rejected items for re-inspection shall not result in any adjustment to the delivery schedule, period of performance, or increase contract price as a result of the correction of non-compliant items.



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11.

Immediately after inspection, packing and marking, Supplier shall take the necessary action to ship the accepted goods to the Government’s Freight Forwarder.

C For the purposes of this contract, supplies/ goods/ materials are synonyms to contracted items as indicated in Appendices “A” and “B” and include, but are not limited to, raw materials, components and end products.

ACCEPTANCE

All acceptance tests shall be performed in accordance with GoE approved test procedures.

The documents required to prove acceptance shall be:

III.

Certificate of material acceptance (CoMA) as per appendix “K” (in case of GoE participation in the inspection process), OR

IV.

A letter from the GoE to declare its non-participation in the inspection process (as per appendix “P”) and a Certificate of Conformance (CoC) in accordance with Appendix “J” (in case of GoE non-participation in the inspection process).

The COMA and/ or CoC, when signed by the GoE or the Supplier, constitutes acceptance of the inspected items, but does not relieve the Supplier of the responsibility to correct any defects or deficiencies discovered with the delivered items throughout the period of contract performance including the warranty period of the Contract in accordance with Article XIV “Warranty”.

Items received shall be deemed quantitatively accepted if six (6) months have passed form the date of receipt without filing any shortage in delivery claim.

Items received shall be deemed qualitatively accepted if twelve (12) months have passed form the date of receipt without filing any warrantee claim.

IX.

PACKAGING AND DELIVERY

The term (DAP) as used in this article, means Delivered at Place (named place of destination). Seller is responsible for delivery to named place, risk passes when the goods are delivered to the named place, as identified by the ICC INCOTERMS 2010.

All deliveries shall be consigned to the GoE Armament Authority.

All items will be packed in accordance with Standard Practice for Commercial Packaging and every package will be stenciled on front and back in accordance with instructions provided in appendix C.

Delivery period shall be within ….10 months from the contract effective date of this contract.

Partial delivery is allowed. Early delivery is allowed.



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X.	TRAINING AND TECHNICAL ASSISTANCE

The Supplier shall provide training and technical assistance support in Concord, Massachusetts in accordance with requirements outlined in Appendix “N” (Training and Technical Assistance).

XI.

DELAY IN PERFORMANCE AND PENALTY FOR DELAY

In the event of delays in delivery, as specified in the contract, the GoE shall have the right to deduct from the LGP a sum equal to one percent (1%) of the values of the materials not delivered for every week, or portion thereof, of delay. The total amount deducted shall not exceed four percent (4%). Such penalty shall be enforceable by the sole fact that the delay occurred and without prior notification to the Supplier or other formalities or recourse to judicial proceeding.

Notwithstanding, if these delays are in excess of two (2) months, and the delay was not a direct result of Force Majeure, the GoE reserves the right to terminate the contract in accordance with the terms outline in article XIII, “Termination of the Contract”.

If the Supplier proves to the satisfaction of the GoE that the whole or part of the delay arose from Force Majeure, and could not be foreseen at the time of contract signature, the GoE shall limit the penalties to the portion of the delayed supplies which the Force Majeure was not the direct cause of its delay.

XII.

FORCE MAJEURE

Neither party to this Contract shall be responsible for nor deemed to be in default under this contract on account of any failure or delay in performance under the contract due to Force Majeure which are causes beyond either party’s reasonable control including, but not limited to, the following:

States of strike, riot, revolution, political strife, war or warlike operation.

II.

Extraordinary natural events such as weather condition prohibiting work, typhoons, earthquakes, fires, or floods.

III.

Acts of Government including requirements arising from any laws, rules, affected subsequent to the effective date of this Contract and directly affecting the Contract.

Both parties shall continue performance of the remaining obligations hereunder. The party delayed shall use its best efforts to avoid or remove the cause of the failure or delay and to minimize its effect as quickly as possible. Notification shall be provided to the other party at the beginning date and ending date of Force Majeure.



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In case of Force Majeure The party that experiences a failure or delay as a result of Force Majeure, shall promptly notify the other party of such failure or delay along with reasonable substantiation thereof, including if applicable, a certification from an agency or agencies of the Government.

Denial of granting an export license shall not be considered a Force Majeure.

Failure of the supplier to deliver any line items, or portions thereof, due to unavailability shall not be considered a Force Majeure.

XIII.

TERMINATION OF THE CONTRACT.

In addition to any other rights and remedies provided by law or under this contract, the GoE may, by written notice of default to the Supplier, terminate this contract if:

The Supplier fails to deliver the supplies within the time specified in this contract;

The Supplier fails to comply with any of the provisions of this contract.

If the effect of Force Majeure event continues for a period of sixty (60) calendar days (or any extension thereof, if authorized by the GoE ) and an amendment cannot be reached or is not appropriate due to a continuing hazardous condition.

The GoE’s right to terminate this contract under subdivisions 1 and 2 above, may be exercised if the Supplier does not cure such failure within 30 days (or more if authorized in writing by the GoE).

The GoE shall be entitled to confiscate performance Guarantee and advance payment Guarantee (not yet expired as of the date of the GoE termination letter), in their entirety.

If the Contract is terminated under subdivision 3 above (Termination for Force Majeure), the GoE shall be entitled to confiscate the advance payment Guarantee, not yet expired as of the date of the GoE termination letter.

GoE confiscation of the performance guaranty shall be enforceable by the sole fact that the termination letter was sent by the GoE and without any other notification to the Supplier or other formalities or Supplier recourse to judicial proceeding. .

This termination will be affected Registered letter, facsimile, or telex sent to the Supplier and without need to legal, judicial, or other formalities will affect this termination.

The GoE shall pay contract price for completed supplies delivered and accepted

The rights and remedies of the GoE in this clause are in addition to any other rights and remedies provided by Egyptian law or under this contract.

The GoE may acquire, under the terms and in the manner the GoE considers appropriate, supplies or services similar to those terminated, from any other country or Supplier, and the Supplier (the Seller) will be liable to the GoE for any excess costs for those supplies or services.



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XIV.

WARRANTY

The Supplier warrants that, the items delivered and accepted under this contract will be free from any defect in workmanship and/or materials. The Supplier is liable under this warranty to correct, replace or repair such defects for a period of 12 months after the date of final delivery of accepted supplies.

For the items that must be repaired outside of Egypt, the Supplier shall provide, on his own responsibility and expense; the packing, inspection and labor involved in the return of the item(s) to his repair facility, and pay transportation costs DAP to return those items back to Egypt after repair/ replacement.

The warranty period of 12 months shall commence for repaired/ replaced items beginning from the date of receiving it by the GoE at the DAP (Cairo airport) destination after repair/ replacement.

Other than the express warranty stated above, there should be no expressed or implied standards, guarantees, or warranties.

XV. NEW MATERIAL:

“Material” as used in this clause, includes, but is not limited to, raw material, parts, items, components, and equipment. “New”, as used in this clause, means previously unused and composed of previously unused materials.

The Supplier warrants to deliver products under this contract that are new and are manufactured during the same year of contract signature or later.

XVI. ORIGIN OF EQUIPMENT

The Supplier warrants that the materials and services delivered to the GoE under this contract are of the United States origin and Slovakia.

XVII. CONTRACT CHANGES

When the GoE and the Supplier agree to make changes to the requirements established in this contract, the two parties should sign an amendment(s) to this Contract

Only the Armament Authority and the Supplier’s duly authorized representatives are empowered to agree to amendment(s) to this Contract.

The two parties shall not be obligated in any manner for performance of changes in the requirements of this contract prior to the effective date of the associated amendment.

Except for changes identified as amendment(s) and signed by the two parties, the Supplier shall disregard any actions, inaction, and written or oral communications with anybody that the Supplier regards as a change to the contract terms and/or conditions.

XVIII.

EXPORT LICENSE

Under this contract it is the obligation of the Supplier to provide for an exportable system that complies with all requirements of this contract. If the Supplier fails to provide export license within 120 calendar days from contract signature, the GoE shall have the right to terminate the Contract in accordance with Article “XIII” (Termination of the Contract).

Supplier shall notify the GoE of date of Export License receipt.



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XIX.

DISPUTES AND ARBITRATION

It is the intention of the parties to resolve all grievances and disputes in an amicable manner by conference and negotiation.

A party claiming a grievance shall notify the other party in writing setting forth the details of the grievance(s) and both parties shall within ten (10) working days thereafter convene a settlement conference at a site selected by the party against whom the grievance claim is made and shall in good faith attempt to resolve the matter. If the parties are unable to resolve the grievance at such settlement conference within seven (7) working days, or such additional time as mutually agreed upon, then the party claiming the grievance may initiate arbitration proceedings in accordance with the procedures defined below.

Any dispute or difference arising from this Contract, which is not first resolved pursuant to 1 ^ST , 2 ^ND paragraph above shall be referred to and decided by a court of arbitration. The court of arbitration shall be composed of three arbitrators, one to be appointed by the GoE, one to be appointed by the Contractor, and a third one to be appointed by the two parties jointly, or in case no agreement between them would be reached upon this nomination within sixty (60) days after the appointment of the two arbitrators, the third arbitrator will be appointed by Cairo Regional Center for International Commercial Arbitration. In any event, the third arbitrator shall be neither of GoE nationality nor of the Contractor’s nationality.

The party requesting arbitration shall notify the other party of his intention by registered letter with indication of his claims and the name and address of his arbitrator. If the other party has not appointed and forwarded the name and address of his arbitrator to the first mentioned party within thirty (30) days of receipt of the notice, such arbitrator shall be appointed by the President of Cairo Regional Center for International Commercial Arbitration. The same procedure shall apply when an arbitrator fails, without excuse acceptable to the other arbitrators, to attend two successive meetings.

Each party may replace the arbitrator appointed by him or on his behalf provided that no matter shall be pending before the court at the time of such replacement. Each party shall replace within thirty (30) days the arbitrator appointed by him or on his behalf in case of death or resignation.

It is furthermore understood that both parties irrevocably agree to apply the Egyptian laws of arbitration and to choose Cairo Regional Center for International Commercial Arbitration as the seat of court of arbitration.

The applicable law on the contract is the Egyptian laws .



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The court shall make its decision by a vote of majority. Each party shall bear the expenses and fees of the arbitrator appointed by him and the court of arbitration shall determine the division of the remaining costs between the two parties. The cost of the arbitration proceedings shall be borne by the losing party. If neither party is 100% at fault, the cost of the arbitration proceedings shall be allocated to the parties according to the percentage of fault. Any other arbitration procedures to be followed shall be determined by the arbitrators. The decision of said court shall be final and binding and cannot be made subject to any appeal or other recourse.

court of arbitration shall determine the division of the remaining costs between the two parties.

XX.

LANGUAGE

All correspondence, reports, data, notices, or communications passing between the parties pertaining to the Contract shall be in the English language.

All hazards / warning signs designated by language, shall be in both English and Arabic. All hazard / warning signs designated by symbols shall use the standard internationally accepted symbol form.

This Contract is drawn up in the English Language only. In case of any dispute arising from an alleged difference in meaning between any translation of this Contract and the English text, the English text shall prevail.

XXI.

SECURITY

All data provided by either party to the other shall be handled in accordance with established security procedures as outlined and used by the corresponding Department of Defense.

The level of classification of data assigned by the GOE shall be handled in accordance with the equivalent security classification given to the Supplier’s Ministry/ Department of Defense classified data.

The Supplier shall take all steps to protect all GoE classified material/ data provided to its sub-contractors.

The Supplier shall not transfer any data contained in this agreement or communicated between the two parties to the media, the press or to any third party except to his Government for official reasons.

In the event of termination of the Contract, the Supplier shall retain responsible to protect all classified data under its possession until the material can be appropriately transferred to the GoE, or under approval of the GoE it may be destroyed. Furthermore, the Supplier shall be responsible for any security violations of its employees even after termination of the Contract, for up to (5) five years after the termination is effective.



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XXII.

EFFECTIVE DATE

The Contract shall become effective upon sequential completion of all the items listed below:

Signature of the Contract by the two parties.

Approval of the Egyptian Government.

Establishment of Supplier’s Letter of Guarantee for Performance (Appendix F);

Opening the Letter of Credit (L/C) in the name of the Supplier.

Receipt by the Supplier of the advance payment (if any).

This contract shall not be considered final and shall not be contractually binding to the GoE until such time has occurred, that all the above events have been completed and the Contract has become effective.

The Supplier shall confirm the actual effective date of the Contract by registered letter/ Fax to the GoE within seven (7) calendar days of occurrence of the last event. Failure by the Supplier to confirm the effective date of the Contract as mentioned above would not alter the fact that the effective date shall be the date of the last event as indicated above.

XXIII.

DOMICILE AND NOTICES

As to the performance of this contract, the GoE is domiciled at:


1. ADDRESS: EGYPTIAN ARMAMENT AUTHORITY , KOBRY EL KOBBA, CAIRO, EGYPT.
2. TELEPHONE :		011-202-403-7084, AND 011-202-415-6407.
3. FAX:		011-202-403-7197, AND 011-202- 403-7095.

The Egyptian Procuremernt Office in Washington, DC, operates as the focal point for the GoE in USA. It is domiciled at:

ADDRESS: Egyptian Procurement Office

5500 16 ^th Street NW, Washington, DC 20011

TELEPHONE:N 202-726-8006/8007/8008, FAX: 202 829 4909

The Contractor is domiciled at:

ADDRESS: Technical Communications Corporation,

100 Domino Drive, Concord, MA 01742-2892 U.S.A.

TELEPHONE: 1-978-287-5100

FAX: 1-978-371-1280



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In case of change of domicile of either party, the one who changes his address shall notify the other party by registered letter, of the new address within five (5) business days of its effective date. If not, all correspondence sent to the domicile address as listed in this Article is considered to be correctly directed.

This contract was issued in four original and three copies for the GoE and one original for Contractor.

All documents relating to this contract including specifications, plans, invoices, bills, formal letters and notices, etc., which the Contractor will send to the GoE shall always include the complete contract number.

XXIV.

CONTENTS OF THE CONTRACT AND ORDER OF PRECEDENCE

This complete contract consists of 24 Articles (I, …XXIV) and 16 Appendices (A,…P).

The contract documents is arranged in the following descending order of precedence. Any inconsistencies in these documents shall be resolved by giving precedence in the following order:

CONTRACT ARTICLES.

CONTRACT APPENDICES.


FOR THE GOE:				FOR THE SUPPLIER

/s/ Ahmed Izamal Basuony				/s/ Mohamed Hany Aly El Shamy
Signature				Signature

Ahmed Izamal Basuony				Mohamed Hany Aly Fahmy ElShamy
Name				Name

B.S.
Rank / Title				Rank / Title



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Appendix A : ITEMS DESCRIPTION AND SPECIFICATIONS


The following table indicates the full description and specifications of each and every CLIN, whether material or service, contained in Appendix “B” (Price Structure of the Contract)
CLIN ¹	Origin of Equipment	DESCRIPTION
001	USA Except Pwr Supply-Slovakia,***	DSD 72A-SP (Includes all common items Power Supply, Keypad, Screen, Power Cable, Harness Cable, etc), 18-52VDC

002	USA	ARECAL 1 Crypto Bd for E1-D1-E2

003	USA	CPU Card ARECAL 1 For (E1 or D1, or E2, or E3 Interface Card)

004	USA	Radio Interface Cable to RL421 (3M)

005	USA	Mux Connector Kit

006	USA	Radio Connector Kit

007	USA	Bypass Adapter for DSD 72A-SP

008	USA	Open End Mux Cable with L5

009	USA	Upgrade with software for FPGA , procedure, and tools for existing E3 Crypto Processor Card (256) conversion from Arecal II Algorithm to ARECAL 1 Algorithm

¹	CLIN = Contract Line Item Number



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The following table indicates the full description and specifications of each and every CLIN, whether material or service, contained in Appendix “B” (Price Structure of the Contract)
CLIN ¹	Origin of Equipment	DESCRIPTION
010	USA	Upgrade Kit for ATI Interface Include New ATI Interface Card.

011	USA	KFD 800 Key Fill De vice

012	USA	Smart Module

013	USA	Crypto Processor Upgrade Training (3 officers, 2 weeks)

014	USA	Inspection (2 officers, 12 day)

015	USA	Packing and Shipping



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Appendix B : PRICE STRUCTURE OF THE CONTRACT


CLIN ²	Nomenclature	QTY	Unit Price $	Total Price $
001	DSD 72A-SP (Includes all common items Power Supply, Keypad, Screen, Power Cable, Harness Cable, etc), 18-52VDC	***	********	**********

002	ARECAL 1 Crypto Bd for E1-D1-E2	***	********	**********

003	CPU Card ARECAL 1 For (E1 or D1, or E2, or E3 Interface Card)	***	********	**********

004	Radio Interface Cable to RL421 (3M)	***	********	**********

005	Mux Connector Kit	***	********	**********

006	Radio Connector Kit	***	********	**********

007	Bypass Adapter for DSD 72A-SP	***	********	**********

008	Open End Mux Cable with L5	***	********	**********

009	Upgrade with software for FPGA, procedure, and tools for existing E3 Crypto Processor Card (256) conversion from ARECAL II Algorithm to ARECAL 1 Algorithm	***	********	**********

010	Upgrade Kit for ATI Interface Include New ATI Interface Card.	***	********	**********

011	KFD 800 Key Fill De vice	***	********	**********

012	Smart Module	***	********	**********

013	Crypto Processor Upgrade Training (3 officers, 2 weeks)	***	********	**********

014	Inspection (2 officers, 12 day)	***	********	**********

015	Packing and Shipping	***	********	**********

Notes:

CLIN 013 - Supplier will pay for all living expenses, (full accommodation, local transportation, per day allowance).

CLIN 014 - All cost of inspection will be borne by the Government of Egypt.

²	CLIN = Contract Line Item Number



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Appendix C : SHIPPING AND MARKING


	•	The goods in will be packed by the Contractor. Every package will be stenciled on two sides by the following information in English:	•	The other two sides will be stenciled as follows:

CONTRACT NUMBER: NUMBER OF CASES: CASE NO: NET WT: ARMAMENT AUTHORITY EGYPT

1.	All shipments shall be consigned to the GoE Armament Authority.

2.	All items shall be packed in accordance with Standard Practice for Commercial Packaging and every package will be stenciled on front and back in accordance with instructions provided above.

3.	The Contractor undertakes to apply for country export license, if required.



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Appendix D : NOTICE OF AVAILABILITY ³


CONTRACTOR :


ADDRESS :

FROM (PoC):				(Contractor’s Point of Contact)

PHONE:

EXT.:

FACSIMILE:

³	All above information must be thoroughly edited in English language and in a very clear letters

⁴	NoA must be forwarded to the persons indicated in Appendix “C”



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CONTRACT NO.:


N.O.A. NUMBER:						N.O.A. DATE:

DELIVER TERM:

INVOICE INFORMATION:


INVOICE NO.:				INVOICE DATE:

OVERHAUL PACKED DIMENSIONS: (length x width x height): ⁵ m ³


TOTAL VOLUME:				TOTAL WEIGHT:

TOTAL NO. OF PIECES:

DELIVERY TERMS:

TOTAL VALUE: ⁶

INFORMATION FROM THE LETTER OF CREDIT:

SHIPMENT NOT LATER THAN:

LAST DATE FOR PRESENTATION OF DOCUMENTS:

SPECIAL HANDLING REQUIREMENTS (IF ANY) :

HAZARDOUS INFORMATION (IF ANY) :

⁵	Dimensions should be in meters. If there are more than one package, detailed information should be provided for each in a separate sheet: (length x width x height)

⁶	Value of goods as indicated in the commercial invoice must be indicated.



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Appendix E : CERTIFICATE OF RECEIPT ⁷

This certifies that the following shipment and invoice has been received by the GoE’s representative

CONTRACT #:

TERMS OF DELIVERY:

INVOICE NUMBER:

INVOICE DATE:

DATE RECEIVED:

PIECES ⁸ :

WEIGHT:

VALUE:

COMMENTS: please indicate any damage identified to have resulted during inland transportation, also note any discrepancies between number of items received and the number identified on the notice of availability.

The GoE representative


SIGNATURE:

NAME AND TITLE:

⁷	This certificate must be signed in three originals, one for the Contractor and two for the GoE

⁸	Please note that sealed boxes are not opened and Contractors count is used.



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Appendix F :

FORM LETTER OF GUARANTEE FOR PERFORMANCE (LGP)


To:		The Government of the Arab Republic of Egypt

		Represented by the Armament Authority

		Kobry El-Kobba

		Cairo, Egypt

In consideration of the Contract No. CAIRO/N/AM/Technical Communications Corp./2014/19 between the Armament Authority, hereinafter called the GoE, and Technical Communications Corporation, hereinafter called the Contractor, and in further consideration of Article IV, [Guarantee Deposits] of the said contract, stipulating that a Letter of Guarantee for Performance (LGP), which represents ten (10%) percent of the total price of the contract, shall be deposited by the Contractor within 21 days from signing this contract.

We the undersigned hereby guarantee, as a direct responsibility for our own debit, the due fulfillment by the Contractor of the stipulations of the contract, provided nevertheless the total amount of our responsibility under this guarantee is limited to and shall not exceed the amount of $328,732.40 (three hundred twenty eight thousand, seven hundred thirty two dollars and forty cents).

This guarantee shall be free of interest and payable in cash, in whole or in part at the Government’s first demand, not withstanding any contestation by the Supplier or by ourselves or by any other part.

This LGP will cease to be in force upon presentation to us of a statement purportedly signed by an authorized representative of the GoE, stating that:

“All efforts required in accordance with the Article XIV [Warranty] of contract number CAIRO/N/AM/Technical Communications Corp./2014/19 have been completely carried out to the satisfaction of the GoE in accordance with the terms contained in this contract. As such, we request that this LGP cease to be in force. Attached please find the LGP, which is being returned to you for cancellation.”

N.B.

1.	This guarantee must be provided in the original and three copies and sent directly to the Armament Authority, Kobry El Kobba, Cairo, A.R.E.

2.	This Appendix is to be signed now in order to confirm that LGP will be issued in accordance to this form.



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Appendix G :

FORM LETTER OF GUARANTEE FOR ADVANCE PAYMENT (LGAP) (N/A)

To:	The Government of the Arab Republic of Egypt

Represented by the Armament Authority

Kobry El-Kobba

Cairo, Egypt

In consideration of the Contract No. between the Armament Authority, hereinafter called the GoE, and , hereinafter called the Contractor. And in further consideration of Article IV, [Guarantee Deposits] and Article VI, [Payment] of the said contract, stipulating that an amount equivalent to ( %) of the Contract shall be paid in advance to Contractor, we hereby undertake to hold at the disposal of the GoE, the sum of representing percent ( %) of the total value of the contract as guarantee for the advance payment.

This letter of guarantee will ceases to be in force six (6) months after the final acceptance of the Contract has been completely carried out to the satisfaction of the Government in accordance with the terms contained in this contract. In the same time, this letter of guarantee will be returned to the bank for cancellation.

N.B.

1.	This guarantee must be provided in original and three copies and sent directly to the Armament Authority, Kobry El-Kobba, Cairo, A.R.E.

2.	This appendix is to be signed now in order to confirm that the Letter of Guarantee will be issued in accordance to this form.



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Appendix H : PAYMENT TERMS

The Contract price shall be paid by opening an irrevocable letter of credit (L/C) by the GoE in favor of the Contractor in an initial amount equal to ********** , which represents Ten percent (***%) of the contract price, the L/C shall increase in 1 ^st August, 2014 with the amount of ********** , which represents ***% of the contract and the L/C shall increase in 1 ^st August 2015 with an amount of $********** , which represent ***%. The above mentioned initial amount shall be deposited within 21 calendar days after receipt and acceptance by the GoE of the letter of guarantee.

2)	The aforementioned (L/C) shall be issued by a first class bank in Egypt, and shall be advised by an advising bank in the Contractor’s country.

3)	If the Contractor wishes to have the (L/C) confirmed by a bank in his country, all commissions, fees and charges associated with the confirming bank shall be born entirely by the Contractor.

4)	Validity of L/C 10 months for delivery plus 1 month for payment (total 11 months).

5)	Prolongation costs of L/C shall be borne by the party who is responsible for the prolongation.

•

Payment (100%) of each invoice. The documents required for supporting payment are as follows: ⁹

The original and four copies of the invoice in the name of the consignee.

Packing list in duplicate signed by the Contractor and stating that the goods are packed in accordance with the instructions provided in Appendix C.

Certificate of receipt signed by the GOE representative

Certificate of Conformance “CoC” (Appendix “J”) from the Contractor as required in Article VIII [Quality Control, Inspection, Tests and Acceptance];

Certificate of Material Acceptance (Appendix “K”), OR Form Notification of GoE Non-Participation in Inspection (Appendix “P”)

Contractor’s Certificate of Origin stating that the items contracted for are manufactured in the USA and Slovakia endorsed by the local Chamber of Commerce and legalized by the Egyptian authorities in the Contractor’s country.

Statement by the Contractor that the LGP is valid at least six (6) months after the date of submission of documents to the bank.

•

The supplier will send by airmail two additional copies from the above mentioned document upon shipment; one to the Egyptian Armament Authority and the other to the EPO.

⁹	Invoices will totally be equal to 100% of CLINs required for payment. The bank will only pay the net invoice value, which will equal to the total invoice value minus the percent already paid in advance.



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Appendix I : PAYMENT SCHEDULE

The Contractor shall only be paid for efforts completed and documented in compliance with the terms and conditions of this contract, including all articles, appendices and attachments.

Payment Summary Table


ACTIVITY/ CLIN	% of Contract Price			Value to be Paid		Documents to be submitted evidencing the contractor’s right to be paid
001		***	%		**********	TCC Invoice
002		***	%		**********	TCC Invoice
003		***	%		**********	TCC Invoice
004		***	%		**********	TCC Invoice
005		***	%		**********	TCC Invoice
006		***	%		**********	TCC Invoice
007		***	%		**********	TCC Invoice
008		***	%		**********	TCC Invoice
009		***	%		**********	TCC Invoice
010		***	%		**********	TCC Invoice
011		***	%		**********	TCC Invoice
012		***	%		**********	TCC Invoice
013		***	%		**********	TCC Invoice
014		***	%		**********	TCC Invoice
015		***	%		**********	TCC Invoice
		100	%	$	3,287,323.08

Payment Details



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Appendix J : CERTIFICATE OF CONFORMANCE (CoC)

CONTRACTOR’S LETTER

HEAD

Reference:

Invoice Number:

Invoice Date:

Amounting To:

Contract No:

For Supplying:

We, the Contractor, hereby guarantee:

That all raw materials, components, intermediate assemblies, end products and lots of supplies pertaining to the above mentioned invoice have been manufactured in accordance with the quality standards and specifications applied to this contract and the performance of the said items is compliant with all performance specifications of this contract.

That all raw materials, components, intermediate assemblies, end products and lots of supplies are new as required by Article XV [New Material] of the said contract.

That we inspected all items before being shipped in accordance with the acceptance test procedures indicated in attachment “d” of this contract.

FOR THE CONTRACTOR

DATE:

N.B.

This appendix is to be signed now in order to confirm that you Egypt to issue the inspection certificate, in due course, as the form shown here, and on your own letter head.



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Appendix K : CERTIFICATE OF MATERIAL ACCEPTANCE (CoMA)


MATERIAL ACCEPTANCE CERTIFICATE
CONTRACT ITEM NO	PART NUMBER	DESCRIPTION	QTY







This certifies that the material listed above has been inspected by us and found to be in conformity with the specification of the contracted material and is ready for shipment to Egypt.


As a duly authorized agent of the Contractor, I confirm that the above information is accurate and correct.				As an authorized agent of the Government of Egypt, I confirm that the above information is accurate and correct.


Signature				Signature




Title				Title

Date:				Date:



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Appendix L : CERTIFICATE OF MATERIAL REJECTION (CoMR)


MATERIAL REJECTION CERTIFICATE
*CLIN*	*PART NUMBER*	*DEVIATION FROM CONTRACT SPECIFICATION*	*QTY Rejected*







This certifies that the material listed above has been inspected by us and found NOT in conformity with the specification of the contracted material.

As a duly authorized agent of the Contractor, I confirm that the above information is accurate and correct. Furthermore, I undertake NOT to ship any of the above listed items or invoice the GoE for them unless replaced with items conform to the contract specifications.

Signature

Name:

Title

Date:

As an authorized agent of the Government of Egypt, I confirm that the above information is accurate and correct.

Signature

Name:

Title

Date:



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Appendix M : CERTIFICATE OF SERVICE COMPLETION


Contract Number:
CLIN No:		DATE OF COMPLETION:


TYPE OF SERVICE ¹⁰ : TRAINING / TECHNICAL ASSISTANCE/ …………………………..

THIS CERTIFICATE IS TO CERTIFY THAT THE SUPPLIER HAS COMPLETED OBLIGATIONS UNDER THIS CONTRACT

As a duly authorized agent of the Supplier, I confirm that the above information is accurate and correct.				As an authorized agent of the Government of Egypt, I confirm that the above information is accurate and correct.


Signature				Signature



Title				Title

Date:				Date:

¹⁰	Indicate the appropriate type of service completed



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Appendix N : TRAINING ¹¹ AND TECHNICAL ASSISTANCE ¹²

Training is to be provided as per contract line item #16, for 3 officers, at TCC’s facility in Concord MA, for 2 weeks, at a mutually acceptable time. The Training scope will cover the operation, maintenance and installation of the DSD 72A-SP.

¹¹	This Appendix must contain at least: Scope, subjects and duration of training courses, .number and skills of trainees for each course. Training price should be included in Appendix “A” in a separate CLIN.

¹²	This Appendix must contain at least: Scope, duration, and number of personnel providing the technical assistance. Price of technical assistance should be included in Appendix “A” in a separate CLIN.



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Appendix O : ACCEPTANCE TEST ¹³ PROCEDURES ¹⁴

¹³	All testes must be identified in details, including system performance demonstration scheme.

¹⁴	Procedures must be very clear to avoid any misunderstanding or misinterpretation. It must include the applicable sampling standards, MIL specs., any other test standards, acceptance criteria and limits of accepted values “if any”



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Appendix P

: FORM NOTIFICATION OF GOE NON-PARTICIPATION IN INSPECTION


To: “Company”

Address:



Attention:

Date:



Reference: Contract Number:				dated:

Dear Sir

Reference to your letter dated in regards to your readiness to receive our inspection delegation to inspect the material contracted for by the contract number:

We hereby notify that the GOE elects not to participate in the inspection process for this specific consignment.

You have the right to inspect the items of this consignment alone using the same Acceptance Test Procedure agreed upon in the contract Appendix “M”, and provide us with a Certificate of Conformance CoC (Appendix “B”) along with your supporting documents requesting for payment.

This notification does not mean the GOE shall not participate in the following inspection for any further consignment ready for shipment.

If you have any questions please feel free to contact the Requirements Department Tel. 02- 4037084 Cairo-Egypt.



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Sincerely


FOR THE GOE

ARMAMENT AUTHORITY

Signature

Name:

Rank:

Title:



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Exhibit 21

List of Subsidiaries

TCC Investment Corp., a Massachusetts corporation

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in Registration Statements pertaining to the 2001 Stock Option Plan (Form S-8 No. 333-76102), the 2005 Non-Statutory Stock Option Plan and related amendments (Form S-8 No. 333-127447, S-8 No. 333-139737 and S-8 No. 333-161259), the 2010 Equity Incentive Plan (Form S-8 No. 333-174250) and the Registration Statement (Form S-3 No. 333-174247) of Technical Communications Corporation of our report dated December 22, 2014, relating to our audit of the consolidated financial statements as of and for the years ended September 27, 2014 and September 28, 2013, which appear in this Annual Report on Form 10-K of Technical Communications Corporation for the year ended September 27, 2014.

/s/ McGladrey LLP

Boston, Massachusetts

December 22, 2014

Exhibit 31.1

CERTIFICATION

I, Carl H. Guild, Jr., certify that:

(1)	I have reviewed this annual report on Form 10-K 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:

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;

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;

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

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):

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

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

Dated: December 22, 2014

Exhibit 31.2

CERTIFICATION

I, Michael P. Malone, certify that:

(1)	I have reviewed this annual report on Form 10-K 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)

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):

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

Treasurer and Chief Financial Officer

Dated: December 22, 2014

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 Treasurer and Chief Financial Officer of Technical Communications Corporation (the “Company”) certifies that, to his knowledge:

1) the Company’s Annual Report on Form 10-K for the fiscal year ended September 27, 2014 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 Annual Report on Form 10-K for the fiscal year ended September 27, 2014 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				Treasurer and Chief Financial Officer

Date: December 22, 2014				Date: December 22, 2014