NOTE

Description of the Business and Basis of Presentation

Company Operations

Technical Communications Corporation (“TCC”) was incorporated in Massachusetts in

1961;

its wholly-owned subsidiary, TCC Investment Corp., was organized in that jurisdiction in

1982.

Technical Communications Corporation and TCC Investment Corp. are sometimes collectively referred to herein as the “Company”. The Company’s business consists of only

one

industry segment, which is the design, development, manufacture, distribution, marketing and sale of communications security devices, systems and services. The secure communications solutions provided by TCC protect vital information transmitted over a wide range of data, video, fax and voice networks. TCC’s products have been sold into over

115

countries and are in service with governments, military agencies, telecommunications carriers, financial institutions and multinational corporations.

Interim Financial Statements

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

not

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

not

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

September 26, 2020.

The

September 28, 2019

consolidated balance sheet contained herein was derived from the Company’s

September 28, 2019

audited consolidated balance sheet as contained in the Company’s Annual Report on Form

-K for the fiscal year ended

September 28, 2019

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

September 28, 2019

included in its Annual Report on Form

-K as filed with the SEC.

The Company follows accounting standards set by the Financial Accounting Standards Board, commonly referred to as the FASB. The FASB sets generally accepted accounting principles (“GAAP”) that the Company follows to ensure it consistently reports its financial condition, results of operations, and cash flows. References to GAAP issued by the FASB in these footnotes are to the

FASB Accounting Standards Codification

- sometimes referred to as the Codification or ASC.

Liquidity and Ability to Continue as a Going Concern

The Company has suffered recurring losses from operations and had an accumulated deficit of

$2,997,000

March 28, 2020.

These factors raise substantial doubt about the Company's ability to continue as a going concern within

one

year from the issuance date of the unaudited consolidated financial statements included in this Quarterly Report. The unaudited consolidated financial statements do

not

include any adjustments to reflect the substantial doubt about the Company’s ability to continue as a going concern.

The Company anticipates that its principal sources of liquidity will only be sufficient to fund activities to

December 2020.

In order to have sufficient cash to fund operations beyond that point, the Company will need to secure new customer contracts, raise additional equity or debt capital and/or reduce expenses, including payroll and payroll-related expenses.

April 17, 2020,

the Company entered into a loan agreement with the U.S. Small Business Administration under its Paycheck Protection Program as authorized under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The loan is in the amount of

$474,400

and a portion of the loan is expected to be forgiven under provisions of the CARES Act. The remainder of the loan will be paid back over

two

years at an interest rate of

beginning

six

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

eight

week period following the loan date.

In order to have sufficient capital resources to fund operations beyond the temporary relief provided by the CARES Act loan, the Company has been working diligently to secure several large orders with new and existing customers. The receipt of orders is difficult to predict due to the impact of the COVID-

pandemic on our customers, as many have had to delay orders as a result of their operations being reduced or shut down. TCC closed its facility due to health and safety concerns but has been able to maintain operations with employees working remotely. Nonetheless, any sustained period of disruption in either our customers’ operations or those of the Company would have a material adverse impact on sales activity and revenue.

The Company is also pursuing raising debt or equity capital. Although the Company believes its ability to secure such new business or raise new capital is likely, the Company cannot provide assurances it will be able to do so, especially in light of the tightening of the credit markets and volatility of the capital markets as a result of the coronavirus.

Should the Company be unsuccessful in these efforts, it would be forced to implement headcount reductions, employee furloughs and/or reduced hours for certain employees or cease operations completely.

Reporting Period

The Company’s by-laws call for its fiscal year to end on the Saturday closest to the last day of

September,

unless otherwise decided by its Board of Directors.

Basis of Presentation

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

The discussion and analysis of the Company’s financial condition and results of operations are based on the unaudited consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these unaudited consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods.

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

not

limited to those related to revenue recognition, inventory reserves, receivable reserves, marketable securities, impairment of long-lived assets, income taxes, fair value of financial instruments and stock-based compensation. Management bases its estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are

not

readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results

may

differ from these estimates under different assumptions or conditions.