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Joseph Levy is a Certified Public Accountant in the states of New York and New Jersey. For more than 20 years until 09-1-2000, he was the principal owner of an accounting practice that provided forensic accounting services to the Insurance Industry. After selling the accounting practice on... More
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  • TCCO.OB - In one week the price increased from $5.07 to $10.21, which may be just the start of a much bigger move.
    Technical Communications Corp. (NASDAQ:TCCO) is one of the best undiscovered finds I've come across since becoming the portfolio manager of a small hedge fund on 10-1-2000.

    TCCO.OB closed at $5.07 on 02-05-10. After some very positive and unexpected announcements released after the 02-05-10 close, the stock price jumped to $10.21 by the close on 02-12-10.. First came the Q-1 (period ended 12-26-09) operating results release after the close on 02-05-10 followed by a special dividend announcement on 02-09-10,  .

    From 10-1-03 through 02-05-10 the high-low stock price ranged from $1.90 (October 2003) to $7.49 (February 2008). During this period the daily stock volume averaged well under 10,000 shares per day. For the week ended 02-12-10 approximately 207,000 shares traded. The stock is very thinnly traded with less than 1.7 million diluted shares outstanding, which makes it very difficult to buy. Currently, there are no analysts  publishing consensus estimated future revenue and EPS amounts.

    The company has a fiscal year that ends near September 30. They design, manufacture and sell communications security devices and systems worldwide including encryption related products. Revenue growth has been steady, but not spectacular, increasing in fiscal years ending around September 30 from $3.7 million in FYE 09-24-05; $3.9 million in 09-30-06; $4.9 million in FYE 09-29-07; $6.9 million in FYE 09-27-08; $7.8 million in FYE 09-26-09 and then increased nicely to $10.7 million for the trailing 12 months ended 12-26-09.

    Reported net income and EPS were relatively flat in recent fiscal years ending around September 30 as follows: $846,000 net income and $0.55 EPS in FYE 09-29-07; $1,061,000 net income and $0.63 EPS in FYE 09-27-08; $943,000 net income and $0.58 EPS in FYE 09-26-09 but increasing significantly to $3,093,000 net income and $1.90 EPS in the trailing 12 months ended 12-26-09. This big jump was primarily due to the significant increase in sales and profitability during the quarter ended 12-26-09. The company did report tax benefits totaling $523,000 in the quarters ending 09-26-09 ($480,000) and 12-26-09 ($63,000).In recent years the reported net income has been devoid of any federal income taxes.

    In the company's 02-05-10 press release they mention that shipments during the remaining three quarters of the current fiscal year ending September 2010 will not match the atypically high level reported in the first quarter. However the press release also notes factors that could result in accelerated future growth in sales and earnings as follows: 

    “TCC is in the later stages of development of our next generation of high performance frame sensitive encryptors capable of operating at high efficiency and at speeds of 655mbs, in a wide range of environments and applications. We expect to introduce this product line in late 2010 and anticipate conducting demonstration trials with certain customers. The new encryptor product family will be capable of being tailored to meet unique customer requirements, algorithms, key and device management features and network interfaces, both optical and electrical.”

    If successful, this new line of products could result in significant future growth in sales and earnings.  The company's backlog has been growing: increasing from $3.2 million on 12-29-07 to $8.5 million on 12-27-08, $7.8 million on 9-26-09 and $9.0 as of 12-26-09. In the quarter ending 12-26-09 the company reported their highest shipments ($4.8 million versus $1.8 million in the same quarter of the prior year). Since the ending backlog amount on 12-26-09 ($9.0 million) was higher than at the start of the quarter ($7.8 million) this means bookings of new orders were also very strong during the quarter ended 12-26-09.

    The company has a good balance sheet, which has become much stronger over time as evidenced by the following metrics:

    As of 9-29-07 Cash $2,622,000, Total Assets $5,154,000, Total Liabilities $966,000 and Stockholders Equity $4,188,000;

    As of 9-27-08 Cash $3,623,000, Total Assets $6,714,000, Total Liabilities $1,036,000 and Stockholders Equity $5,678,000;

    As of 9-26-09 Cash $5,418,000, Total Assets $9,322,000, Total Liabilities $2,610,000 and Stockholders Equity $6,713,000;

    As of 12-26-09 Cash $7,447,000, Total Assets $10,866,000, Total Liabilities $1,778,000 and Stockholders Equity $9,088,000.

    The company's ability to generate consistent positive operating cash flow in fiscal year ending after 9-24-05 through the period ended 12-26-09 is why TCCO announced on 02-09-2010 a special one-time dividend of $2.00 per share of common stock outstanding payable in cash on 03-22-2010 to shareholders of record on 03-08-2010. Also, as evidence of further confidence in the company's future prospects, TCCO's Board of Directors will consider at future meetings the declaration of regular quarterly dividends "in the range of $0.10 per share".

    In my opinion the share price of TCCO.OB has the potential for very significant appreciation in the future if they can execute their business plan successfully (including the upcoming launch of their next generation of products). Dramatic price appreciation is posible because this is an undiscovered company, that has excellent prospects for future growth in sales and earnings, with a  small market capitalization and currently has less than 1.7 million fully diluted shares outstanding.


    Joseph Levy, General Partner
    LLG Equities, LP
    (201) 825-9291

    Disclosure: LLG Equities LP currently has a long position in TCCO.OB.
    Feb 15 10:51 PM | Link | Comment!
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