Forward-Looking Statements

Certain statements contained herein or as may otherwise be incorporated by reference herein that are not purely historical constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include but are not limited to statements regarding anticipated operating results, future earnings, and the Company's ability to achieve growth and profitability. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, including but not limited to future changes in export laws or regulations; changes in technology; the effect of foreign political unrest; the ability to hire, retain and motivate technical, management and sales personnel; the risks associated with the technical feasibility and market acceptance of new products; changes in telecommunications protocols; the effects of changing costs, exchange rates and interest rates; and the Company's ability to secure adequate capital resources. Such risks, uncertainties and other factors could cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. For a more detailed discussion of the risks facing the Company, see the Company's filings with the SEC, including its Annual Report on Form 10-K for the fiscal year ended September 29, 2012.

Overview

The Company designs, manufactures, markets and sells communications security equipment that utilizes various methods of encryption to protect the information being transmitted. Encryption is a technique for rendering information unintelligible, which information can then be reconstituted if the recipient possesses the right decryption "key". The Company manufactures several standard secure communications products and also provides custom-designed, special-purpose secure communications products for both domestic and international customers. The Company's products consist primarily of voice, data and facsimile encryptors. Revenue is generated principally from the sale of these products, which have traditionally been to foreign governments either through direct sale, pursuant to a U.S. government contract or made as a sub-contractor to domestic corporations under contract with the U.S. government. We have also sold these products to commercial entities and U.S. government agencies. We generate additional revenues from contract engineering services performed for certain government agencies, both domestic and foreign, and commercial entities.

Critical Accounting Policies and Significant Judgments and Estimates

There have been no material changes in the Company's critical accounting policies or critical accounting estimates since September 29, 2012, nor have we adopted any accounting policy that has or will have a material impact on our consolidated financial statements. For further discussion of our accounting policies see Note 1, Summary of Significant Accounting Policies and Significant Judgments and Estimates in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q and the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended September 29, 2012 as filed with the SEC.

Results of Operations

Three Months ended December 29, 2012 as compared to Three Months ended December 24, 2011

Net Sales

Net sales for the quarter ended December 29, 2012 were $1,597,000, compared to $4,441,000 for the quarter ended December 24, 2011, a decrease of 64%. Sales for the first quarter of fiscal 2013 consisted of $1,517,000, or 95%, from domestic sources and $80,000, or 5%, from international customers as compared to the same period in fiscal 2012, during which sales consisted of $4,343,000, or 98%, from domestic sources and $98,000, or 2%, from international customers.

Foreign sales consisted of shipments to two countries during the quarter ended December 29, 2012 and one country during the quarter ended December 24, 2011. A sale is attributed to a foreign country based on the location of the contracting party. Domestic revenue may include the sale of products shipped through domestic resellers or manufacturers to international destinations. The table below summarizes our principal foreign sales by country during the first quarters of fiscal 2013 and 2012:

                                          2013         2012

                         Saudi Arabia   $ 74,000     $ 98,000
                         Jordan            6,000           -


                                        $ 80,000     $ 98.000

Revenue for the first quarter of fiscal 2013 was primarily derived from the sale of the Company's narrowband radio encryptors to a U.S. radio manufacturer for deployment into Afghanistan amounting to $955,000. In addition, we sold engineering services amounting to $440,000 and we had sales of our link encryptor into the Middle East amounting to $73,000. Royalty income for the quarter amounted to $43,000.

Revenue for the first quarter of fiscal 2012 was primarily derived from the sale of the Company's narrowband radio encryptors to a U.S. radio manufacturer for deployment into Afghanistan amounting to $4,322,000. We also had sales of our link encryptors into the Middle East for $93,000.

Gross Profit

Gross profit for the first quarter of fiscal 2013 was $1,102,000, compared to gross profit of $3,305,000 for the same period of fiscal 2012. Gross profit expressed as a percentage of sales was 69% for the first quarter of fiscal 2013 and 75% for the first quarter of fiscal 2012. The decrease in the gross profit percentage was primarily the result of lower margin engineering services revenue during the quarter ended December 29, 2012.

Operating Costs and Expenses

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the first quarter of fiscal 2013 were $778,000, compared to $988,000 for the same quarter in fiscal 2012. This decrease of 21% was attributable to a decrease in selling and marketing expenses of $160,000 and a decrease in general and administrative expenses of $50,000 during the first quarter of the 2013 fiscal year.

The decrease in selling and marketing costs for the three months ended December 29, 2012 was primarily attributable to a decrease in product evaluation costs of $214,000 and a decrease in personnel-related costs of $36,000. These decreases were partially offset by an increase in engineering sales support expenses of $35,000, as well as an increase in outside commissions and sales and marketing agreements of $46,000.

The decrease in general and administrative costs during the first quarter of 2013 was primarily attributable to decreases in personnel-related costs of $30,000, charitable contributions of $20,000 and professional and other public company fees of $25,000 for the period. These decreases were partially offset by an increase in recruiting costs of $21,000.

Product Development Costs

Product development costs for the quarter ended December 29, 2012 were $855,000, compared to $1,071,000 for the quarter ended December 24, 2011, a decrease of $216,000 or 20%. The decrease was attributable to project development cost decreases in outside contractor costs of $188,000 and personnel-related costs of $46,000. There was also a decrease in recruiting costs of $31,000 during the first quarter of fiscal 2013. The decrease was partially offset by increases in project material costs of $21,000 and a decrease in engineering support of business development activities, which increased product development costs by approximately $20,000.

Product development costs are charged to billable engineering services, bid and proposal efforts or support of 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.

The Company actively sells its engineering services in support of funded research and development. The receipt of these orders is sporadic, although such programs can span over several months. In addition to these programs, the Company also invests in research and development to enhance its existing products or to develop new products, as it deems appropriate. There was $440,000 of billable engineering services revenue generated during the first quarter of fiscal 2013 and no billable engineering services revenue generated during the same period of fiscal 2012.

Net Income

The Company generated a net loss of $310,000 for the first quarter of fiscal 2013, compared to net income of $929,000 for the same period of fiscal 2012. This 133% decrease in net income is primarily attributable to a 64% decrease in sales volume, which was partially offset by a 21% decrease in operating expenses during the first quarter of fiscal 2013. The Company recorded an income tax benefit of $214,000 during the first quarter of fiscal 2013 based on its expected effective tax rate of 41% for the 2013 fiscal year. This compares to a tax provision of $317,000 recorded in the three month period ended December 24, 2011.

The effects of inflation and changing costs have not had a significant impact on sales or earnings in recent years. As of December 29, 2012, 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

Cash and cash equivalents decreased by $134,000 to $1,922,000 as of December 29, 2012, from a balance of $2,056,000 at September 29, 2012. This decrease was primarily attributable to the payment of cash dividends of $184,000, capital acquisitions of $16,000, a net loss of $310,000 and an increase in income taxes receivable of $116,000 during the first three months of fiscal 2013. These were partially offset by decreases in accounts receivable, inventory and customer deposits of $296,000, $192,000 and $109,000, respectively.

During the first three months of fiscal 2013, the Company paid cash dividends of $184,000. The payment of these dividends was based on the profits generated by the Company during prior periods. It is not the

Company's intention to pay dividends on a regular basis 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.

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. We also believe that, in the long term, an anticipated improvement in business prospects, current billable activities and cash from operations will be sufficient to meet the development goals of the Company, although we can give no assurances. Although expected to decrease in fiscal 2013, any material increase in 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.

Backlog at December 29, 2012 and December 24, 2011 amounted to $905,000 and $2,921,000, respectively. The orders in backlog at December 29, 2012 are expected to ship over the next nine months depending on customer requirements and product availability.

The Company has 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 1% 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. As a result of the Company's failure to comply with one of its loan covenants, the Bank amended the agreement on February 8, 2013 to lower the tangible net worth requirement. In addition the line will now only be available to support new letters of credit issued by the Company. Future standby letters of credit will be required to be secured with cash. There were no cash borrowings against the line during the three months ended December 29, 2012 or the fiscal year ended September 29, 2012. However, a standby letter of credit in the amount of $14,903 was issued in December 2012 and is secured by the line of credit.

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 December 29, 2012 the Company had two outstanding letters of credit amounting to $32,786, one of which is secured by a cash certificate of deposit amounting to $17,883. The second in the amount of $14,903 is secured by the Company's line of credit.

In April 2007, the Company entered into a 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 was for five years through March 31, 2012 at an annual rate of $159,000. In addition the lease contains options to extend the lease for two and one half years through September 30, 2014 and another two and one half years through March 31, 2017, at an annual rate of $171,000. Rent expense for the three month periods ended December 29, 2012 and December 24, 2011 was $43,000 and $40,000, respectively. On September 30, 2011 the Company exercised its option to extend the lease for the period April 1, 2012 through September 30, 2014.

In fiscal 2012, the Company's internal product development expenses were higher than prior years but in line with its planned commitment to research and development, and reflected the costs of product testing and production readiness efforts. During the first quarter of fiscal 2013, development expenses decreased by 21% as compared to fiscal 2012. This trend is expected to continue during the remainder of fiscal 2013, with development expenses for the year expected to be 25% lower than fiscal year 2012.

By the middle of fiscal 2013, the Company anticipates the development of three new products and expects to reorient its development investment toward collaborative product developments with major original equipment manufacturers ("OEMs"). Initial work began in 2012 to establish these technical partnerships

and we expect that full-scale development will begin in mid-2013. The resulting products will be imbedded proprietary encryption solutions which will significantly enhance the value of the OEMs' products and allow TCC encryption to be carried to the market by major equipment providers.

In 2012, the Company substantially completed development of the HSE 6000, a low-cost, battery-powered man-borne encryptor that provides highly secure communications between personnel and base command units. The HSE 6000 is designed for the rugged environments of military and police operations and can function with most VHF and HF radios systems. The HSE 6000 can interoperate with the TCC DSP 9000 Radio Encryption System which is deployed extensively throughout the world. Customer field testing is expected to begin in 2013.

In 2011, the Company began development of an advanced, 100Mbs through 1Gbs family of IP encryptors and the KeyNet Optical Management system to service private network markets for government, military and satellite users. This new network product, named the CX7211, is scheduled for installation with initial customers in 2013. The CX7211 is the first IP encryptor that is expandable, which allows its throughput capacity to be easily increased as network loads increase. TCC believes this feature makes the CX7211 very cost-effective for new installations and very easy to expand when the market demands it. TCC will continue, in fiscal 2013, the development of new software elements for the CX7211 which will expand the system's capabilities and applications.

Other than those stated above, there are no plans for significant internal product development or significant capital expenditures during the remainder of fiscal 2013.

Off-Balance Sheet Arrangements

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