Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10‑K10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED March 27, 201628, 2021

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 001-33938

Graphic

TESSCO Technologies Incorporated

(Exact name of registrant as specified in its charter)

DELAWAREDELAWARE

52-0729657

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

11126 McCormick Road, Hunt Valley, Maryland

21031

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code (410) 229-1000

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

Registrant’s telephone number, including area code (410) 229-1000

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

Title of each classclass:

Trading Symbol

Name of each exchange on which registeredregistered:

Common Stock, $0.01 par value

NASDAQ Global Select Market

TESS

Nasdaq

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

None


Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Act). Yes No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes No

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   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or other 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, (as definedor an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act). Act.

Large accelerated filer Accelerated filer Non-accelerated filer

Smaller reporting company Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  Yes  No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes No

The aggregate market value of Common Stock, $0.01 par value, held by non-affiliates of the registrant based on the closing sales price of the Common Stock as quoted on the NASDAQ Global MarketNasdaq as of September 27, 2015,2020, was $125,779,828.$37,234,870.

The number of shares of the registrant's Common Stock, $0.01 par value, outstanding as of May 26, 2016,June 2, 2021, was 8,309,241.8,886,031.

DOCUMENTS INCORPORATED BY REFERENCE:  Portions of the definitive Proxy Statement for the registrant’s 20162021 Annual Meeting of Shareholders, scheduled to be held July 26, 2016,29, 2021, are incorporated by reference into Part III of this Annual Report on Form 10-K.


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Part I

Item 1. Business.

General

TESSCO Technologies Incorporated (TESSCO,(which we sometimes refer to as “Tessco”, “we”, or the Company)“Company”) is Your Total Source® for makinga value-added technology distributor, manufacturer, and solutions provider serving customers in the wireless work.infrastructure market. The convergenceCompany was founded more than 35 years ago with a commitment to deliver industry-leading products, knowledge, solutions, and customer service. Tessco supplies over 48,000 products from more than 300 of wireless and the internet is revolutionizing the way the world lives, works and plays. New systems and applications are unlocking potential at an unprecedented rate. TESSCO is there, thinkingindustry’s top manufacturers in new ways for exceptional outcomes. TESSCO architects and delivers the product and value chain solutions to organizations responsible for building, operating, maintaining and reselling cellular, mobile communications, Wi-Fi, machine-to-machine, Internet of Things, and5G, wireless backhaul, systems.and more. Tessco is a single source for outstanding customer experience, expert knowledge, and complete end-to-end solutions for the wireless industry.

On December 2, 2020, we sold most of our retail inventory and certain other retail-related assets to Voice Comm, LLC (“Voice Comm”). In connection with this sale, we assigned or licensed our Ventev®- related intellectual property, including the Ventev® trademark to Voice Comm for their use in connection with the sale of mobile device and accessory products. Together, this resulted in the Company’s exit from its Retail business.  Accordingly, the accompanying Consolidated Financial Statements for all periods presented reflect the results of the Retail segment as a discontinued operation and certain prior period amounts have been reclassified on the Consolidated Balance Sheets and Consolidated Statements of (Loss) Income to conform with current period presentation. See Note 19, “Discontinued Operations”, for further information.  Additionally, the narrative discussion presented below in this Item 1 of this Annual Report, is specific to the continuing operations of the Company (formerly, our Commercial segment), unless otherwise noted.

Our customers include a diversified mix of carrier and public network operators, tower owners, program managers, contractors, and integrators, wireless internet service providers, industrial and enterprise self-maintained usersprivate system operators (including railroads, utilities, mining operators and oil and gas operatorsoperators), federal, state and technicians),local governments, manufacturers, national solutions providers (NSPs) and value-added resellers, tier 1, 2 and 3 retail carrier stores and their independent agents, dealers and consumers, as well as other local and national retailers.resellers. We currently serve an average of approximately 12,200 non-consumer3,800 different customers per month.

We provide our customers with support, products and servicessolutions to build and maintainhelp them support these primary systems:applications:

·

Enhanced Cellular Coverage and Capacity

Broadband

·

DAS (Distributed Antenna Systems) for In-Building Cellular and Public Safety Coverage

First Responder Communications and FirstNet™
IoT (Internet of Things)
Microwave
Power Systems
Small Cell and Macro Cell Wireless Base Station

Infrastructure, including 5G buildouts

·

In-Vehicle and Mobile Communications

·

Wi-Fi Networks

·

Site Survey Test and Maintenance

·

Wireless Backhaul

·

Machine to Machine

CBRS (Citizens Broadband Radio Service) and PLTE (Private Long-Term Evolution)

·

Internet of Things

·

Mobility and User Devices

We offer products in these categories: base station infrastructure, network systems, mobile devices and accessories, and installation, test and maintenance products.  We source and develop our product offerofferings from leading manufacturers throughout the world.world, and also offer innovative, high quality products developed and manufactured under our proprietary brand, Ventev®, to our customers. In connection with the recent sale to Voice Comm of Retail business assets, we licensed or assigned to Voice Comm certain intellectual property rights, including our Ventev® brand as it relates to mobile device accessory products. We generally retain rights to the Ventev® brand as it relates to other than mobile device and accessory products.

Our operational platform allowsremoves complexity for customers and manufacturerssuppliers by streamlining the opportunity to streamlinemanagement of the supply chain process and lowerlowering total inventoriesinventory and costscost by providing the option of guaranteed availability and complete, on-time delivery to the point of use.

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We began our “total source” operations in 1982, reincorporated as a Delaware corporation in 1987, and have been listed on the NASDAQ Market (currently, NASDAQ Global Select)Nasdaq (symbol: TESS), since 1994. We operate under ISO 9001:20082015 and TL 90009000:2016-V R6.2/5.7 registrations.

For information regarding our website address and regarding material available free of charge through the website, see the information appearing under the heading “Available Information” included in Item 7 to this Annual Report on Form 10-K for the fiscal year ended March 27, 2016.28, 2021.

Customers

We evaluateAfter exiting our Retail business, and customerswe operate as one segment. However,business segment, formerly referred to provide investors with increased visibility into the markets we serve, we report revenue and gross profit byas our Commercial segment, which consists of the following customer market units:two markets: (1) public carriers contractors and program managers that are generally responsible for building and maintaining the infrastructure system and provide airtime service to individual subscribers; and (2) value-added resellers and integrators, which includes value-added resellers, the government system operators including federal agencies as well as statechannel and local governments that run wireless networks for their own use; (3) private system operators such as major operator markets. Inventory typically has a life cycle that tends to be tied to changes in regulation or technology and includes products typically used by business entities or governments.

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utilitiesour fiscal year 2021 revenues, and transportation companies that run wireless networkssales to the value-added resellers and integrator market accounted for their own use; (4) commercial dealers and resellers that sell, install and/or service cellular telephone, wireless networking, broadband and two-way radio communications equipment primarily for the enterprise market; and (5) retailers, dealer agents and carriers. Beginning in the third quarter60% of fiscal year 2015, we began reporting private system operators and government operators as two separate market units. All periods have been restated to reflect this change.2021 revenues.

Public carriers, contractors and program managers are system operators that are generally responsible for building and maintaining the public infrastructure system and providing airtime service to individual subscribers, and accounted for approximately 17% of fiscal year 2016 revenue. Government system operators including federal agencies and state and local governments accounted for 6% of fiscal year 2016 revenues. Private system operators, including commercial entities, major utilities, transportation companies, manufacturers, and installation centers, accounted for 16% of fiscal year 2016 revenues. Commercial dealers and resellers include dealers and resellers that sell, install and/or service cellular telephone, wireless networking, broadband and two-way radio communications equipment for the enterprise and consumer markets. These resellers include local and national value-added resellers and retailers, and accounted for 25% of fiscal year 2016 revenues. Our retailers, independent dealer agents and carriers market accounted for 36% of fiscal year 2016 revenues. 

Our top ten customer relationships totaled 22%were responsible for 34% of our total revenue for fiscal year 2016,2021, and norevenue from our largest customer relationship accounted for more than 4%11% of our total revenues.

Approximately 98%97% of our sales have been made to customers in the United States during each of the past three fiscal years, although we currently sell to customers in over 9050 countries. Due to our diverse product offering and our wide customer base, our business is not significantly affected by seasonality in the aggregate. However, sales to our retailers generally peak in our second and third quarters in preparation for the winter holiday season and decline significantly in our fourth quarter. Also, our base station infrastructure sales are typicallycould be affected by weather conditions or events in the United States, especially in our fourth fiscal quarter.  Our fourth quarter is also at times impacted by delays in our customers’ calendar year budget approval processes.  

For more detailed financial information regarding customer market and product category activity within our sole operating segment for each of the past three fiscal years, see Note 10 to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K for the fiscal year ended March 27, 2016.Products

Products and Services

We principally offer competitively priced, manufacturer brand-namebranded products, ranging from simple hardware items to sophisticated test equipment, with per item prices ranging from less than $1 to over $150,000$50,000 and gross profit margins ranging from less than 5% to 99%. We offer products broadly classified into our four businessthe following three categories: base station infrastructure; network systems; and installation, test and maintenance products; and mobile devices and accessories, which accounted for approximately 39%, 15%, 7%, and 39% of fiscal year 2016 revenues, respectively. products.

Base station infrastructure products are used to build, repair and upgrade wireless broadband systems. ProductsThese products include base station antennas, cable and transmission lines, small towers, lightning protection devices, connectors, power systems, enclosures, grounding, jumpers, miscellaneous hardware, and mobile antennas. Our base station infrastructure service offering includes connector installation, custom jumper assembly, site kitting and logistics integration. Network systems products are used to build and upgrade public and private wireless broadband networks. Products include fixed and mobile broadband radio equipment, wireless networking filtering systems, distributed antenna systems, two-way radios and security and surveillance products. This product category also includes training classes, technical support and engineering design services. Installation, test and maintenance products are used to install, tune, and maintain wireless communications equipment. Products include sophisticated analysis equipment and various frequency-, voltage- and power-measuring devices, as well as an assortment of tools, hardware, GPS, safety, and replacement and component parts and supplies required by service technicians.  Mobile devices and accessory products include cellular, smart phone and data device accessories such as replacement batteries, cases, screen protectors, speakers, mobile amplifiers, power supplies, bluetooth and corded headsets, mounts, car antennas, music accessories and data and memory cards.

While we principally provide manufacturer brand-namebranded products, a variety of products are developed, manufactured and offered under TESSCO-owned brands includingour own brand, Ventev, Wireless Solutions, and TerraWave®Ò. TheThese products we offer under these brands generally consist of device accessorynetwork infrastructure products, that fall into the mobile devicesuch as radio enclosures, power products, cable and

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accessory product category, as well as WLAN and network systems accessory products and remote monitoring and control solutions that fall into the network systems category. Also, our WLAN certification training is offered under our training unit GigaWave® trade name and is reported in the network systems category. We have not incurred significant research and development expenditures in any of the last three fiscal years.antennas. Sales of proprietaryVentev® products were 14%8% of our total salesrevenues in fiscal year 2016.2021.  

Our productsTessco’s Technical Services and Solutions Development teams are sold as parta key element of our integratedoffering as a value-added distributor. This includes Sales Engineering, Solution Architects, System Designers and Customer Technical Support (“CTS”). The broad product and supply chain solutions. Our supply chain services for all product areas are grouped under Knowledge, Configuration, Deliverysupplier knowledge along with the multiple supplier certifications have also been recognized as a great benefit by our supplier partners and Control. Knowledge solutions include the entire suitecustomers. The Sales Engineers provide regional coverage

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supporting Tessco’s customers on the total Solution portfolio. Solution Architects are specialists in their area of expertise providing consultation and system design. The CTS team are product level experts ensuring the correct devices are specified based on the application. This team can also recommend additional ancillary products solutions and applications that are offered and reinforced by engineering, sales and technical support, as well as hands-on training programs. Configuration services are comprised of customized product(antennas, cables, power, enclosures, etc.) needed to provide a complete solution kitting and assembly, logistics management and consumer and retail merchandising and marketing, allowing the products to be delivered ready for immediate use, installation or resale. Our delivery system allows the customer to select speed of delivery options, to specific delivery locations, designed to eliminate the customer’s needapplication. These services, other than design services, which comprise an immaterial portion of our revenue, are provided as a complete offering and are not billed in addition to the product.

These teams provide customer support on thousands of calls and thousands of support ticket-items per year. They have completed designs covering solutions for stagingDAS (Distributed Antenna Systems), IOT (Internet of Things), WiFi, Networking, Wireless Broadband, Power Systems and warehousing. Our services that increase customer control include predetermined monthly pricing levels, the ability to monitor multi-site purchasing with pre-approved, customized parameters indicating who is able to order how much of which specific products, order delivery tracking, product usage tracking, history reportingTest Systems. These solutions teams support both existing and alternative financing options.emerging markets, including Smart Cities, Smart Buildings, Small Cell, FirstNet, Utilities, Transportation, Network Service Providers (NSP) and Fortune 500 companies.  

As part of our commitment to customer service, we typically allow most customers to return most products for any reason, for credit, within 30 days of the date of purchase. Total returns and credits have been less than 3% of revenues in each of the past three fiscal years.

Revenues from sales of products purchased from our largest two vendors, Otter Products, LLC and CommScope Inc.,wireless infrastructure supplier accounted for 15% and 11%, respectively,29% of total fiscal year 20162021 continuing operations revenues. Sales of products purchased from our ten largest vendorswireless infrastructure suppliers generated approximately 42%53% of our total fiscal year 20162021 revenues. No other individual supplier accounted for more than 10% of sales.

The amount of purchases we make from each of our approximately 400 vendors300 suppliers may significantly increase or decrease over time.  As the level of business changes, we may request, or be requested by our vendors,suppliers, to adjust the terms of our relationships.  Therefore, our ability to purchase and re-sell products from each of our vendorssuppliers depends on being able to reach and maintain agreements with these vendorssuppliers on acceptable business terms.  In addition, the agreements and arrangements on which most of our larger vendorsupplier relationships are based are typically of limited duration and terminable for any or no reason by either party upon notice of varying lengths, usually between several months and two years.or otherwise short notice.  Generally, we believe that alternative sources of supply are available for many of the product types we carry, although we may be unable, or find it more difficult, to source branded products from other than the manufacturer.

The scope of products available for purchase from a given vendorsupplier may fluctuate and is generally limited only by the scope of the vendor’ssupplier’s catalog and available inventory. Therefore, we oftenmay source the same product type from multiple vendors,suppliers, although in some instances branded products are available only from the manufacturer or a particular vendor,supplier, and in some instances, customers might favor one vendorsupplier or brand over another. The terms of the vendorsupplier contract typically apply to all products purchased from a particular vendor,supplier, whether or not the item is specifically identified in the contract.

When negotiating with vendors,suppliers, we seek the most favorable terms available under the circumstances. Our preferred terms include among others, terms that provide for product warranty and return rights, as well as product liability and intellectual property indemnification rights, in each case consistent with our preferred business methods and objectives. We have not been able, nor do we expect in the future to be able, to negotiate the inclusion of all our preferred terms, or our preferred language for those terms, in every vendorsupplier contract. The degree of our success in this regard is largely a function of the parties’ relative bargaining positions.

We are dedicated to superior performance, quality and consistency of service in an effort to maintain and expand vendorsupplier relationships but there can be no assurance that we will continue to be successful in this regard in the future, or that competitive pressures or other events beyond our control will not have a negative impact on our ability to maintain these relationships or to continue to derive revenues from these relationships.

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Method of Operation

We believe that we have developed a highly integrated, technologically advanced and efficient method of operation based on the following key tenets:

·

Understanding and anticipating customers' needs and building solutions by cultivating lasting relationships;

·

Allowing customers to make the best decisions by delivering product knowledge, not just information, through our knowledge tools, including The Wireless Journal® and the TESSCO.com® Solution and Transaction System;

·

Responding to what we refer to as "the moments of truth" by providingProviding customers with sales, service and technical support, 24 hours a day, 7 days a week, 365 days a year;

·

Providing customers what they need, when and where they need it by delivering integrated product and supply chain solutions; and

·

Helping customers enhance their operations by providing real-time order tracking and performance measurement.

We operate as a team of teams structured to enhance marketing innovation, customer focus and operational excellence.

Market Development and Sales: In order to meet the needs of a dynamic and diverse marketplace, our sales and marketing activities are organized on an end-market basis. Sales teams are focused on our customers:customers across these broad markets: 1) public carriers, contractors, and program managers, 2) government system operators 3) private system operators, 4) commercial dealers andvalue-added resellers and 5) retailers, independent dealer agents and carriers.integrators.  This organization allows for the development of unique product and solution offerings to meet the needs of our diverse customer base.

We attempt to understand and anticipate customers'our customers’ needs, resulting in comprehensive solutions and to build solutions by cultivating lastinglong-lasting relationships. Our commercial customer base includes more than 270,000 fully opted in contacts across the full breadth of the wireless industry, with over 250,000 additional active contacts in our database, contains detailed information on approximately 272,300 existing customers, including the names of key personnel, past contacts, inquiries, and buying and credit histories. Additionally, we have information on approximately 630,200 contacts that serve asrepresenting potential new customerscustomers. We are able to identify each contact’s unique need for information and the way in which they wish to receive it.  This can include targeted marketing materials, including email marketing, web marketing, advertisements, direct mailers, and trade show marketing, to drive purchases and new business development. For instance, our market. This extensiveemail publication The Wireless Update is sent to a targeted list of 108,000 contacts each week.

Our dedicated sales team provides customer database enablesservice and maintains key information about every customer or potential customer utilizing our Customer Relationship Management (CRM) and marketing automation tools ensuring a positive experience at every interaction and allowing us to identify promising leads and target potentialallocate resources to convert them to customers. We serve approximately 3,800 customers each month and our goal is to create an experience that nurtures loyalty among our customers and to market specific products to these targeted customers. Potential customers are identified through their responses to TESSCO.com®, direct‑marketing materials, advertisementsdelivers mutually beneficial outcomes in trade journals and industry trade shows, as well as through referrals from other TESSCO customers and vendors. Customer relationship representatives pursue these customer inquiries through distribution of our Knowledge Tools and through phone contact, electronic communications, and field visits. The information technology system tracks potential customer identification from the initial marketing effort through the establishment and development of a purchasing relationship. Once a customer relationship is established, we carefully analyze purchasing patterns and identify opportunities to encourage customers to make more frequent purchases of a broader array of products. Scheduled contacts are made to each regularly purchasing customer for the purpose of information dissemination, order generation, database maintenance, and the overall enhancement of the business relationship. The process is aimed at attracting prospects to TESSCO, converting these prospects to buying customers, and ultimately migrating them to loyal, total-source monthly buyers.every transaction.

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Solutions Development and Engineering and Product Management: We actively monitor advances in technologies and industry trends, through both through market research and continual customer and manufacturer interaction and continue to enhance our product offering as new wireless communications products and technologies are developed. To complement our broad product portfolio, we provide technical expertise and consultation to assist our customers in understanding technology and choosing the right products for their specific application. Our Solution Architectspersonnel, including those we refer to as “Solution Architects” offer applications engineering to market-specific applicationsneeds such as DAS systems (Distributed Antennae Systems), wireless backhaul and fiber networks, custom integrated solutions for power systems, and site kitting and flexible custom network design services for areas such as in-building coverage, tower design, and wireless video surveillance systems.as:

DAS (Distributed Antenna Systems), Cellular and Public Safety IoT (Internet of Things)
Two-Way/LMR (Land Mobile Radio)
Wireless Networks
PLTE
Broadband
Macro and Small Cells
Power Systems
Test Solutions

In addition to determining the product offering, our Product and Solutions Development and Engineering Teams provide the technical foundation for both customers and our personnel. The Wireless Product Knowledge System (WPKS)Our product management software is continually updated to add new products and additional technical information in response to manufacturer specification changes and customer inquiries. WPKSThis system contains detailed information on each stock keeping unit (SKU)SKU offered, including full product descriptions, category classifications, technical specifications, illustrations, product cost, pricing and delivery information, alternative

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and associated products, and purchase and sales histories. This information is available on a real-time basis to all of our personnel for product development, procurement, technical support, cataloging and marketing.

Strategic MarketingAs a thought leader in the wireless industry, TESSCO’sTessco’s marketing materials are used for both educatingeducate the industry and for promoting TESSCO’s value. We utilizepromote our WPKS to develop both broad-basedservices and customized product solution information materials. These materials are designed to encourage both existingunique value proposition. Our weekly commercial digital newsletter, The Wireless Update, keeps 108,000 of our customers informed on the latest news in the industry, new products and potential customers to realizesolutions from our manufacturers, upcoming events and training opportunities, and more. In addition, strategic marketing supports the organization through the development of compelling original content, training programs, and other customer and manufacturer programs that solve business challenges and increase the value we provide in their product solution and supply chain decisions. These Knowledge Tools are an integrated suite of informational print and electronic media. They include: The Wireless Guide®, our product catalogue which is readily available electronically on TESSCO.com; The Wireless Journal®, a trade journal with a bimonthly circulation of approximately 116,500, which is designedTessco provides to introduce the reader to our capabilities and product offerings, and contains information on significant industry trends and product reviews; The Wireless Update®, which is emailed on a regular basis to an average of 94,300 different individuals and is uniquely produced for various portions of our customer base; The Wireless Bulletin®family, including The Wireless Bulletin for Accessories for Handsets, Tablets & Music Devices which has a bimonthly circulation of approximately 11,400, The Wireless Bulletin for Installation, Test & Maintenance Products, The Wireless Bulletin for Security & Surveillance, The Wireless Bulletin for Site Planning, The Wireless Bulletin for Training, and The Wireless Bulletin for Wireless Networking Solutions, which aredistributed on an as-need basis in a given year; Technical Application Notes, interactive Systems Supported Reference Drawings, and White Papers, which provide in-depth planning and installation instructions and diagrams; and TESSCO.com®. In addition, TESSCO publishes online, web-browser-enabled, companion versions of its many printed publications, including The Wireless Bulletin Online, The Wireless Guide Online, and The Wireless Journal Online.industry.

TESSCO.comTessco.com® is our e-commerce site and the digital gateway to Your Total Source® for the knowledge,our comprehensive industry expertise, products, and solutions for building, using, and maintaining and reselling wireless broadband solutions. It offers onlinewireless. In addition to access to a real-time systemour inventory of Knowledge, Configuration, Delivery and Control of product and supply chain solutions and is intendedproducts for our commercial customers. Its feature-rich capabilities include:every solution, Tessco.com features:

·

Customer-specific home pages that offer customized presentations of relevant, market-specific content, tailored to logged-in users’ specific roles in wireless;

Powerful parametric product search capabilities;

·

PowerfulReal-time product and knowledge search capabilities enabled by Google search engine logic;

availability;

·

Real-time pricing and product availability;

customer-specific pricing;

·

Easy ordering capabilities including a Worksheet ordering tool which is the foundation for building end-to-end solutions and requirements, and which allowsthat allow for the construction and configuration of a total-source order; Worksheetscomplete, end-to-end solution that can be immediately converted to an order, as well asor saved, copied, shared, uploaded and emailed;

·

A Knowledge Center that unlocks all assets of TESSCO.com and enables the streamlined navigation of TESSCO’s knowledge content (articles, white papers, Systems Supported illustrations, videos, installation guides, product selection guides, or any other content featured on TESSCO.com);

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·

A recommendation engine that offers product alternatives based on product attributes and past purchase history;

·

A variety of useful customer service, financial and technical support pages, including the Your Account pageaccount controls which includesinclude all of the tools necessary to track and manage or modify orders, update thean account, find the right support, review Worksheets,saved orders, handle warranty claims, and explore TESSCO’sTessco’s capabilities;

·

Order confirmation – specifying the contents, order status, delivery date, tracking number and total cost of an order;

·

An Order Tracking Center that providesonline order status, at every step of the way, of all order items, available in the real-time Your Account Portal;

·

Order reservations, order status, back-order details and four-month order history;

and

·

The ability to view invoices online and customer‑specific pricing, based on our tiered pricing levels tied to a customer's aggregate purchase volume;

·

Systems and Devices Supported pages feature interactive, how-to illustrations for a range of wireless applications that help with system design or device accessory support; the illustrations show the product required for a given application, allowing the user to configure an end-to-end solution and build a Worksheet;

·

Manufacturer portal pages designed to showcase each manufacturer partner’s offer in a custom fashion;

fashion.

Key improvements made to Tessco.com this past year include:

·

Freight carrier information to enable order tracking;

A Feedback Center that makes it easy for customers“Proxy Shop” enabling Tessco sales team to provide input on our services, Knowledge Tools and Website; and

live order assistance;

·

Interactive versions of various Knowledge Tools, including: several customized versions of The Wireless Bulletin®,  The Wireless Update®,  The Wireless Guide®,Chatbot feature with expanded Live Chat Support; andThe Wireless Journal®.

Cart Abandonment Tool with automated email follow-up.

Our Knowledge Tools empowerTessco.com empowers our customers to make better decisions by delivering product knowledge rather than just information. These toolsso they are fully informed. This destination also affordenables our manufacturers the opportunity to develop their brands and promote their products toreach a broad and diverse customer base.base with their product offer and brand features.

Customer Support and Order Entry: Our customer support teams are responsible for responding to what we refer to as "the moments of truth" by delivering sales and customer support services through an effective and efficient transaction system. We also continually monitor our customer service performance through report cards sent for each product delivery, customer surveys and regular interaction with customers.process auditing. By combining our broad product offering with a commitment to superior customer service, we seek to reduce a customer's overall procurement costs by enabling the customer to consolidate the number of suppliers from which it obtains products, while also reducing the customer's need to maintain high inventory levels.

Our information technology system provides detailed information on every customer account, including recent inquiries, buying and credit histories, separate buying locations within a customer account and contact diarieshistory for key personnel, as well as detailed product information, including technical, product availability and pricing information. The information technology system increases sales productivity by enablingenables any customer support representative to provide any customer with personalized

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service and also allows non-technical personnel to provide a high level of technical product information and order assistance.

We believe that our commitment to providing prompt, friendlyprofessional and efficient customer service before, during and after the sale enables us to maximize sales, customer satisfaction and customer retention. The monthly average number of non-consumer customers decreased slightly from approximately 12,4004,200 for fiscal year 20152020 to approximately 12,2003,800 in fiscal year 2016.  The2021. Due to the addition of several larger new relationships, the average monthly purchase per customer remained flat at approximately $3,700increased from $5,300 in fiscal year 2015 and2020 to $5,500 in fiscal year 2016.2021.

Procurement and Inventory Management: Our product management and purchasing system aims to provideprovides customers with a total source of broad and deep product availability, while maximizingattempting to maximize the return on our inventory investment.

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We use our information technology system to monitor and manage our inventory. Historical sales results, sales projections and information regarding vendorsupplier lead times are all used to determine appropriate inventory levels. TheOur information technology system also provides early warning reports regarding upcoming inventory requirements. As of March 27, 201628, 2021, and March 29, 2015,2020, we had an immaterial level of backlog orders. Most backlog orders as of March 27, 201628, 2021 are expected to be filled within 90 days of fiscal year-end. For the fiscal years ended March 27, 201628, 2021, and March 29, 2015,2020, inventory write-offs and reserves were 0.7%1.0% and 0.5%0.7% of total purchases, respectively. In many cases, we are able to return slow-moving inventory to our vendors pursuant to stock rotation agreements. Inventory turns for fiscal years 20162021 and 20152020 were 6.65.9 and 6.4,6.7, respectively.

Fulfillment and Distribution: Orders are received at our Timonium, Maryland, Reno, Nevada and San Antonio, Texas customer sales support centers. As orders are received, customer representatives have access to technical information, alternative and complementary product selections, product availability and pricing information, as well as customer purchasing and credit histories and recent inquiry summaries. An automated warehouse management system, which is integrated with the product planning and procurement system, allows us to ensure inventory control, to minimize multiple product shipments to complete an order and to limit inventory duplication. Bar-coded labels are used on every product, allowing distribution center personnel to utilize radio frequency scanners to locate products, fill orders and update inventory records in real-time, thus reducing overhead associated with the distribution functions. We contract with a variety of freight line and parcel transportation carrier partners to deliver orders to customers.

Performance and Delivery Guarantee (PDG) charges are generally calculated on the basis of the weight of the products ordered and on the delivery service requested, rather than on distance to the customer. We believe that this approach emphasizes on-time delivery instead of shipment dates, enabling customers to minimize their inventories and reduce their overall procurement costs while guaranteeing date specific delivery, thereby encouraging them to make us their total source supplier.

Information Technology: Our information technology system is critical to the success of our operations. We have made and continue to make substantial investments in the development of this system,these systems, which integratesintegrate cataloging, marketing, sales, fulfillment, inventory control and purchasing, financial control and internal and external communications. The information technology system includes highly developed customer and product databases and is integrated with our Configuration, Fulfillment and Delivery system. The information contained in the systemthese systems is available on a real-time basis to all of our employees as needed and is utilized in every area of our operations. Over the past two years we have been preparing to replace our legacy ERP system with a modern SAP ERP system.  This new ERP system is expected to go live during fiscal year 2022.

We believe that we have been successful to date in pursuing a highly integrated, technologically advanced and efficient method of operations; however, disruption to our day-to-day operations, including failure of our information technology or distribution systems, or freight carrier interruption, could impair our ability to receive and process orders or to ship products in a timely and cost-efficient manner.

Competition

The wireless communications distribution industry is competitive and fragmented, and is comprised of distributors such as Brightstar, D&H, Genco ATC Logistics, Superior Communications and VoiceComm in our retail market and Alliance Corporation, Anixter, Comstor,Connectronics Corporation, DoubleRadius, GetWireless, Graybar, Hutton Communication, KPG

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KGPCo Logistics, Ingram Micro,Primus, Talley Communications, Tech Data, Site Pro 1, VAVWAV Wireless, Westcon and Winncom in our other markets.Winncom. In addition, many manufacturers sell and fulfill directly to customers. Barriers to entry for distributors are relatively low, particularly in the mobile devices and accessory market, and the risk of new competitors entering the market is high. In addition, the agreements or arrangements with our customers or vendorssuppliers looking to us for product and supply chain solutions are typically of limited duration and are often terminable by either party upon several months or otherwise short notice. Accordingly, our ability to maintain these relationships is subject to competitive pressures and challenges. Some of our current competitors have substantially greater capital resources and sales and distribution capabilities than we do. In response to competitive pressures from any of our current or future competitors, we may be required to lower selling prices in order to maintain or increase market share, and such measures could adversely affect our operating results. We believe, however, that our strength in service, the breadth and depth of our product offering, our information technology system, our knowledge and expertise in wireless technologies and the wireless marketplace, and our large customer base and

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purchasing relationships with approximately 400300 manufacturers, provide us with a significant competitive advantage over new entrants to the market.

Continuing changes in the wireless communications industry, including risks associated with conflicting technology, changes in technology, inventory obsolescence, and consolidation among wireless carriers, could adversely affect future operating results.

We believe that the principal competitive factors in supplying products to the wireless communications industry are the quality and consistency of customer service, particularly timely delivery of complete orders, breadth and quality of products offered and total procurement costs to the customer. We believe that we compete favorably with respect to each of these factors. In particular, we believe we differentiate ourselves from our competitors based on the breadth of our product offering, our ability to quickly provide products and supply chain solutions in response to customer demand and technological advances, our knowledge and expertise in wireless technologies, and the wireless marketplace, the level of our customer service and the reliability of our order fulfillment process.

Intellectual Property

We seek to protect our intellectual property through a combination of trademarks, service marks, confidentiality agreements, trade secret protection and, if and when appropriate, patent protection. Thus far, we have generally sought to protect our intellectual property, including our product data and information, customer information and information technology systems, through trademark filings and nondisclosure, confidentiality and trade secret agreements. We typically require our employees, consultants, and others having access to our intellectual property, to sign confidentiality and nondisclosure agreements. There can be no assurance that these confidentiality and nondisclosure agreements will be honored, or whether they can be fully enforced, or that other entities may not independently develop systems, technologies or information similar to that on which we rely.

TESSCO Communications Incorporated, a wholly-owned subsidiary of TESSCO Technologies Incorporated, maintains a number of registered trademarks and service marks in connection with our business activities, including: A Simple Way of Doing Business Better®, Delivering Everything for WirelessLinkUPS®, Delivering What You Need…When and Where You Need It®,  GigaWave Technologies®,  Going Beyond the Ordinary®,  LinkUPS®,  ORDERflow®,  Solutions That Make Wireless Work®, TerraWave Solutions®, TESSCO®, TESSCO Making Wireless Work®, TESSCO Technologies®, TESSCO.comTessco.com®, Ventev®, Ventev Innovations®,  The Vital Link to a Wireless World®, The Wireless BulletinNow®, The Wireless GuideWireless Solutions®, The Wireless Journal®,  Wireless Solutions®,  The Wireless Update®, Your Total Source®, and Your Virtual Inventory®, among many others. Our general policy is to file for trademark and service mark protection for each of our trademarks and trade names and to enforce our rights against any infringement.

We currently hold one patenteleven patents related to our online order entry system.Ventev® products. We intend, if and when appropriate, to seek patent protection for any additional patentable technology. The ability to obtain patent protection involves complex legal and factual questions. Others may obtain patent protection for technologies that are important to our business, and as a result, our business may be adversely affected. In response to patents of others, we may need to license the right to use technology patented by others, or in the event that a license cannot be obtained, to design our systems around the patents of others.

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Environmental Regulation

We are subject to various laws and governmental regulations concerning environmental matters and employee safety and health matters in the United States. We are also subject to regulation by the Occupational Safety and Health Administration concerning employee safety and health matters. Compliance with these federal, state and local laws and regulations related to protection of the environment and employee safety and health has had no material effect on our business. There were no material capital expenditures for environmental projects in fiscal year 20162021, and there are no material expenditures planned for such purposes in fiscal year 2017.2022.

Human Capital

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Employeesthe organization to create a culture that values and rewards all team members. Our culture encourages and rewards exceptional performance and continuous improvement, fosters teamwork, and supports career development and growth. We provide benefits that address the needs of our team members, compensation that is rewarding, a learning environment that is both exciting and challenging and we provide many different growth opportunities that benefit from the many skills of our diverse workforce.  We have a professional working environment that fosters respect and celebrates our diverse perspectives.

As of March 27, 2016,28, 2021, we had 786589 full-time equivalent employees.employees, reduced from 678 as of March 29, 2020, in part as a result of our Retail business exit. Of our full-time equivalent employees, 423285were engaged in customer and vendorsupplier service, marketing, sales and product management, 271191 were engaged in fulfillment and distribution operations and 92113 were engaged in administration and technology systems services. NoOur employees are not covered by collective bargaining agreements. Each year, we set corporate, department and individual goals that we use to measure performance during our annual review process.

We offer a very competitive health benefit that is the same for all of our team members and is very affordable.  We encourage our employees to participate in our health and wellness programs which include medical, dental and vision insurance. We offer a 401(k) program with an employer match, tax saving flexible spending accounts and Tessco paid life insurance and Employee Assistance Program.

We believe that the structure of our compensation program is aligned with the interests of our shareholders, rewards performance and serves to attract and retain employees.

We post all of our positions internally and follow a selection process that is open to all.  Team Members that want to learn more about new opportunities are encouraged to have discussions with any of our Team Leaders as outlined in our open-door policy.  We follow all processes and procedures of Affirmative Action and set yearly goals to ensure diversity in all of our Equal Employment Opportunity categories.    

We have a commitment to sustainable environmental practices and operations, diversity and inclusion, professional and leadership development, community involvement, and participation in and support of charitable causes. Our employee population is approximately 40% female and 36% minorities.  Additionally, women currently hold 47% and minorities hold 21% of the key leadership positions.  We continually strive to improve and created an ESG Committee made up of individuals from around the organization to focus on our employee population as well as our environmental and social stewardship.  We strive to provide our employees with a variety of resources and tools to promote training and development. We consider our employee relations to be excellent.

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Executive Officers

Executive officers are appointed annually by the Board of Directors and, subject to the terms of any applicable employment agreement, serve at the discretion of the Board of Directors. Information regarding our named executive officers is as follows:

Name

Age

Position

Sandip Mukerjee

58

Name

Age

Position

Robert B. Barnhill, Jr.

72

Chairman, President and Chief Executive Officer

Robert B. Barnhill, Jr. hasSandip Mukerjee joined the Company in August of 2019.  Mr. Mukerjee served as President, Global Professional and Chief Executive Officer since foundingConsulting Business, Nokia Software from 2016 to 2018. Before that, Mr. Mukerjee worked for Alcatel where he held the current business in 1982. Mr. Barnhill has been a directorpositions of Sr. Vice President, Wireless and Software Strategy from 2006 to 2010 and then President and General Manager, Advanced Communications from 2010 to 2013 and President & General Manager, IP Platforms for the Company since 1982, and has served as Chairman of the Board since November 1993.Americas.

Aric M. Spitulnik

4449

Senior Vice President, Secretary, and Chief Financial Officer

Aric Spitulnik joined the Company in 2000. Mr. Spitulnik was appointed Controller in 2005 and Vice President in 2006. In 2012, he was appointed Corporate Secretary, and in 2014 he was appointed Senior Vice President. Since October 2013, Mr. Spitulnik has served as the Company’s Chief Financial Officer.

Douglas A. Rein

5661

Senior Vice President of Performance Systems and Operations

Douglas A. Rein joined the Company in July 1999 as Senior Vice President of Performance Systems and Operations. Previously, he was director of operations for Compaq Computer Corporation and vice president,Vice President, distribution and logistics operations for Intelligent Electronics.

Craig A. Oldham

46

Senior Vice President, Strategic Marketing

Craig Oldham joined the Company in 2014 as Vice President, Strategic Marketing.  In 2015, Mr. Oldham was appointed to Senior Vice President.  Previously, Mr. Oldham served as Vice President of Digital Engagement at the Red Cross from August 2010 to March 2014.

Steven K. Tom

35

Senior Vice President, Analytics, Innovation and Learning

Steve Tom joined the Company in 2011. Mr. Tom was appointed Vice President in 2013 and Senior Vice President in 2015.  Previously, Mr. Tom led marketing strategy and analytics at Algeco Scotsman.

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Item 1A. Risk Factors.

We are not able to identify or control all circumstances that could occur in the future that may adversely affect our business and operating results. The following are certain risk factors that could adversely affect our business, financial position and results of operations. These risk factors and others described in this Annual Report on Form 10-K should be considered in connection with evaluating the forward-looking statements contained in this Annual Report on Form 10-K because these factors could cause the actual results and conditions to differ materially from those projected in the forward-looking statements. Additional risks and uncertainties that management is not aware of or focused on, or that management currently deems immaterial may also adversely affect our business, financial position and results of operations. If our business, financial position and results of operations are adversely affected by any of these or other adverse events, our stock price would also likely be adversely affected.

RISKS RELATING TO OUR BUSINESS

We have incurred net losses in each of the past two fiscal years, and we may not be able to achieve profitability, or do so in a timely manner.

We incurred consolidated net losses of $8.7 million and $21.6 million for fiscal years 2021 and 2020, respectively (losses of $14.3 million and $15.6 million, respectively, from continuing operations).  During the past three years, we have taken steps to refresh our management team and board of directors, and we have made and expect to make significant investments in the replacement of our information technology platform.   These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses.  While we believe we are making progress to improve our operating profitability, there can be no assurances that we will achieve profitability or that profitability will be achieved in a timely manner.

We face risks related to adverse global or national economic conditions or events (including health epidemics and trade wars and other outbreaks and events beyond our control) that could significantly disrupt our business and adversely affect our business, financial position and results of operations.

Our business, financial position and results of operations could be adversely affected by weak or unstable global or national economic conditions, including international trade protection measures and disputes, such as those between the United States and China, and public health issues or events, such as the COVID-19 pandemic discussed below. A significant portion of our product offerings, including a majority of our private label Ventev products and products we acquire from our suppliers, are manufactured in foreign countries, including China and Vietnam, and many of the component parts of our products manufactured in Vietnam are sourced from China. Our ability to meet our customers' demands depends, in part, on our ability to obtain timely and adequate delivery of inventory from our suppliers. Weak or unstable global or national economic conditions could harm our suppliers’ businesses, contributing to product shortages or delays, supply chain disruptions, increased product costs and other adverse effects on their operations, which could hamper our ability or preclude us from obtaining timely and adequate delivery of inventory from our suppliers, as needed to support our business. In addition, many products produced for others in the industries we serve, and which our product offerings are intended to complement, are subject to many of the same risks and uncertainties as are ours, and perhaps others. If production or sales of those products are impacted by negative events, so will be the demand for our complementary products. Any of these events or occurrences could have a negative impact on our business, financial positions and results of operations.

In late December 2019, a strain of coronavirus, commonly referred to as COVID-19, surfaced in Wuhan, China. On January 30, 2020, the World Health Organization declared this coronavirus outbreak a health emergency of international concern. During the fourth quarter of fiscal year 2020, COVID-19 spread to the U.S. and resulted in most states imposing restrictions on travel, business operations and gatherings.  As a result, many of our customers were temporarily closed or significantly scaled back their operations.  Many non-essential projects were delayed, or project venues have been unreachable.  While vaccines have been introduced and are continuing to be rolled out across the United States and elsewhere, our business and results of operations have been, and may continue to be, adversely affected to the extent the coronavirus and its ongoing and lingering affects continue to harm the U.S. and world economy generally, or otherwise interfere with our supply chain or the manufacture of products that ours are intended to complement or otherwise

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rely upon. Because we source some of our products from foreign markets, we may be susceptible to the effects of continuing outbreaks or resurgences of coronavirus elsewhere, and any resulting disruption of our supply chain.  

We may also experience negative effects from future health epidemics or outbreaks or other world events or disasters beyond our control.  These events are impossible to forecast and difficult to mitigate. As a consequence, our operating results for a particular period may be more difficult to predict. Any of these events could have a material adverse effect on our business, results of operations and financial condition.

We face significant competition in the wireless communications distribution industry.

The wireless communications distribution industry is competitive and fragmented, and is comprised of several national distributors, as well as numerous regional distributors. In addition, many manufacturers sell and fulfill directly to customers. Barriers to entry for distributors are relatively low particularly in the mobile devices and accessory market, and the risk of new competitors entering the market is high. Some of our current competitors have substantially greater capital resources and sales and distribution capabilities than we do. In response to competitive pressures from any of our current or future competitors, we may be required to lower selling prices in order to maintain or increase market share, and such measures could adversely affect our operating results. We are also seeing increased competition in the form of e-commerce sites as consumers and business are increasingly looking to the internet to purchase goods.

We offer no assurance that we will not lose market share, or that we will not be forced in the future to reduce our prices in response to the actions of our competitors, thereby reducing our gross margins. Furthermore, to remain competitive we may be forced to offer more credit or extended payment terms to our customers. This could increase our required capital, financing costs, and the amount of our bad debt expenses.

We typically purchase and sell our products and services on the basis of individual sales or purchase orders, and even in those cases where we have standing agreements or arrangements with our customers and vendors,suppliers, those agreements and arrangements typically contain no purchase or sale obligations and are otherwise terminable by either party upon several months or otherwise short notice.

Our sales to customers and our purchases from vendorssuppliers are largely governed by individual sales or purchase orders, so there is no guarantee of future business. In some cases, we have formal agreements or arrangements with significant customers or vendors,suppliers, but they are largely administrative in nature and are terminable by either party upon several months or otherwise short notice, and they typically contain no purchase or sale obligations. Many of our customer and vendorsupplier contracts contain “evergreen” clauses, although this too is largely a matter of administrative convenience, because the contracts are nevertheless typically terminable on short notice, and because no purchase and sale obligation in any event arises other than pursuant to an accepted purchase order. When negotiating with customers and vendors,suppliers, we seek the most favorable terms available under the circumstances. Our preferred vendorsupplier terms include, among others, terms that provide for product warranty and return rights, as well as product liability and intellectual property indemnification rights, in each case consistent with our preferred business methods and objectives. We have not been able, nor do we expect in the future to be able to negotiate the inclusion of all our preferred terms, or our preferred language for those terms, in every contract. The degree of our success in this regard is largely a function of the parties’ relative bargaining positions.

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When unable to negotiate the inclusion of our preferred terms or preferred language in a particular vendorsupplier contract, we assess any increased risk presented, as well as mitigating factors, analyze our overall business objectives, and then proceed accordingly.  In some instances, we refuse the contract and seek other sources for the product, and in other instances business objectives and circumstances are determined to outweigh or mitigate any increased risk, or otherwise dictate that we proceed with the contract, notwithstanding.  We consistently seek to manage contractual risks resulting from vendorsupplier contracts not including our preferred terms or language. However, these risks persist, and even when we are successful in negotiating our preferred terms, performance of these terms is not assured.

If our vendors or suppliers refuse to, or for any reason are unable to, supply products to us in sufficient quantities to meet demand, or at all, and if we are not able to procure those products from alternative sources, we may not be able to maintain appropriate inventory levels to meet customer demand and our financial position and results of operations would be

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adversely affected. Similarly, if customers decide to purchase from other sources, instead of from us, or experience significant changes in demand internally or from their own customer bases, become financially unstable (including on account of unforeseen events or events beyond their control, such as the COVID-19 pandemic), or are acquired by another company, our ability to generate revenues from these customers may, or in some cases would, be significantly affected, resulting in an adverse effect on our financial position and results of operations.

The loss or any change in the business habits of key customers or vendors, including vendors Otter Products LLC and CommScope Inc.suppliers may have a material adverse effect on our financial position and results of operations.

Because our standing arrangements and agreements with our customers and vendorssuppliers typically contain no purchase or sale obligations and are terminable by either party upon several months or otherwise relatively short notice, we are subject to significant risks associated with the loss or change at any time in the business habits and financial condition of key customers or vendors.suppliers. We have experienced the loss and changes in the business habits of key customer and vendorsupplier relationships in the past and expect to do so again in the future. ItThis is the nature of our business. In fiscal year 2013, sales to our largest customer relationship, AT&T Mobility, accounted for approximately 30% of total revenues. Revenues from this business terminated in the fourth quarter of fiscal year 2013.

Sales of products purchased from our largest two vendors, Otter Products, LLC (15%) and CommScope Inc. (11%),wireless infrastructure supplier generated approximately 26%29% of our total revenues in fiscal year 2016,2021, and sales of products purchased from our largest ten vendorssuppliers generated approximately 42%53% of fiscal year 2016 total2021 revenues. As is the case with many of our vendorsupplier and customer relationships, our contractual arrangements with Otter Products, LLC and CommScope Inc.these large suppliers are terminable by either party upon several monthsmonths’ notice. If these contracts andor our relationships with Otter Products, LLC or CommScope Inc.these suppliers terminate for any reason, or if any of our other significant vendorsupplier relationships terminate for any reason, and we are not able to sell or procure a sufficient supply of those products from alternative sources, or at all, our financial position and results of operations would be adversely affected. Our vendors, including Otter Products, LLC and CommScope Inc.,suppliers are subject to many if not all of the same (or similar) risks and uncertainties to which we are subject, as well as other risks and uncertainties, and we compete with others for their business. Accordingly, we are at a continual risk of loss of their business on account of a number of factors and forces, many of which are largely beyond our control.

In fiscal year 2016, no2021, our largest customer accounted for more than 5%11% of our total revenues. However, in the retail market, 40%26% of our sales arein fiscal 2021 were made to five customers. Also, customer mix can change rapidly, and we may see changes in customer concentrations in the future.  If or when any of our significant customer relationships terminate for any reason, and we are not able to replace those customers and associated revenues, our financial position and results of operations would be adversely affected.

The loss of customer relationships and the corresponding reduction in the volume of product sales identified to those relationships, can also affect our negotiating ability with vendorssuppliers supplying those products.  This can affect our margins inon sales of those products to other customers.  If we are unable to replace those products at favorable pricing and terms, or if we are unable to acquire those products from vendorssuppliers or offer those products to our customers on favorable terms, our competitiveness may suffer and result in reduced revenues and profits.  Like our vendors,suppliers, our customers are subject to many if not all of the same (or similar) risks and uncertainties to which we are subject, as well as other risks and uncertainties, and we compete with others for their business.  Accordingly, we are at continual risk of loss of their business on account of a number of factors and forces, many of which are largely beyond our control.

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There can be no assurance that we will be successful in replacing any of our past, present or future vendorsupplier or customer relationships if and when lost, or that we will not suffer a substantial reduction in revenues as a result of loss of any such relationship. As such, vendor,supplier, customer, or revenue loss would adversely affect our financial position and results of operations.

Changes in customer or product mix could cause our gross margin percentage to decline.

We continually experience changes in customer and product mix that affects gross margin. Changes in customer and product mix result primarily from changes in customer demand, customer acquisitions or losses, selling and marketing activities and competition.    The growth in sales from the retail market over the past two fiscal years has had a negative impact on our overall margins. Also, while sales from the public carrier market have declined significantly over the past two years, significant future growth in that market could have a negative impact on gross margins as these customers are larger and demand lower overall pricing.   

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Our business depends on the continued tendency of wireless equipment manufacturers and network operators to outsource aspects of their business to us in the future.

We provide functions such as distribution, inventory management, fulfillment, customized packaging, e-commerce solutions, and other outsourced services for many wireless manufacturers and network operators. Certain wireless equipment manufacturers and network operators have elected, and others may elect, to undertake these services internally. Additionally, our customer service levels, industry consolidation, competition, deregulation, technological changes or other developments could reduce the degree to which members of the global wireless industry rely on outsourced logistic services such as the services we provide. Any significant change in the market for our outsourced services could have a material adverse effect on our business. Our outsourced services are generally provided under short-term contractual arrangements. The failure to obtain renewals or otherwise maintain these agreements on terms, including price, consistent with our current terms could have an adverse effect on our business.

We require substantial capital to operate, and the inability to obtain financing on favorable terms will adversely impact our business, financial position and results of operations.

Our business requires substantial capital to operate and to finance accounts receivable and product inventory that are not financed by trade creditors. We have historically relied upon cash generated from operations, revolving credit facilities and trade credit from our vendorssuppliers to satisfy our capital needs and finance growth. AsThe impact of the COVID-19 pandemic on financial markets changecontinues to evolve, and as this occurs and new regulations come into effect, and as the financial markets change on account of other forces and events, the cost of acquiring financing and the methods of financing may change. Changes in our credit rating or other market factors may increase our interest expense or other costs of capital, or capital may not be available to us on competitive terms to fund our working capital needs. Our existing secured revolving credit facilities and long-term debt arrangements are of specified terms and containfacility contains various financial and other covenants that may limit our ability to borrow or limit our flexibility in responding to business conditions. While we generally expect to either extend or replaceIn addition, even if the terms of our credit facilities at or prior to term expirations, there can be no assurances that we will be able to do so on favorable terms, or at all. We are engaged in ongoing discussions and negotiations to replace our existing unsecured revolving credit facility and term loan, discussed above, with an asset based revolving credit facility. The new facility, if established, will be secured by certainwould otherwise allow or require, our lenders may refuse to lend to us through no fault of our assets.ours. The inability to maintain or when necessary obtain adequate sources of financing could have an adverse effect on our business. Some of ourOur existing financing instruments involvesecured revolving credit facility includes variable rate debt, thus exposing us to risk of fluctuations in interest rates. Such fluctuations in interest rates could have an adverse effect on our business, financial position and results of operations. We may in the future use interest rate swaps in an effort to achieve a desired proportion of fixed and variable rate debt. We would utilize these derivative financial instruments to enhance our ability to manage risk, including interest rate exposures that exist as part of our ongoing business operations. However, our use of these instruments may not effectively limit or eliminate our exposure to a decline in operating results due to changes in interest rates.

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Our ability to maintain and borrow under our revolving credit agreement could be constrained by the level of eligible receivables and product inventory and by any failure to meet certain financial and other covenants in our revolving credit agreement.

Our borrowing availability under our secured revolving credit facility is determined in part by a borrowing base and is limited to certain amounts of eligible accounts receivable and inventory.  If the value of these accounts receivable and product inventory were to decrease significantly, the amount available for borrowing under the facility would decrease and our ability to maintain our term loan, are eachborrow under the facility could be significantly impacted. Borrowing under the facility is also conditioned upon our continued compliance with certain financial and other covenants included in ourthe revolving credit agreement and term loan agreements. While we meta related guaranty and security agreement. Among these covenants at the end of fiscal year 2016,  but we believe it likely that we will not meet one of these covenants at the end of the first quarter of fiscal year 2017, in which case our ability to borrow might cease and we may be required to repay in full any outstanding balances on these facilities,

At the end of fiscal year 2016, we were in compliance with the financial covenants applicable under our revolving credit facility and term loan with SunTrust Bank and Wachovia Bank, National Association. Many of our covenants are, however, measured on a rolling four quarter basis.   Accordingly, our fourth quarter fiscal year 2016 operating results put pressure on these covenants going forward.  We previously issued financial guidance that suggests that our first quarter fiscal year 2017 operating results will be lower than the first quarter fiscal year 2016, which would put yet additional pressure on these covenants, and likely result in us not meeting one of our current financial covenants at the end of the first quarter of fiscal year 2017. Absentis a covenant waiver or adjustment,to maintain a fixed charge coverage ratio at any such violation would eliminate ourtime during which the borrowing capacity under our revolving line of credit and entitle the banks to exercise the remedies available to them under the applicable loan documents, including to demand payment of all amounts outstanding.  At the end of fiscal year 2016, there wasavailability is otherwise less than $12.5 million. There are no balance outstanding under our revolving credit facility and $1.9 million outstanding under the term loan. We have not borrowed under our revolving credit facility since the third quarter of fiscal year 2016.  In an effort to mitigate this potential bank covenant violation risk and any corresponding impact on liquidity, we are engaged in ongoing discussions and negotiations with SunTrust Bank to replace our existing unsecured revolving credit facility and term loan with an asset based revolving credit facility.  This new facility, if established, would be secured by certain assets and would therefore in some respects be more restrictive, but also should allow for improved pricing and greater flexibility in terms of financial covenants and ratios going forward. We are actively pursuing the establishment of this new facility with a goal of it being in place by the end of the first quarter of fiscal 2017.  However, there is no binding commitment on the part of SunTrust Bank and no assuranceassurances that we will be successfulable to comply with all applicable covenants in establishing this facility by then, or at all. Therefore, ifthese agreements, and in the event that we fail to meet one of the financial covenants under our credit facilities at the end of the first quarter of our fiscal year 2017 (or ifdo not, then at a later date), and our ability to borrow under our secured revolving credit facility could be limited or suspended or could terminate. 

If we fail to meet our payment or other obligations under our secured revolving credit facility, our lenders could foreclose on, and acquire control of, a significant portion of our assets.

Indebtedness under our secured revolving credit facility is terminated,secured by continuing first priority security interests in our inventory, accounts receivable, and we are not successful in establishing the new facility or obtaining financing elsewhere, we would not have accessdeposit accounts, and on all documents, instruments, general intangibles, letter of credit rights, and chattel paper relating to capital from othersinventory and our accessaccounts, and to capital would be limited to our cash on hand and cash generated from operations. The inability to maintain or when necessary obtain adequate sources of financing could have an adverse effect on our business.

Compliance with regulations regarding the use of “conflict minerals” could limit the supply and increase the cost of certain of our products, and customers may seek other sources if we are unable to demonstrate to their satisfaction that our products are conflict free.

Increased focus on environmental protection and social responsibility initiatives led to the passage of Section 1502all proceeds of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act"), and its implementing SEC regulations.  The Dodd-Frank Act imposes supply chain diligence and disclosure requirements for certain manufacturers of products containing specific minerals that may originate in or near the Democratic Republic of the Congo (the "DRC") and finance or benefit local armed groups. These "conflict minerals" are commonly found in certain of the products thatforegoing.  If we acquire from vendors and distributefail to customers and are also found in certain products in our Ventev® product line that we contract to be manufactured by others or that we assemble.  The implementation of these regulations may limit the sourcing and availability of some of the raw materials used in certain of these products. This in turn may affect our ability to obtain sufficient quantities of our products and may affect related pricing. Because we are considered a manufacturer of certain of our Ventev® products, we are subject to additional “conflict minerals” diligence and disclosure requirements with regard to these products.   Some of our customers may elect to disqualify us as a supplier if we are unable to verify that the products we sell to them are DRC conflict free.

Weakness in the global economic environment may have significant effects on our customers and suppliers that could result in material adverse effects on our business, operating results, and stock price.

Notwithstanding the slow economic recovery in the U.S., weakness in the global economic environment – which has included, among other things, significant reductions in available capital and liquidity from banks and other providers of credit, substantial reductions and/or fluctuations in equity and currency values worldwide, significant decreases in

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consumer confidence and consumer and business spending, high rates of unemployment and concerns that the worldwide economy may continue to experience significant challenges – may materially adversely affectmeet our customers’ access to capitalpayment or willingness to spend capitalother obligations under our secured revolving credit facility, our lenders could foreclose on our products, and/or their levels of cash liquidity withthese assets, which to pay for our products. In addition, our suppliers’ access to capital and liquidity may continue to be affected, which may in turn adversely impact their ability to maintain inventories, production levels, and/or product quality, or cause them to raise prices or lower production levels, or result in their ceasing operation.

The potential effects of the weakness in the global economic environment are difficult to forecast and mitigate. As a consequence, our operating results for a particular period may be more difficult to predict. Any of the foregoing effects couldwould have a material adverse effect on our business, results of operations and financial condition, and could adversely affect our stock price.condition. 

We may be unable to successfully execute our merchandising and marketing strategic initiatives.

We are focusing our sales and marketing efforts and initiatives to maximize sales. If we fail to successfully execute these initiatives, our business, financial position and results of operations could be adversely affected.

The telecommunications products marketplace is dynamic and challenging because of the continued introduction of new products and services.

We must constantly introduce new products, services and product features to meet competitive pressures. We may be unable to timely change our existing merchandise sales mix in order to meet these competitive pressures, which may result in increased inventory costs, inventory write-offs or loss of market share.

Additionally, our inventory may also lose value due to price changes made by our significant vendors,suppliers, in cases where our arrangements with these vendorssuppliers do not provide for inventory price protection, or in cases thatwhere the vendorsupplier is unable or unwilling to provide these protections.

Consolidation among wireless service carriers could result in the loss of significant customers.

The wireless service carrier industry has experienced significant consolidation in recent years. If any of our significant customers or partners are acquired or consolidate with other carriers, or are otherwise involved in any significant transaction that results in them ceasing to do business with us, or significantly reducing the level of business that they do with us, our revenues from those customers could be affected, resulting in an adverse effect on our financial position and results of operations.

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The failure of our information technology or telecommunication systems, or our inability to maintain or upgrade our information technology or telecommunication systems without incident or delay, or undue cost, could have a material adverse effect on our business, financial position and results of operations.

We are highly dependent upon our internal computerinformation technology and telecommunication systems, many of which are proprietary, to operate our business. These systems support all aspects of our business operations, including means of internal and external communication, inventory and order management, shipping, receiving and accounting. Most of our information technology systems contain a number of internally developed applications. In addition, all of these systems require continued maintenance and also require upgrading or replacement from time to time. There can be no assurance that our informationthese systems will not fail or experience disruptions, that we will be able to attract and retain qualified personnel necessary for the operation of such systems, that we will be able to expand and improve our information systems, that we will be able to convert to new systems efficiently as and when necessary, or that we will be able to integrate new programs effectively with our existing programs.programs, in each case without incident or delay, or undue cost.

Complications with the design or implementation of our new enterprise resource planning system could adversely impact our business and operations.

We rely extensively on information systems and technology to manage our business and summarize operating results. We are in the process of an implementation of a new global enterprise resource planning (“ERP”) system. This ERP system will replace our existing operating and financial systems. The ERP system is designed to accurately maintain the Company’s financial records, enhance operational functionality and provide timely information to the Company’s management team related to the operation of the business. The ERP system implementation process has required, and will continue to require, the investment of significant personnel and financial resources. We may not be able to successfully implement the ERP system without experiencing delays, increased costs and other difficulties. If we are unable to successfully design and implement the new ERP system as planned, our financial positions, results of operations and cash flows could be negatively impacted. Additionally, if we do not effectively implement the ERP system as planned or the

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ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected or our ability to assess those controls adequately could be delayed.

We, like most businesses, are subject to risk of cyber-attack and fraudulent and criminal activities of others and incur significant costs in efforts to defend these attacks and activities.

We like most businesses are continually subject to risk of cyber-attack and fraudulent and criminal activities of others, and are continually engaged in an effort to defend against and to ward off attacks from hackers and others. We have experienced cyber-attacks and suffered as a result of the fraudulent and criminal activities of others from time to time.  Any of such problems or events, including any significant damage or destruction of our systems, including pursuant to or as a result of system security breaches, data protection breaches or other cyber-attacks, could result in significant disruption in our business and operations, harm our relationship with our customers or suppliers, and result in significant losses in revenues. Corrective action and compliance with applicable privacy and data protection laws could be costly. Any of these systems,or similar events or occurrences could have an adverse effect on our business, financial position and results of operations. While we maintain insurance in an effort to manage some of these risks, insurance may not cover all losses and recovery is subject to applicable deductibles and other terms and limitations of the policies.

We depend heavily on e-commerce, and website security breaches or internet disruptions could have a material adverse effect on our business, financial position and results of operations.

We rely on the internet (including TESSCO.comTessco.com®) for a significant percentage of our orders and information exchanges with our customers. The internet and individual websites have experienced a number of disruptions and slowdowns, some of which were caused by organized attacks. In addition, some websites have experienced security breakdowns. There can be no assurances that our website will not experience any material breakdowns, disruptions or breaches in security. If we were to experience a security breakdown, disruption or breach that compromised sensitive information, this could harm our relationship with our customers or suppliers. Disruption of our website or the internet in general could impair our order processing or more generally prevent our customers and suppliers from accessing information or placing orders. This could have an adverse effect on our business, financial position and results of operations.

System security breaches or data protection breaches could adversely disrupt our business and harm our reputation, financial position and results of operations.

We manage and store various proprietary information and sensitive or confidential data relating to our business. In addition, we routinely process, store and transmit large amounts of data, including sensitive and personally identifiable information, including customer credit card data and other information. Breaches of our security measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us or our customers or vendors,suppliers, including the potential loss or disclosure of such information or data as a result of fraud, trickery or other forms of deception, could expose us, our customers or the individuals affected to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our brand and reputation or otherwise harm our business. In addition, the cost and operational consequences of implementing further data protection measures could be significant. Such breaches, costs and consequences could adversely affect our business, results of operations or cash flows.

We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, including the Payment Card Industry Data Security Standard (PCI DSS), a security standard applicable to companies that collect, store or transmit certain data regarding credit and debit cards, holders and transactions.  From time to time we may not be fully or materially compliant with PCI DSS or other payment card operating rules.  Any failure to comply fully or materially with the PCI DSS now or at any point in the future may violate payment card association operating rules and the terms of our contracts with payment processors and merchant banks, and could subject us to fines, penalties, damages and civil liability, and could result in the loss of our ability to accept credit and debit card payments. Maintaining compliance with these regulations is costly and there is no guarantee that we will be successful or avoid fines, penalties, damages or civil liability, and even if successful, there is no guarantee that PCI DSS compliance

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will prevent illegal or improper use of our payment systems or the theft, loss or misuse of data pertaining to credit and debit cards, credit and debit card holders and credit and debit card transactions.

The inability to hire or retain certain key professionals, management and staff could adversely affect our business, financial condition and results of operations.

The nature of our business includes (but is not limited to) a high volume of transactions, business complexity, wide geographical coverage, and broad scope of products, suppliers, and customers. In order to compete, we must attract, retain and motivate executives and other key employees, including those in managerial, technical, sales, marketing and support positions. Hiring and retaining qualified executives, information technology and business generation personnel are critical to our business.  Most of the members of our senior management team are parties to employment contracts or arrangements with us that provide for, among other things, various severance payments or benefits upon termination of their employment under certain circumstances, including termination by the Company without “cause” or for “good reason”, and those contracts generally renew from year to year, except for the employment contract with Mr. Mukerjee, our CEO, which commenced in August 2019 and expires in March 2023. The loss of any of the members of our senior management team, could have an adverse effect on our business, financial position and results of operations. Our Board of Directors has recently approved a CEO succession plan and has retained a third party search firm to assist it in these efforts. Leadership transition may result in additional costs to us, including costs associated with the hiring of new leadership, and may result in distraction and uncertainty for our current management team. In addition, there are transactional and transitional risks associated with the process of new leadership selection and engagement, and the transfer to and assumption of responsibilities by new leadership.    

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To attract, retain and motivate qualified employees, we rely heavily on stock-based incentive awards such as Performance Stock Units (PSUs). and stock options. If performance targets associated with these PSUs are not met, or the value of such stock awards does not appreciate as measured by the performance of the price of our common stock and/or if our other stock-based compensation, such as stock options, otherwise ceases to be viewed as a valuable benefit, our ability to attract, retain and motivate our employees could be adversely impacted, which could negatively affect our business, financial position and results of operations and/or require us to increase the amount we spend on cash and other forms of compensation. Our ability to issue PSUs, stock options and other equity instruments is also limited by the provisions of and our available shares under our current and/or future stock incentive plans, which may be subject to shareholder approval. We may currently issue awards under our incentive plan through June 4, 2029, and only through July 21, 2016, andinsofar as shares are available for awards thereunder.  As of May 27, 2016,25, 2021, the most recent date when PSUs and other equity instruments were issued, there were 225,296303,279 shares available for future awards. We intend to seek shareholder approval at our 2016 Annual Meeting for an extension of the date through which awards may be granted and an increase in the number of shares available for future awards, but we may not be successful. Therefore, our ability to offer stock-based incentive awards may be limited, which may have an adverse effect on our continued ability to attract and retain, and motivate, our employees, and, subsequently, on our business, financial position and results of operations. In addition, if we are unsuccessfulan increase in obtaining this shareholder approval, we may have less flexibility in formulating athe number of shares for future awards, under either current or future compensation arrangement sufficientor incentive plans or arrangements could lead to attract a new CEO in furtherancedilution of our CEO succession plan.   other stockholders.

The damage or destruction of any of our principal distribution or administrative facilities could materially adversely impact our business, financial position and results of operations.

If anyeither of our distribution centers in Hunt Valley, Maryland or Reno, Nevada, were to be significantly damaged or destroyed, we could suffer a loss of product inventory and our ability to conduct our business in the ordinary course could be materially and adversely affected. Similarly, if our office locations in Maryland, Nevada or Texas were to be significantly damaged or destroyed, our ability to conduct marketing, sales and other corporate activities in the ordinary course could be adversely affected.

Disruption to our supply chain could impair our ability to produce or deliver inventory, resulting in a negative impact on our operating results.

Due to several factors, including a raw materials shortage, global factory backlogs, transportation delays and customs delays caused in part due to the global economy recovering from the impact of COVID-19, our supply chain has been adversely impacted and lead times have increased considerably, beginning in the fourth quarter of fiscal year 2021. Future disruption to our global manufacturing operations or our supply chain could also result from, among other factors, the following:

•Natural disaster;

•Pandemic outbreak of disease;

•Climate change and severity of extreme weather;

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•Fire or explosion;

•Terrorism or other acts of violence;

•Labor strikes or other labor activities;

•Unavailability of raw or packaging materials;

•Operational and/or financial instability of key suppliers, and other vendors or service providers; and

•Suboptimal production planning which could impact our ability to cost-effectively meet product demand.

While we believe that most competitors are experiencing similar supply chain delays, we also believe that we are taking adequate precautions to mitigate the impact of the current disruptions to the extent possible and reasonable. We have strategies and plans in place intended to manage disruptive events such as the current supply chain disruption and other disruptions, if and when they occur, including our global supply chain strategies. If we are unable, or find that it is not financially feasible, to effectively procure sufficient inventory on a timely basis to meet our customers’ demands, due to the potential impacts of such disruptive events on our supply chain, our financial position, results of operations and cash flows could be negatively impacted if such events were to occur.

We depend on third parties to manufacture products that we distribute and, accordingly, rely on their quality control procedures.

Product manufacturers typically provide limited warranties directly to the end consumer or to us, which we generally pass through to our customers. If a product we distribute for a manufacturer has quality or performance problems, our ability to provide products to our customers could be disrupted, which could adversely affect our operations.

We are subject to potential declines in inventory value.

We are subject to the risk that the value of our inventory will decline as a result of price reductions by vendorssuppliers or technological obsolescence.obsolescence or failure. It is the policy of many of our vendorssuppliers to protect distributors like us from the loss in value of inventory due to technological change or failure, or the vendors’suppliers’ price reductions. Some vendorssuppliers (including those who manufacture our proprietary products), however, may be unwilling or unable to pay us for price protection claims or products returned to them under purchase agreements. No assurance can be given that such practices to protect distributors like us will continue, that unforeseen new product developments, product failure or product obsolescence will not adversely affect us, or that we will be able to successfully manage our existing and future inventories.

Our future operating results depend on our ability to purchase a sufficient amount of finished goods and bulk inventory to meet the demands of our customers.

Our ability to meet our customers' demands depends, in part, on our ability to obtain timely and adequate delivery of inventory from our suppliers. We have experienced shortages in the past that have negatively impacted our operations. Although we work closely with our suppliers to avoid these types of shortages, there can be no assurances that we will not encounter these problems in the future. Furthermore, certain of our products or components are available only from a single source or limited sources. We may not be able to diversify sources in a timely manner. A reduction or interruption in supplies or a significant increase in the price of supplies could have a negative impact on our results of operations or financial condition.

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If our business does not perform well, or if we otherwise experience a decline in the fair values of a portion or all of our business, we may be required to recognize impairments of our intangible or other long-lived assets, which could adversely affect our results of operations or financial condition.

Goodwill and indefiniteIndefinite lived intangible assets that are not amortized are initially recorded at fair value, and are not amortized, but are reviewed for impairment at least annually or more frequently if impairment indicators are present.

In assessing the recoverability of goodwill and indefinite lived intangible assets, we make estimates and assumptions about sales, operating margin, growth rates and discount rates based on our budgets, business plans, economic projections, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and

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management’s judgment in applying these factors. We first perform a qualitative analysis to determine if it is more likely than not that goodwill or indefinite lived intangible assets are impaired. This analysis includes assumptions and estimates related to macroeconomic, industry and company specific events and trends. In the event that we find it is more likely than not that an impairment has occurred a quantitative analysis is performed. Goodwill and indefinite lived asset valuations are calculated using an income approach based on the present value of future cash flows of each reporting unit. We could be required to evaluate the recoverability of goodwill and indefinite lived assets prior to the annual assessment if we experience disruptions to the business, unexpected significant declines in operating results, divestiture of a significant component of our business or sustained market capitalization declines. These types of events and the resulting analyses could result in goodwill and indefinite lived asset impairment charges in the future. Impairment charges could substantially affect our financial results in the periods of such charges. In addition, impairment charges would negatively impact our financial ratios and could limit our ability to obtain financing in the future. As of March 27, 2016,28, 2021, we had $12.5 million$795,000 of goodwill and indefinite lived intangible assets, which represented approximately 7.4%0.4% of total assets.

Deferred income tax representsassets and liabilities represent the tax effect of the differences between the bookfinancial reporting and tax bases of assets and liabilities. Deferred tax assets are assessed periodically by management to determine if they are realizable. Factors in management’s determination include the current tax laws, historical results, performance of the business, projections of future taxable income, and the feasibility of ongoing tax planning strategies. If based on available information, it is more likely than not that the deferred income tax asset will not be realized then a valuation allowance must be established with a corresponding charge to net income. Such charges could have an adverse effect on our results of operations or financial condition.

Our future results of operations may be impacted by the prolonged weakness in the current economic environment which may result in an impairment of any goodwill recorded and/or other long livedthe long-lived assets or the recording of a valuation allowance on our deferred tax assets, which could adversely affect our results of operations or financial condition.

We primarily rely on trademark filings and confidentiality agreements to protect our intellectual property rights.

In an effort to protect our intellectual property, including our product data, customer information and information technology systems, through trademark filings and nondisclosure, confidentiality and trade secret agreements, we typically require our employees, consultants and others having access to this information or our technology to execute confidentiality and non-disclosure agreements. These agreements, however, may not provide us with adequate protection against improper use or disclosure of confidential information, and these agreements may be breached. A breach of confidentiality could adversely affect our business. In addition, in some situations, these agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants and others have previous employment or consulting relationships. Also, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets. Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The disclosure of our proprietary information or trade secrets could impair our competitive position and could have an adverse effect on our business, financial condition and results of operations. Others may obtain patent protection for technologies that are important to our business, and as a result, our business, financial position and results of operations may be adversely affected. In response to patents of others, we may need to license the rights to use the technology patented by others, or in the event that a license cannot be obtained, design our systems around the patents of others. There can be no assurances as to our ability to obtain any such licenses or to design around the patents of others, and our inability to do so could have an adverse effect on our business, financial position and results of operations.

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We offer credit to our customers and, therefore, are subject to significant credit risk.

We sell our products to a large and diverse customer base. We finance a significant portion of such sales through trade credit, typically by providing 30-day payment terms. As a result, our business could be adversely affected in the event of a deterioration of the financial condition of our customers, resulting in the customers’ inability to repay us. This risk may increase if there is a general economic downturn affecting a large number of our customers and in the event our customers do not adequately manage their business or properly disclose their financial condition. Also, several of our larger customers, including tier 1 public carrier customers, require greater than 30-day payment terms which could increase our credit risk and decrease our operating cash flow.  

We may explore additional growth through acquisitions.

As part of our growth strategy, we may continue to pursue the acquisition of companies that either complement or expand our existing business. As a result, we regularlyfrom time to time evaluate potential acquisition opportunities, which may be material in size and scope. In addition to those risks to which our business and the acquired businesses are generally subject to, the acquisition of these businesses gives rise to transactional and transitional risks, and the risk that the anticipated benefits will not be realized.

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Risks associated with the foreign suppliers from whom our products are sourced could adversely affect our financial performance.

The products we sell are sourced from a wide variety of domestic and international suppliers. Global sourcing of many of the products we sell is an important factor in our financial performance. Since the onset of the weakness in the global economic environment in 2008,due to the COVID-19 pandemic, certain of our suppliers, particularly those in the far-east, have experienced financial difficulties and we believe it is possible that a limited number of suppliers may either cease operations or require increased prices in order to fulfill their obligations. Changes in our relationships with suppliers or increases in the costs of purchased raw materials, component parts or finished goods could result in delays, inefficiencies or our inability to market products. In addition, our profit margins would decrease if prices of purchased raw materials, component parts, or finished goods increase and we are unable to pass on those increases to our customers. The adoption or expansion of trade restrictions or the occurrence of trade wars could have a material adverse effect on our business, financial position and results of operation.

We rely on independent shipping companies to deliver inventory to us and to ship products to customers.

We rely on arrangements with independent shipping companies, for the delivery of our products from vendorssuppliers and to customers. The failure or inability of these shipping companies to deliver products, or the unavailability of their shipping services, even temporarily, could have a material adverse effect on our business. We may also be adversely affected by an increase in freight surcharges due to rising fuel costs and added security. This could adversely impact our selling, general and administrative expenses or lead to price increases to our customers which could decrease customer demand for our products.

Changes in accounting rules could have a material adverse impact on our results of operations.

We prepare our financial statements in conformity with accounting principles generally accepted in the United States. These accounting principles are subject to interpretation by the Financial Accounting Standards Board, the Public Company Accounting Oversight Board, the United States Securities and Exchange Commission (SEC), the American Institute of Certified Public Accountants and various other bodies formed to interpret and create appropriate accounting policies. A change in these policies or a new interpretation of an existing policy could have a significant effect on our reported results and may affect our reporting of transactions.

Changes in income tax and other regulatory legislation.

We operate in compliance with applicable laws and regulations and make plans for our structure and operations based upon existing laws and anticipated future changes in the law. When new legislation is enacted with minimal advance notice, or when new interpretations or applications of existing laws are made, we may need to implement changes in our policies or structure. We are susceptible to unanticipated changes in legislation, especially relating to income and other

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taxes, import/export laws, hazardous materials and other laws related to trade, accounting and business activities. Such changes in legislation may have an adverse effect on our business.

We may be subject to litigation.

We may be subject to legal claims or regulatory matters involving stockholder, consumer, antitrust, intellectual property and other issues. Litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages or other adverse effects. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on our business, financial position and results of operations for the period in which the ruling occurred or future periods.

We may incur product liability claims which could be costly and could harm our reputation.

The sale of our products subjects us to the risk of product liability claims. We have also been increasing our focus on sales of our proprietary Ventev® products and on providing an increased level of support services, including product and network designs, which also subjects us to risk of product liability and performance claim risk. We seek to allocate product liability risk to our vendorssuppliers where available but may not be successful in doing so. We currently maintain product liability insurance, but our product liability insurance coverage is subject to various coverage exclusions and limits and may not be obtainable in the future on terms acceptable to us, or at all. We do not know whether claims against us with respect to our products and services, if any, would be successfully defended or whether we might be successful in allocating that risk to others, or whether our insurance would be sufficient to cover liabilities resulting from such claims. Any claims successfully brought against us could adversely affect our financial condition, and if substantial and relating to our products or industry generally, could adversely affect our business as a whole.

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Our expanding offering of private labeled products may have a negative impact on our relationship with our manufacturer partners.

Our product offering includes a growing number of our own proprietary products, which represented approximately 14%8% of our sales in fiscal year 2016.2021. Our proprietary products often compete with other manufacturers' branded items that we offer. A manufacturer may choose to not sell its products to us, or may substantially increase the price of products to us, in response to the competition created by the sales of our proprietary branded products. Either could have an adverse effect on our business and financial performance.

A significant portion of our product offerings, including a majority of our Ventev® products and products we acquire from our suppliers, are manufactured in foreign countries, making the price and availability of these products susceptible to international trade risks and other international conditions.

A significant portion of our products are manufactured in foreign countries, including China.  The countries, specifically China, in which many of our products currently are manufactured or may be manufactured in the future are or could become subject to trade restrictions imposed by the U.S., including increased tariffs or quotas, embargoes and customs restrictions, which would increase the cost or could reduce the supply of products available to us, and could have a material adverse effect on our business, financial condition and results of operations.

There is also a concern that the imposition of additional tariffs by the United States could result in the adoption of tariffs by other countries as well. Such tariffs on imports from foreign countries, as well as changes in tax and trade policies, such as a border adjustment tax or disallowance of certain tax deductions for imported product, could materially increase our manufacturing costs, the costs of our imported products or our income tax expense, which would have a material adverse effect on our financial condition and results of operations. Tariffs imposed by China or other foreign countries on imports of our products could also adversely affect our international e-commerce sales. Any increase in manufacturing costs, the cost of our products or limitation on the amount of products we are able to purchase, could have a material adverse effect on our financial condition and results of operations. Unless we are able to sufficiently mitigate their effects as applicable to us, the persistence or increase of tariffs, may adversely affect us or our business.

Legislative or regulatory action could be taken that could limit our ability to use certain foreign suppliers to supply us with products.

Members of the U.S. Congress and certain regulatory agencies have raised concerns about American companies purchasing equipment and software from Chinese telecommunications companies, including concerns relating to alleged violations of intellectual property rights by Chinese companies and potential security risks posed by U.S. companies purchasing technical equipment and software from Chinese companies. In October 2012, the U.S. House of Representatives Permanent Select Committee on Intelligence issued a report asserting that network equipment manufactured by Chinese telecommunications companies poses a security threat to the United States and recommending the use of other network suppliers.  The report also recommends that Congress consider adopting legislation to address these and other purported risks. Any such legislative or regulatory requirement that restricts us from purchasing or utilizing equipment or software from Chinese or other foreign companies with which we do or seek to do business, any determination by foreign companies upon which we rely to cease doing business in the United States, any determination by any of our suppliers or customers not to do business with us on account of actual or perceived business relationships that we may have with these suspect Chinese or other foreign companies, or any determination that we otherwise make that it is either necessary or advantageous for us to cease doing business with such foreign companies, could limit our product offerings, result in increased costs of goods and have a material adverse effect on our financial condition and results of operations.  

Claims that our products infringe the proprietary rights of others could harm our business and cause us to incur significant costs.

Our industry has increasingly been subject to patent and other intellectual property rights litigation. We expect this trend to continue and accelerate and expect that we may be required to defend against this type of litigation, not only asserted against our own intellectual property rights, but also against the intellectual property of products which we have

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purchased for resale. Further, we may be obligated to indemnify and defend our customers if the products or services we supply to them are alleged to infringe a third party’s intellectual property rights. While we may be able to seek indemnification from our suppliers to protect our customers and us from such claims, there is no assurance that we will be successful in negotiating contractual terms with our suppliers to provide for such indemnification, or that we will otherwise be successful in obtaining such indemnification or that we will be protected from such claims. We may also be prohibited from marketing products, could be forced to market products without desirable features, or could incur substantial costs to defend legal actions, including where third parties claim that we or vendorssuppliers who may or may not have indemnified us are infringing upon their intellectual property rights. In recent years, individuals and groups have begun purchasing intellectual property assets for the sole purpose of making claims of infringement and attempting to extract settlements from target companies. Even if we believe that such infringement claims are without merit, the claims can be time-consuming and costly to defend and divert management’s attention and resources away from our business. Claims of intellectual property infringement may require us to enter into costly settlements or pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain products or services, which could affect our ability to compete effectively. If an infringement claim is successful, we may be required to pay damages or seek royalty or license arrangements, which may not be available on commercially reasonable terms. Even if we have an agreement that

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indemnifies us against such costs, the indemnifying party may be unable or unwilling to uphold its contractual obligations to us.

We may be adversely affected by future laws or regulations.

We are subject to various U.S. Federal, state and local, and non-U.S. laws and regulations. We cannot predict the substance or impact of pending or future legislation or regulations, or the application thereof. The introduction of new laws or regulations or changes in existing laws or regulations, or the interpretations thereof, could increase the cost of doing business for us or our customers or vendorssuppliers or restrict our actions and adversely affect our financial condition, operating results and cash flows. For example, annual disclosure and reporting requirements relating to the SEC’s conflict minerals rule require us to perform a reasonable country of origin inquiry and conduct further due diligence measures on our supply chain. There are costs and uncertainties associated with complying with these disclosure requirements, including for diligence to determine the sources of conflict minerals that we may find to be used in our products.

Risks Related to our Exit from the Retail Business

We may not receive all of the potential payments to us under the terms of the Inventory Purchase Agreement applicable to our exit from the Retail business, or we may otherwise realize less net cash from the sale than expected.

In addition to amounts already paid to us, there are a number of payment obligations between the parties under the terms of the Inventory Purchase Agreement with Voice Comm for the sale of certain assets related to our Retail business. These include post-closing adjustments up to two years, potential payments to us in respect of certain future re-sales by Voice Comm of retail inventory purchased from us, potential royalty payments to us related to Voice Comm’s sale of Ventev-branded mobile accessory products, and warranty and indemnity obligations. Voice Comm’s business, on which its future payments to us are dependent, is subject to many of the same risks that we are subject to, and perhaps other risks. Accordingly, we may not receive all of the payments due to us under the terms of the Inventory Purchase Agreement or we may be required to make payments to Voice Comm in the form of adjustments or otherwise, and we may realize less overall net cash from the sale than we might otherwise anticipate. In addition, we have not transferred but have instead retained our receivables related to our historical Retail business, and those receivables remain subject to risks typically associated with receivables, including collection risks.      

The Inventory Purchase Agreement with Voice Comm exposes us to contingent liabilities and other risks that could adversely affect our business or financial condition.  

Pursuant to the Inventory Purchase Agreement, we have made customary representations and warranties and the parties have agreed to indemnify each other for breaches of representations, warranties and covenants contained in the Inventory Purchase Agreement. The Inventory Purchase Agreement also subjects us to other risks typical in business transactions of this type, including payment and performance risks. The terms of the Inventory Purchase Agreement are complex and address all aspects of our former Retail business, including return of sold inventory, product warranty

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obligations, and customer and vendor relationships, among others. Should disputes arise or should we incur liability for breach of any of these representations, warranties or obligations, or should any of these other risks materialize, our business, financial condition or results of operations could be materially adversely affected. In addition, we have assigned or licensed Ventev®- related intellectual property to Voice Comm, including the Ventev® trademark for their use in connection with the sale of mobile device and accessory products, while we continue to use the brand and other Ventev®-related intellectual property in our ongoing and continuing business. This intellectual property sharing arrangement could result in identity confusion in the marketplace, and the actions or activities of one of Tessco or Voice Comm in respect of the shared intellectual property, whether positive or negative, may reflect on the other. 

Our long-term business prospects will depend on the success of our Commercial business.

As a result of our exit from the Retail business, our Commercial business is our sole remaining cash-generating business, and our overall business has become less diverse. Our long-term business prospects will, therefore, be dependent almost entirely on the success of our Commercial business and any other businesses that we pursue.

The Inventory Purchase Agreement with Voice Comm imposes non-compete obligations on us and our affiliates.

Under the terms of the Inventory Purchase Agreement, the Company has agreed, on behalf of itself and its affiliates (including any owner of a majority of Tessco), not to compete with Voice Comm’s retail business as operated by the Company at closing, for a period of five years after the closing date. Tessco will, however, retain the ability to continue to supply retail products to its commercial customers; and other exceptions to the non-compete obligation allow Tessco to divest itself of Retail inventory not acquired by Voice Comm. The overall non-compete obligation may, however, be terminated early by us upon the occurrence of certain change in control events and the payment to Voice Comm of certain agreed upon amounts (approximately $5,000,000, initially), which diminishes ratably over the five year non-compete period. This could make certain changes in control involving us more costly and therefore more difficult or less likely. Disagreements may arise between the parties as to the scope and meaning of the non-compete obligations and the various exceptions, which could be disruptive and subject us to claims for damages or specific performance of the non-compete obligations.  

RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK

A significant portion of our voting stock is controlled by our executive officers, directors and beneficial owners of 5% or more of our common stock.

Our executive officers, directors and beneficial owners of 5% or more of our common stock and their affiliates, in the aggregate, beneficially owned approximately 64%54% of our outstanding common stock as of March 27, 2016.28, 2021. Robert B. Barnhill, Jr., our chairman, president and chief executive officerChairman of the Board, beneficially owned approximately 22%18% of our outstanding common stock as of March 27, 2016. Should these28, 2021. These shareholders, and particularly if they decide to act together, theyhave or would have the ability to significantly influence all matters requiring shareholder approval, including the election of directors and any significant corporate transaction requiring shareholder approval.

We may notOur business could be ablenegatively impacted as a result of any future activism activities by Robert B. Barnhill, Jr. and certain other participants in his consent solicitation and/or other activist investors.

As noted above, Mr. Robert B. Barnhill Jr. holds approximately 18% of our outstanding common stock.  In September 2020, Mr. Barnhill and persons acting together with Mr. Barnhill initiated a consent solicitation to continueseek the consent of our stockholders holding at least a majority of our outstanding shares of common stock to, pay dividendsamong other things, remove five members of our Board and replace them with four director candidates identified by Mr. Barnhill (the “Consent Solicitation”). Consents solicited during the Consent Solicitation were delivered to the Company on December 11, 2020.

The Consent Solicitation and the Company’s response to it has resulted in, significant distraction for management and significant costs to the Company.  Further, Consent Solicitations or other activities by Mr. Barnhill or by other activist shareholders could result in yet additional distractions and costs and could lead to a materially adverse impact on our common stock in the future, which could impair the value of our common stock.business or operating results.

We have paid a quarterly dividend on our common stock since the second quarter of fiscal year 2010. Any future declaration of dividends remains subject to further determination from time to time by our Board of Directors. Our ability to pay dividends in the future will depend on our financial results, liquidity and financial condition. Under Delaware law, dividends to shareholders may be made only from the surplus of a company, or, in certain situations, from the net profits for the current fiscal year or the fiscal year before which the dividend is declared.  Our current revolving credit facility limits the amount of cash dividends that we may pay to $9.0 million in any twelve month period and contains other financial covenants and ratios that could restrict future dividend payments. There is no assurance that we will be able to pay dividends in the future, or if we are able to, that our Board of Directors will continue to declare dividends in the future, at current rates or at all.  If we discontinue or reduce the amount or frequency of dividends, the value of our common stock may be impaired. 

2224


Our quarterly financial results may fluctuate, which could lead to volatility in our stock price.

Our revenue and operating results have fluctuated from quarter to quarter in the past and may continue to do so in the future. As a result, you should not rely on quarter-to-quarter comparisons of our operating results as an indication of our future performance. Fluctuations in our revenue and operating results could negatively affect the trading price of our stock. In addition,Most of our operating expenses, such as compensation expenses, do not vary directly with the amount of sales and are difficult to adjust in the short term. As a result, if sales in a particular quarter are below expectations for that quarter, we may not proportionately reduce operating expenses for that quarter, and therefore such a sales shortfall would have a disproportionate effect on our net income for the quarter. Therefore, our revenue and results of operations may, in the future, be below the expectations of analysts and investors, which could cause our stock price to decline. Factors that are likely to cause our revenue and operating results to fluctuate include the risk factors discussed throughout this section.

Without approval of our Board of Directors, it may be difficult for a third party to acquire control of the Company. This could affect the price of our common stock.

Certain provisions of our certificate of incorporation and bylaws, including advance notice bylaws, certain arrangements to which we are party, and applicable provisions of the Delaware General Corporation Law (DGCL) may each make it more difficult for or may prevent a third party from acquiring control of us or changing our Board of Directors and management. We are afforded the protections of Section 203 of the DGCL, which will prevent us from engaging in a business combination with a person who acquires at least 15% of our common stock for a period of three years from the date such person acquired such common stock, unless Board of Director or shareholder approval were obtained. Some believe that the provisions described above, as well as any resulting delay or prevention of a change of control transaction or changes in our Board of Directors or management, could deter potential acquirers or prevent the completion of a transaction in which our shareholders could receive a substantial premium over the then current market price for their shares. We, on the other hand, believe that these provisions serve to protect our shareholders against abusive takeover tactics, to preserve and maximize the value of the Company for all shareholders, and to better ensure that each shareholder will be treated fairly in the event of an unsolicited offer to acquire the Company.

Potential uncertainty resulting from unsolicited acquisition proposals and related matters may adversely affect our business.

In the past we have received, and in the future, we may receive, unsolicited proposals to acquire our company or our assets. For example, in September 2010, the Board of Directors received an unsolicited non-binding proposal for the acquisition of all of our stock. The review and consideration of acquisition proposals and related matters could require the expenditure of significant management time and personnel resources. Such proposals may also create uncertainty for our employees, customers and vendors.suppliers. Any such uncertainty could make it more difficult for us to retain key employees and hire new talent, and could cause our customers and vendorssuppliers to not enter into new arrangements with us or to terminate existing arrangements. Additionally, we and members of our boardBoard of directorsDirectors could be subject to future lawsuits related to unsolicited proposals to acquire us. Any such future lawsuits could become time consuming and expensive.

Our quarterly operating results are subject to significant fluctuation.

Our operating results have fluctuated from quarter to quarter in the past, and we expect that they will continue to do so in the future. Our earnings may not continue to grow at rates similar to the growth rates achieved in recent years and may fall short of either a prior fiscal period or investors’ expectations. Most of our operating expenses, such as compensation expenses, do not vary directly with the amount of sales and are difficult to adjust in the short term. As a result, if sales in a particular quarter are below expectations for that quarter, we may not proportionately reduce operating expenses for that quarter, and therefore such a sales shortfall would have a disproportionate effect on our net income for the quarter.

Item 1B.Unresolved Staff Comments.

None.

23


Item 2. Properties.

Our corporate headquarters and primary distribution center, known as the Global Logistics Center (GLC), is located in a Company-owned 184,000 square-foot facility north of Baltimore City, in Hunt Valley, Maryland.

Our sales, marketing and administrative offices are located in 102,200 square feet of leased office space near the GLC, in Timonium, Maryland. The monthly rent payments range from $167,500$183,000 to $177,700$203,800 throughout the remaining lease term, which expires on December 31, 2017.2025.

25

In addition, we lease 66,000 square feet of office and warehouse space adjacent to the GLC in Hunt Valley, Maryland. The monthly rent for this facility ranges from $34,300$40,500 to $35,700$43,000 throughout the remaining lease term, which expires on July 31, 2017,2023, subject to our annual option to terminate.

Additional sales and marketing offices are located in 13,100 square feet of leased office space in San Antonio, Texas. Monthly rent payments range from $15,800 to $16,900are $19,100 and the lease expires October 31, 2018.2021.

West coast sales and fulfillment are facilitated by our Company-owned 115,000 square-foot Americas Sales & Logistics Center (ALC) located in Reno, Nevada. The ALC is used to configure and fulfill product and supply chain solutions, provide disaster backup for the GLC, and allow for future growth of staffing and increased fulfillment capabilities.

While we anticipate the need for additional space, we believe our existing facilities are generally adequate for our current requirements and that suitable additional space will be available as needed to accommodate future expansion of our operations.  The GLC is encumbered by a deed of trust as security for a term loan. See Note 8 to our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Item 3. Legal Proceedings.

Lawsuits and claims are filed against us from time to time in the ordinary course of business. We do not believe that any lawsuits or claims currently pending against the Company, individually or in the aggregate, are material, or will have a material adverse effect on our financial condition or results of operations. In addition, from time to time, we are also subject to review from federal and state taxing authorities in order to validate the amounts of income, sales and/or use taxes which have been claimed and remitted. No federal, state and local tax returns are currently under examination.

As we are routinely audited by state taxing authorities, we have estimated exposure and established reserves for our estimated sales tax audit liability.

Item 4. Mine Safety Disclosures

Not applicable.

2426


Part II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock has been publicly traded since September 28, 1994, on the NASDAQ Market (currently NASDAQ Global Select),Nasdaq, under the symbol "TESS." The quarterly range of prices per share during fiscal years 2015 and 2016 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

Dividends

 

 

 

High

 

Low

 

Declared

 

Fiscal Year 2015

 

 

 

 

 

 

 

 

 

 

First Quarter

 

$

38.49

 

$

30.05

 

$

0.20

 

Second Quarter

 

 

32.76

 

 

29.37

 

 

0.20

 

Third Quarter

 

 

34.28

 

 

26.67

 

 

0.20

 

Fourth Quarter

 

 

29.45

 

 

21.63

 

 

0.20

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year 2016

 

 

 

 

 

 

 

 

 

 

First Quarter

 

$

27.56

 

$

17.94

 

$

0.20

 

Second Quarter

 

 

27.25

 

 

19.20

 

 

0.20

 

Third Quarter

 

 

24.39

 

 

17.75

 

 

0.20

 

Fourth Quarter

 

 

20.49

 

 

14.96

 

 

0.20

 

As of May 26, 2016,June 2, 2021, the number of shareholders of record of the Company was 145.160. We estimate that the number of beneficial owners as of that date was approximately 2,173.3,049.

On July 28, 2009, we announced that our Board of Directors had decided to commence a cash dividend program and we have sincethereafter our Board of Directors declared dividends on a quarterly basis.basis, through the fourth quarter of fiscal 2020. On April 28, 2020, the Board of Directors suspended Tessco’s dividend in an effort to further strengthen its cash position. Any future declaration of dividends and the establishment of any corresponding record and payment dates remains subject to further determination from time to time by the Board of Directors. Additional information with respect to the quarterly dividends declared in fiscal years 20162021 and 20152020 is contained in our Selected Financial Data. The declaration and payment of future dividends will depend on many factors, including, but not limited to, our earnings, financial condition, business development needs and regulatory considerations, and is at the discretion of our Board of Directors. Our revolving credit facility limitsmay limit the amount of cash dividends that we may pay to $9.0 million in any twelve month period and contains otherthrough the application of financial covenants and ratios that may restrict the future payment of dividends.dividend payments.  

On April 23, 2014, the Board of Directors expanded the Company’s then existing stock buyback program and authorized the purchase on a non-accelerated basis of up to $10.0 million of the Company’s stock over a 24-month period, ending in April 2016. Shares could be purchased from time to time in the open market, by block purchase, or through negotiated transactions, or other transactions managed by broker-dealers. Through the end of fiscal year 2016, we had repurchased 157,954 shares under the expanded stock buyback program for approximately $4.6 million, or an average cost of $29.17 per share. No shares were repurchased during the fourth quarter of fiscal year 2016. As of March 27, 2016, $5.4 million remained available for repurchase under this program. The stock buyback program expired in April 2016. 

We also withhold shares from our employees and directors from time to time to facilitate employees’ minimum federal and state tax withholdings related to vested performance stock units, restricted stock and exercised stock options. For fiscal years 20162021 and 20152020 the total value of shares withheld for taxes were $937,300$121,500 and $1,612,900,$201,000, respectively.

Our revolving credit facilityThe secured Revolving Credit Facility also restricts our ability to pay dividends and term loanto repurchase our shares.  Assuming that no default exists, we may redeem or repurchase up to $2,000,000 of our shares in any 12 consecutive month period in connection with Wells Fargo Bank, National Associationthe payment or satisfaction of tax withholding obligations of participants under our equity compensation plans.  We may pay dividends or effect redemptions provided that no default exists or will exist after giving effect to the dividend or repurchase, and SunTrust Bank limitthe average Excess Availability is not less than $18,750,000 during the immediately preceding thirty-day period and after giving effect to $30.0 millionthe dividend or repurchase on a pro forma basis, and for each day of the thirty-day period not less than $12,500,000.  Excess Availability is generally defined as Availability minus the aggregate dollar valueamount of trade payables aged in excess of historical levels and all book overdrafts in excess of historical practices. In addition to these conditions, dividends and repurchases of our shares, that may be repurchased from May 31, 2007 forward.other than repurchases in connection with tax withholding as noted above are in any event limited to $625,000 per quarter and not more than $2,500,000 in the aggregate during the period October 29, 2020 through October 28, 2021, at which time these quarterly and aggregate limits expire. At March 27, 2016,28, 2021 we had the ability to withhold or repurchase approximately $11.7$2 million in additional shares of our common stock during fiscal 2021, without violating this covenant.

25


The information required by Item 201(d) of Regulation S-K, pursuant to paragraph (a) of Item 5 of Form 10-K, is incorporated by reference to the information set forth under the caption “Equity Compensation Plan Information” in the Company’s Proxy Statement for the 20162021 Annual Meeting of Shareholders, which is anticipated to be filed pursuant to Regulation 14A no later than one hundred twenty (120) days following the end of the fiscal year reported on.

27

Stock Performance Graph

The graph set forth below shows the value of an investment of $100 on March 27, 20112016 in each of the Company’s Common Stock,common stock, the Russell 2000 Index and a peer group for the period of March 27, 20112016 to March 27, 2016.28, 2021. The graph assumes that all dividends, if any, were reinvested.

Chart, line chart

Description automatically generated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

3/27/2011

    

4/1/2012

    

3/31/2013

    

3/30/2014

    

3/29/2015

    

3/27/2016

 

    

3/27/2016

    

3/26/2017

    

4/1/2018

    

3/31/2019

    

3/29/2020

    

3/28/2021

 

TESSCO Technologies Incorporated

 

$

100

 

$

225.07

 

$

204.63

 

$

340.20

 

$

253.53

 

$

178.23

 

$

100.00

$

92.99

$

151.08

$

106.46

$

40.29

$

53.68

Russell 2000

 

 

100

 

 

102.25

 

 

118.92

 

 

145.84

 

 

159.11

 

 

140.42

 

 

100.00

 

127.34

 

145.74

 

148.72

 

110.91

 

220.28

Peer Group (1)

 

 

100

 

 

131.08

 

 

134.46

 

 

164.72

 

 

151.89

 

 

162.15

 

 

100.00

 

106.32

 

126.37

 

136.59

 

112.65

 

184.69

(1)– The Peer Group consists of the following: Ingram MicroScanSource Inc., and W.W. Grainger Inc., Anixter International Inc., ScanSource, Inc., InfoSonics Corporation, and Tech Data Corp.

26


The peer group was selected based on a review of publicly available information about these companies and the Company’s determination that they are engaged in business similar to that of the Company.  This group has been updated since prior years to remove two previously included peer group companies whose shares are no longer traded.

28

Item 6. Selected Financial Data.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Years Ended

 

 

    

March 27, 2016

    

March 29, 2015

    

March 30, 2014

    

March 31, 2013

    

April 1, 2012

 

STATEMENT OF 

INCOME DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

530,685,100

 

$

549,619,000

 

$

560,086,600

 

$

752,565,000

 

$

733,389,900

 

Cost of goods sold

 

 

418,716,200

 

 

431,980,500

 

 

433,728,700

 

 

620,328,800

 

 

599,465,700

 

Gross profit

 

 

111,965,900

 

 

117,638,500

 

 

126,357,900

 

 

132,236,200

 

 

133,924,200

 

Selling, general and administrative expenses

 

 

102,932,300

 

 

102,686,700

 

 

99,868,000

 

 

103,017,600

 

 

106,920,400

 

Restructuring charge

 

 

 —

 

 

573,400

 

 

 —

 

 

 —

 

 

 —

 

Operating expenses

 

 

102,932,300

 

 

103,260,100

 

 

99,868,000

 

 

103,017,600

 

 

106,920,400

 

Income from operations

 

 

9,033,600

 

 

14,378,400

 

 

26,489,900

 

 

29,218,600

 

 

27,003,800

 

Interest, net

 

 

161,300

 

 

167,300

 

 

177,700

 

 

224,200

 

 

292,900

 

Income before provision for income taxes

 

 

8,872,300

 

 

14,211,100

 

 

26,312,200

 

 

28,994,400

 

 

26,710,900

 

Provision for income taxes

 

 

3,531,800

 

 

5,576,800

 

 

10,063,100

 

 

11,200,500

 

 

10,274,000

 

Net income

 

$

5,340,500

 

$

8,634,300

 

$

16,249,100

 

$

17,793,900

 

$

16,436,900

 

Diluted earnings per share

 

$

0.65

 

$

1.04

 

$

1.94

 

$

2.15

 

$

2.03

 

Cash dividends declared per common share

 

$

0.8

 

$

0.8

 

$

0.74

 

$

1.47

 

$

0.55

 

Percentage of Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

Cost of goods sold

 

 

78.9

 

 

78.6

 

 

77.4

 

 

82.4

 

 

81.7

 

Gross profit

 

 

21.1

 

 

21.4

 

 

22.6

 

 

17.6

 

 

18.3

 

Selling, general and administrative expenses

 

 

19.4

 

 

18.7

 

 

17.8

 

 

13.7

 

 

14.6

 

Restructuring charge

 

 

 —

 

 

0.1

 

 

 —

 

 

 —

 

 

 —

 

Operating expenses

 

 

19.4

 

 

18.8

 

 

17.8

 

 

13.7

 

 

14.6

 

Income from operations

 

 

1.7

 

 

2.6

 

 

4.7

 

 

3.9

 

 

3.7

 

Interest, net

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

0.1

 

Income before provision for income taxes

 

 

1.7

 

 

2.6

 

 

4.7

 

 

3.9

 

 

3.6

 

Provision for income taxes

 

 

0.7

 

 

1

 

 

1.8

 

 

1.5

 

 

1.4

 

Net income

 

 

1.0

%

 

1.6

%

 

2.9

%  

 

2.4

%  

 

2.2

%

In accordance with the SEC staff Financial Reporting Manual and in conjunction with the filing of the fiscal 2021 Form 10-K, we elected not to recast the selected financial data for fiscal year 2017 and 2018 for the exit of the Retail business that occurred in fiscal 2021 as discontinued operations. As such, the below selected financial data for fiscal years 2017 and 2018 includes the results of the divested Retail segment.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Years Ended

 

 

    

March 27, 2016

    

March 29, 2015

    

March 30, 2014

    

March 31, 2013

    

April 1, 2012

 

SELECTED OPERATING DATA

 

 

 

 

 

 

 

 

 

 

 

Average non-consumer buyers per month

 

12,200

 

12,400

 

12,700

 

13,000

 

13,000

 

Return on assets (1)

 

3.0

%  

4.6

%  

8.5

%  

9.0

%  

9.1

%  

Return on equity (2)

 

4.7

%  

7.6

%  

14.9

%  

18.1

%  

19.1

%  

Fiscal Years Ended

 

    

March 28, 2021

    

March 29, 2020

    

March 31, 2019

    

April 1, 2018

    

March 26, 2017

 

STATEMENT OF 
INCOME DATA

 

Revenues

$

373,340,700

$

409,014,400

$

419,044,800

$

580,274,700

$

533,295,100

Cost of goods sold

 

305,625,100

 

329,372,500

 

334,640,100

 

460,046,300

 

421,527,300

Gross profit

 

67,715,600

 

79,641,900

 

84,404,700

 

120,228,400

 

111,767,800

Selling, general and administrative expenses

 

85,507,100

 

92,005,200

 

95,347,000

 

112,326,700

 

108,416,300

Goodwill impairment

9,108,600

Restructuring charge

 

 

488,000

 

 

 

806,600

Operating (loss) income

 

(17,791,500)

 

(21,959,900)

 

(10,942,300)

 

7,901,700

 

2,544,900

Interest expense, net

 

426,300

 

1,116,300

 

853,800

 

429,100

 

58,600

(Loss) income from continuing operations before (benefit from) provision for income taxes

 

(18,217,800)

 

(23,076,200)

 

(11,796,100)

 

7,472,600

 

2,486,300

(Benefit from) provision for income taxes

 

(3,844,500)

 

(7,474,800)

 

(2,913,800)

 

2,277,200

 

1,041,200

Net (loss) income from continuing operations

(14,373,300)

(15,601,400)

(8,882,300)

5,195,400

1,445,100

EBITDA(1)

(14,047,000)

(17,933,800)

(7,323,400)

11,894,300

6,783,800

Diluted (loss) earnings per share from continuing operations

$

(1.65)

$

(1.83)

$

(1.05)

$

0.61

$

0.17

Adjusted EBITDA(1)

(12,836,000)

(7,650,600)

(6,079,400)

12,896,400

7,218,200

Cash dividends declared per common share

$

$

0.62

$

0.80

$

0.80

$

0.80

Percentage of Revenues

Revenues

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

Cost of goods sold

 

81.9

 

80.5

 

79.9

 

79.3

 

79.0

Gross profit

 

18.1

 

19.5

 

20.1

 

20.7

 

21.0

Selling, general and administrative expenses

 

22.9

 

22.5

 

22.8

 

19.4

 

20.3

Goodwill impairment

2.2

Restructuring charge

 

 

0.1

 

 

 

0.2

Operating expenses

 

22.9

 

24.8

 

22.8

 

19.4

 

20.5

Operating (loss) income

 

(4.8)

 

(5.4)

 

(2.6)

 

1.4

 

0.5

Interest, net

 

0.1

 

0.3

 

0.2

 

0.1

 

0.0

(Loss) income from continuing operations before (benefit from) provision for income taxes

 

(4.9)

 

(5.6)

 

(2.8)

 

1.3

 

0.5

(Benefit from) provision for income taxes

 

(1.0)

 

(1.8)

 

(0.7)

 

0.4

 

0.2

Net (loss) income from continuing operations

 

(3.8)

%

 

(3.8)

%

 

(2.1)

%  

 

0.9

%  

 

0.3

%

2729


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of Fiscal Years Ended

 

 

    

March 27, 2016

    

March 29, 2015

    

March 30, 2014

    

March 31, 2013

    

April 1, 2012

 

BALANCE SHEET DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital

 

$

82,523,600

 

$

82,220,900

 

$

88,090,400

 

$

76,551,700

 

$

65,779,800

 

Total assets

 

 

169,416,000

 

 

186,240,600

 

 

186,960,300

 

 

194,300,000

 

 

202,497,700

 

Short-term debt

 

 

251,100

 

 

250,700

 

 

250,200

 

 

249,700

 

 

249,200

 

Long-term debt

 

 

1,706,500

 

 

1,957,500

 

 

2,208,200

 

 

2,458,300

 

 

2,708,000

 

Shareholders' equity

 

 

112,527,300

 

 

113,142,100

 

 

114,828,100

 

 

102,802,600

 

 

93,651,900

 

Fiscal Years Ended

 

    

March 28, 2021

    

March 29, 2020

    

March 31, 2019

    

April 1, 2018

    

March 26, 2017

 

SELECTED OPERATING DATA

 

Average commercial buyers per month

 

3,800

4,200

4,800

11,600

12,500

Return on assets (2)

 

(7.6)

%  

(8.4)

%  

(5.0)

%  

2.8

%  

0.8

%  

Return on equity (3)

 

(17.9)

%  

(16.2)

%  

(8.2)

%  

4.8

%  

1.3

%  

As of Fiscal Years Ended

 

    

March 28, 2021

    

March 29, 2020

    

March 31, 2019

    

April 1, 2018

    

March 26, 2017

 

BALANCE SHEET DATA

 

Working capital

$

67,840,900

$

51,164,700

$

74,636,000

$

74,789,400

$

77,194,500

Total assets

 

189,077,900

 

208,708,700

 

206,495,800

 

199,423,700

 

173,980,500

Short-term debt

 

 

25,563,900

 

14,380,400

 

10,862,700

 

26,500

Long-term debt

 

30,583,200

 

 

 

2,300

 

29,800

Shareholders' equity

 

76,750,200

 

83,702,700

 

108,787,200

 

108,051,600

 

108,016,300

(1)

(1)

See “Reconciliation of Non-GAAP Measures” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, below in this Annual Report on Form 10-K.
(2)

Net income divided by the average total assets.

(3)

(2)

Net income divided by the average total equity.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This Management’s Discussion and Analysis of Results of Operations and Financial Condition (MD&A) should be read in conjunction with the other sections of this Annual Report on Form 10-K, including Part I, “Item 1: Business,” Part II, “Item 6: Selected Financial Data,” and Part II, “Item 8: Financial Statements and Supplementary Data.” The various sections of this MD&A contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing, including Part I, “Item 1A: Risk Factors.” Our actual results may differ materially from those described in any such forward-looking statement.

Business Overview and Environment

TESSCO Technologies Incorporated (TESSCO, we,(“Tessco”, “we”, “our”, “us”, or the Company)“Company”) architects and delivers innovative product and value chain solutions to support wireless systems. Although we sell products to customers in over 9050 countries, approximately 98%97% of our sales are to customers in the United States. We have operations and office facilities in Timonium and Hunt Valley, Maryland, Reno, Nevada and San Antonio, Texas.

On December 2, 2020, we sold most of our Retail inventory and certain other retail-related assets to Voice Comm. In connection with this sale, we assigned or licensed certain Ventev®- related intellectual property to Voice Comm, including our Ventev® trademark for their use in connection with the sale of mobile device and accessory products. Together, this resulted in our exit from our Retail business. Cash proceeds of $9.5 million were received at the time of sale. As part of the sale agreement, we are entitled to royalty payments, up to $3.0 million in the aggregate, on the sale of Ventev® branded products by Voice Comm over a four-year period after closing. Additionally, some customer returns we receive may be resold to Voice Comm over a two-year period after closing. As a result of the disposal, the operating results of our former Retail segment have been included in Income (loss) from discontinued operations, net of taxes in the Consolidated Statements of (Loss) Income for all periods presented.  We evaluateretain the Ventev® tradename for non-mobile device accessory products.

As a result of this sale and our exit from the Retail business and customer baseduring the third quarter of fiscal 2021, we now operate as one operatingbusiness segment, which we had historically referred to as our Commercial segment. This segment includes the following

We provide certain information within two key markets: (1) public carriers contractors, and program managers that are generally responsible for building and maintaining the infrastructureinfrastructure system and provide airtime service to individual subscribers; and (2) value-added resellers and integrators, which includes value-added resellers, the government system operators including federal agencieschannel and state and local governments that run wireless networks for their own use; (3) private system operators including commercialoperator

30

markets. Inventory typically has a life cycle that tends to be tied to changes in regulation or technology and includes products typically used by business entities such as major utilities and transportation companies that run wireless networks for their own use; (4) commercial dealers and resellers that sell, install and/or service cellular telephone, wireless networking, broadband and two-way radio communications equipment primarily for the enterprise market; and (5) retailers, independent dealer agents and carriers.governments.

We offer a wide range of products that are classified into four businessthree categories: base station infrastructure; network systems; and installation, test and maintenance; and mobile devices and accessories.maintenance. Base station infrastructure products are used to build, repair and upgrade wireless telecommunications. Sales of traditional base station infrastructure products, such as base station radios, cable and transmission lines and antennas are in part dependent on capital spending in the wireless communications industry. Network systems products are used to build and upgrade computing and internet networks. WeIn this category, we have also been growing our offering of wireless broadband, network equipment, security and surveillance products, which are not as dependent on the overall capital spending of the industry. Installation, test and maintenance products are used to install, tune, and maintain wireless communications equipment. This category is made up of sophisticated analysis equipment and various frequency-, voltage- and power-measuring devices, replacement parts and components as well as an assortment of tools, hardware and supplies required by service technicians. Mobile devices and accessory products include cellular phone and data device accessories.  Our customers generally have the ability to purchase any of our product categories.

28


The wireless communications distribution industry is competitive and fragmented, and is comprised of several national distributors. In addition, many manufacturers sell direct. Barriers to entry for distributors are relatively low, particularly in the mobile devices and accessory market, and the risk of new competitors entering the market is high. Consolidation of larger wireless carriers has and will most likely continue to impact our current and potential customer base. In addition, the agreements or arrangements with our customers or vendorssuppliers looking to us for product and supply chain solutions are typically of limited duration and are terminable by either party upon several months or otherwise short notice.notice. Our ability to maintain these relationships is subject to competitive pressures and challenges. We believe, however, that our strength in service, the breadth and depth of our product offering, our information technology system, our large customer base and our purchasing relationships with approximately 400300 manufacturers provide us with a significant competitive advantage over new entrants to the market.

Results of Continuing Operations

The following tables summarize the results of our continuing operations for fiscal years 2016, 20152021, 2020 and 2014:2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

2015 to 2016

 

 

 

 

2014 to 2015

 

 

 

2016

 

2015

 

$ Change

 

% Change

 

2014

 

$ Change

 

% Change

 

Market Revenues

    

 

 

    

 

 

    

 

 

    

 

    

 

 

    

 

 

 

 

 

Public Carriers, Contractors & Program Managers

 

$

89,171

 

$

127,426

 

$

(38,255)

 

(30.0)

$

149,195

 

$

(21,770)

 

(14.6)

%

Government System Operators

 

 

33,009

 

 

31,495

 

 

1,514

 

4.8

 

33,757

 

 

(2,262)

 

(6.7)

%

Private System Operators

 

 

85,563

 

 

86,725

 

 

(1,162)

 

(1.3)

 

81,560

 

 

5,166

 

6.3

%

Commercial Dealers & Resellers

 

 

129,986

 

 

134,195

 

 

(4,209)

 

(3.1)

 

140,552

 

 

(6,357)

 

(4.5)

%

Retailers, Independent Dealer Agents & Carriers

 

 

192,953

 

 

169,778

 

 

23,175

 

13.7

 

155,023

 

 

14,755

 

9.5

%

Total Revenues

 

$

530,682

 

$

549,619

 

$

(18,937)

 

(3.4)

$

560,087

 

$

(10,468)

 

(1.9)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

2015 to 2016

 

 

 

 

2014 to 2015

 

 

 

2016

 

2015

 

$ Change

 

% Change

 

2014

 

$ Change

 

% Change

 

Market Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Public Carriers, Contractors & Program Managers

 

$

15,155

 

$

20,915

 

$

(5,760)

 

(27.5)

$

27,708

 

$

(6,793)

 

(24.5)

%

Government System Operators

 

 

7,713

 

 

7,535

 

 

178

 

2.4

 

7,791

 

 

(256)

 

(3.3)

%

Private System Operators

 

 

20,601

 

 

20,866

 

 

(265)

 

(1.3)

 

21,475

 

 

(609)

 

(2.8)

%

Commercial Dealers & Resellers

 

 

33,781

 

 

34,948

 

 

(1,167)

 

(3.3)

 

36,567

 

 

(1,619)

 

(4.4)

%

Retailers, Independent Dealer Agents & Carriers

 

 

34,716

 

 

33,375

 

 

1,342

 

4.0

 

32,817

 

 

558

 

1.7

%

Total Gross Profit

 

 

111,967

 

 

117,639

 

 

(5,672)

 

(4.8)

 

126,358

 

 

(8,719)

 

(6.9)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

102,932

 

 

102,687

 

 

245

 

0.2

 

99,868

 

 

2,819

 

2.8

%

Restructuring Charge

 

 

 —

 

 

573

 

 

(573)

 

(100.0)

 

 

 —

 

 

573

 

 —

 

Operating Expenses

 

 

102,932

 

 

103,260

 

 

(328)

 

(0.3)

 

99,868

 

 

3,392

 

3.4

%

Income from operations

 

 

9,034

 

 

14,378

 

 

(5,344)

 

(37.2)

 

26,490

 

 

(12,112)

 

(45.7)

%

Interest, net

 

 

161

 

 

167

 

 

(6)

 

(3.6)

 

178

 

 

(11)

 

(5.9)

%

Income before provision for income taxes

 

 

8,872

 

 

14,211

 

 

(5,339)

 

(37.6)

 

26,312

 

 

(12,101)

 

(46.0)

%

Provision for income taxes

 

 

3,532

 

 

5,577

 

 

(2,045)

 

(36.7)

 

10,063

 

 

(4,486)

 

(44.6)

%

Net income

 

$

5,341

 

$

8,634

 

 

(3,293)

 

(38.1)

$

16,249

 

 

(7,615)

 

(46.9)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.65

 

$

1.04

 

$

(0.39)

 

(37.5)

$

1.94

 

 

(0.9)

 

(46.3)

%

(Dollars in thousands, except per share data)

2020 to 2021

2019 to 2020

2021

2020

$ Change

% Change

2019

$ Change

% Change

 

Revenues

    

    

    

    

    

    

 

Public Carriers

$

149,825

$

156,395

$

(6,570)

 

(4.2)

$

156,983

$

(588)

 

(0.4)

%

Value-added resellers and integrators

 

223,516

 

252,619

 

(29,103)

 

(11.5)

 

262,062

 

(9,443)

 

(3.6)

%

Total Revenues

$

373,341

$

409,014

$

(35,673)

 

(8.7)

$

419,045

$

(10,031)

 

(2.4)

%

2020 to 2021

2019 to 2020

2021

2020

$ Change

 

% Change

2019

$ Change

 

% Change

Gross Profit

Public Carriers

$

16,585

$

18,699

$

(2,114)

 

(11.3)

$

20,275

$

(1,576)

 

(7.8)

%

Value-added resellers and integrators

 

51,131

 

60,943

 

(9,812)

 

(16.1)

 

64,130

 

(3,187)

 

(5.0)

%

Total Gross Profit

 

67,716

 

79,642

 

(11,926)

 

(15.0)

 

84,405

 

(4,763)

 

(5.6)

%

Selling, general and administrative expenses

 

85,507

 

92,005

 

(6,498)

 

(7.1)

 

95,347

 

(3,342)

 

(3.5)

%

Goodwill impairment

9,109

(9,109)

(100.0)

9,109

100.0

%

Restructuring Charge

 

 

488

 

(488)

 

(100.0)

 

 

488

 

%

Operating loss

 

(17,791)

 

(21,960)

 

4,168

 

(19.0)

 

(10,942)

 

(11,018)

 

100.7

%

Interest, net

 

426

 

1,116

 

(691)

 

(61.9)

 

854

 

263

 

30.7

%

Loss from continuing operations before provision for income taxes

 

(18,218)

 

(23,076)

 

4,858

 

(21.1)

 

(11,796)

 

(11,280)

 

95.6

%

Benefit from income taxes

 

(3,845)

 

(7,475)

 

3,630

 

(48.6)

 

(2,914)

 

(4,561)

 

156.5

%

Net loss from continuing operations

$

(14,373)

$

(15,601)

$

1,228

 

(7.9)

$

(8,882)

$

(6,719)

 

75.6

%

Diluted loss per share from continuing operations

$

(1.65)

$

(1.83)

$

0.18

(9.7)

$

(1.05)

$

(0.78)

73.8

%

31

Fiscal Year 20162021 Compared to Fiscal Year 20152020

As noted above, we exited our Retail business during fiscal year 2021 and now report activity from that Retail business as discontinued operations.  The analysis below reflects activity and results from continuing operations only, including references to Ventev®.

Revenues. Revenues Revenue for fiscal year 20162021 decreased 3.4%by 8.7% as compared to fiscal year 2015.2020. Revenue from thein our public carriers, contractorscarrier market and program managersvalue-added resellers and integrators market decreased by 30.0% due to4.2% and 11.5%, respectively. The decline was largely driven by a dramatic slowdown in purchases by our cellular carrier customers, primarilycombination of continued headwinds from the two largest U.S. carrierseconomic downturn and the general contractors and integrators doing work on their behalf. We believe this slowdown relates to many factors, including increased carrier competition, excess inventoryimpact of COVID-19. Both markets were also impacted in the channel, reduction in building of macro tower sites and increased concerns over costs. However, we believe the carriers will need to accelerate their build plansfourth quarter by delays in the future, but the timingglobal supply chain which delayed our receipt of such an acceleration is still uncertain. This slowdown also partially affectedinventory from our commercial dealersvendors and resellers market which decreased by 3.1%. Revenue within the government system operators market increased by 4.8%as a result caused delays in our ability to ship products to our customers.  These delays are expected to continue into a substantial portion of fiscal year 2022.

Cost of Goods Sold. Cost of goods sold for fiscal year 20162021 decreased by 7.2% as compared to fiscal year 2015. This growth within the government system operators2020. Cost of goods sold in our public carrier market and value-added resellers and integrators market decreased by 3.2% and 10.1%, respectively. The decline was primarily due to a decrease in related revenue in both markets.

Gross Profit. Gross profit decreased by 15.0% in fiscal year 2016 was due to our continued investment in this market, which has led to more government contracts and deeper relationships with our customers. Revenues in our retail, independent dealer agent and carriers market increased 13.7%, and was largely driven by new customer sales of

29


Otterbox and Ventev® products. Revenues from the private system operators market decreased 1.3%.  

Gross Profit. Gross profit decreased 4.8% in fiscal year 20162021 as compared to fiscal year 2015.2020. This decrease was primarily driven bycompares to a 27.5% decreasedecline in revenue of 8.7% in fiscal year 2021 as compared to fiscal year 2020. Gross profit in our public carriers, contractors, and program managerscarrier market and value-added resellers and integrators market decreased from 12.0% to 11.1% and from 24.1% to 22.9%, respectively. We experienced margin compression within our public carrier market primarily due to a much lesser extent bychange in customer mix, with increased sales going to larger customers which require better pricing. The margin decline in the value-added resellers and integrators market declined due to product mix, including lower sales of Ventev® products and customer mix.  As a 3.3% decrease in our commercial dealers and resellers market and a 1.3% decrease in our private system operators market. These declines were partially offset by increases in our retail, independent dealer agents and carriers marketresult of 4.0% and in our government system operators market of 2.4%. Overallthese drivers on gross profit, overall gross profit margin decreased slightly to 21.1%18.1% in fiscal year 2016,2021, compared to 21.4%19.5% in fiscal year 2015, primarily due to changes in customer and product mix. The largest driver of the reduced gross margin was in the retail market due to a higher percentage of sales of lower margin Otterbox products and increased customer consolidation which provides our customers with larger purchasing power.2020.

Our ongoing ability to earn revenues and gross profits from customers and vendorssuppliers looking to us for product and supply chain solutions is dependent upon a number of factors. The terms, and accordingly the factors, applicable to each relationship often differ. Among these factors are the strength of the customer’s or vendor’ssupplier’s business, the supply and demand for the product or service, including price stability, changing customer or vendorsupplier requirements, and our ability to support the customer or vendorsupplier and to continually demonstrate that we can improve the way they do business. In addition, the agreements or arrangements on which our customer and vendorsupplier relationships are based are typically of limited duration, typically do not include any obligation in respect of any specific product purchase or sale and are terminable by either party upon several months or otherwise short notice. Our customer relationships could also be affected by wireless carrier consolidation or global financial crisis.crisis, including the COVID-19 pandemic or other events beyond our control.

We account for inventory at the lower of cost or market,net realizable value and as a result write-offs/write-downs occur due to damage, deterioration, obsolescence, changes in prices and other causes. These expenses have beenwere 3% or less than 1% of overall purchases for each of the last three fiscal years.

Selling, General, Administrative and AdministrativeRestructuring Expenses. Total selling, general and administrative expenses were flatdecreased 7.1% during fiscal year 20162021 as compared to fiscal year 2015.2020. Total selling, general and administrative expenses as a percentage of revenues increased slightly from 18.8%22.5% in fiscal year 20152020 to 19.4%22.9% in fiscal year 2016.2021. The following are descriptions of changes in significant components of selling, general, administrative, goodwill charges and administrative expenses:restructuring expenses.

·

MarketingCompensation and benefits expenses increaseddecreased by $2.1$6.2 million or 25.5%, in fiscal year 20162021 as compared to fiscal year 2015, primarily2020, mainly due to direct marketing costs associated with improved design and content of our TESSCO.com website and increased market development funds associated with the increaselower operations overhead as well as a $1.4 million decrease in sales to our retail customers.

health insurance expense.

·

CompensationMarketing expenses, including travel and benefits expenseentertainment costs, decreased by $1.1$2.7 million or 1.7%, in fiscal year 20162021 as compared to fiscal year 2015.

2020, primarily as a result of fewer customer and vendor events and tradeshows as a result of the COVID-19 pandemic.
Fiscal year 2021 included $2.6 million of costs, net of insurance recoveries, related to the consent solicitation that concluded during the third quarter.

32

·

The Company also incurred a $0.5 million restructuring charge related to severance expense for the first quarter of fiscal 2020, and a $9.1 million non-cash goodwill impairment loss during fiscal 2020. The goodwill impairment was due to the decline of results in fiscal year 2020 and future year projections, the significant reduction in our market capitalization during the second half of the fiscal year (due to a decrease in stock price) and significant decline in market multiples considered in the market based valuation. There was no restructuring cost or goodwill impairment loss during fiscal 2021.

We continually evaluate the credit worthiness of our existing customer receivable portfolio and provide an appropriate reserve based on this evaluation. We also evaluate the credit worthiness of prospective and current customers and make decisions regarding extension of credit terms to such customers based on this evaluation. Accordingly, we recorded a recovery of bad debts of $0.3 million for fiscal year 2021, and a provision for bad debts of $1.1 million, for fiscal year 2020. The recovery of bad debts for fiscal year 2021 primarily related to receivables written off in fiscal 2020 based on the uncertainty caused by the COVID-19 pandemic.

Interest, Net. Net interest expense decreased from $1.1 million in fiscal year 2020 to $0.6 million in fiscal year 2021. The decrease is primarily related to higher capitalized interest amount. Refer to Note 6 of the financial statements included as part of this Annual Report on Form 10-K for additional information on our borrowings.

Income Taxes, Net Income and Diluted Earnings Per Share. The effective tax rates in fiscal year 2021 and 2020 were 21.1% and 32.4%, respectively. The decrease in the effective tax rate is primarily a result of provisions in the CARES Act which allowed the Company to carry back certain net operating losses up to five years. These net operating losses were applied against net income that was taxed at a higher federal rate prior to the Tax Cuts & Jobs Act which was signed into law in December 2017 (the “2017 Tax Act”) and went into effect in the third quarter of fiscal 2018.  The benefit of the carry back provision of the CARES Act was partially offset by valuation allowances on the deferred tax assets. As a result of the factors discussed above, net loss for fiscal year 2021 decreased 7.9% and net loss per diluted share decreased by 9.7%, compared with fiscal year 2020.

Fiscal Year 2020 Compared to Fiscal Year 2019

As noted above, we exited our Retail business during fiscal year 2021 and now report activity from that Retail business as discontinued operations.  The analysis below is based on activity and results from continuing operations only, including references to Ventev®.

Revenues. Revenue for fiscal year 2020 decreased by 2.4% as compared to fiscal year 2019. Revenue in our public carrier market and value-added resellers and integrators market decreased by 0.4% and 3.6%, respectively. The decline was primarily because we did not realize the full benefits of sales strategy refinements in the value-added resellers and integrators market.

Cost of Goods Sold. Cost of goods sold for fiscal year 2020 decreased by 1.6% as compared to fiscal year 2019. Cost of goods sold in our value-added resellers and integrators market decreased by 3.2%, partially offset by a cost of goods sold increase in our public carrier market of 0.7%. The decline was primarily due to a decrease in related revenue in the value-added resellers and integrators market.

The imposition of tariffs on products that we imported increased the costs of those products and adversely affected our gross profits and overall financial performance. A significant portion of our Ventev products are manufactured in foreign countries, including China and increasingly of late, Vietnam. On May 9, 2019, the United States government announced a 25% tariff on a range of products from China that are exported to the U.S. Responding to this, we were successful in moving the manufacturing of a majority of our Ventev products out of China in an effort to mitigate tariff costs, but we continued to incur additional tariff costs on product we have manufactured in, or component parts we continue to source from, China.  In January 2020, China and the U.S. entered the first phase of an economic and trade agreement.  There is no assurance that a broader trade agreement will be successfully negotiated between the U.S. and China to reduce or eliminate existing tariffs applicable to the business of the Company.

33

Gross Profit. Gross profit decreased by 5.6% in fiscal year 2020 as compared to fiscal year 2019. This compares to a decline in revenue of 2.4% in fiscal year 2020 as compared to fiscal year 2019. Gross profit in our public carrier market and value-added resellers and integrators market decreased from 12.9% to 12.0% and from 24.5% to 24.1%, respectively. We experienced margin compression within our public carrier market primarily due to a change in customer mix, with increased sales going to larger customers which require better pricing. As a result of these drivers on gross profit, overall gross profit margin decreased to 19.5% in fiscal year 2020, compared to 20.1% in fiscal year 2019.

Selling, General, Administrative and Restructuring Expenses. Total selling, general and administrative expenses decreased 3.5% during fiscal year 2020 as compared to fiscal year 2019. Total selling, general and administrative expenses as a percentage of revenues decreased from 22.8% in fiscal year 2019 to 22.5% in fiscal year 2020. The following are descriptions of changes in significant components of selling, general, administrative, goodwill charges and restructuring expenses.

Pay for performance

Compensation and benefits expenses decreased by $3.6 million in fiscal year 2020 as compared to fiscal year 2019, mainly due to a decrease in variable compensation in both sales and operations related to the decline in overall revenues.
Performance bonus expense (including both cash and equity plans) decreased by $1.0$2.1 million in fiscal year 20162020 as compared to fiscal year 2015.2019. Our bonus programs are alltypically based on achieving annual performance targets. The relationship between targetedexpected performance and actual performance led to lower bonus accrualsexpenses in fiscal 2020, as compared to fiscal 2019.
Expenses related to information technology increased by $2.8 million in fiscal year 2016 than in2020 as compared to fiscal year 2015.

2019, primarily due to increased cost to support our sales initiatives and to build more efficient and effective systems.

·

During the fourth quarter of fiscal year 2016, we received the results of a software license audit conducted by a major software provider. After significant negotiations, we settled the audit for $1.5 million, which we accrued in the fourth quarter of fiscal year 2016 and will be paid in the first quarter of fiscal year 2017. The ongoing annual cost from the results of this audit is minimal. 

The Company also incurred a $0.5 million restructuring charge related to severance expense for the first quarter of fiscal 2020, and a $9.1 million non-cash goodwill impairment loss during fiscal 2020. The goodwill impairment was due to the decline of results in fiscal year 2020 and future year projections, the significant reduction in our market capitalization during the second half of the fiscal year (due to decrease in stock price) and significant decline in market multiples considered in the market based valuation.

We continually evaluate the credit worthiness of our existing customer receivable portfolio and provide an appropriate reserve based on this evaluation. We also evaluate the credit worthiness of prospective and current customers and make decisions regarding extension of credit terms to such customers based on this evaluation. Accordingly, we recorded a provision for bad debts of $637,100$1.1 million and $943,300$1.4 million for fiscal year 20162020 and fiscal year 2015,2019, respectively.

Interest, Net. Net interest expense was essentially flat, at $167,300increased from $0.9 million in fiscal year 2015 and $161,3002019 to $1.1 million in fiscal year 2016.2020. The increase is primarily related to higher borrowing levels on our secured revolving credit facility. Refer to Note 6 of the financial statements included as part of this Annual Report on Form 10-K for additional information on our borrowings.

30


Income Taxes, Net Income and Diluted Earnings Per Share. The effective tax rates in fiscal year 20162020 and 20152019 were 39.8%32.4% and 39.2%24.7%, respectively. The change in the effective tax rate is primarily a result of provisions in the CARES Act which allows the Company to carry back certain net operating losses up to five years. These net operating losses for fiscal year 2020 were applied against net income that was taxed at a higher federal rate prior to the Tax Cuts & Jobs Act which was signed into law in December 2017 (the “2017 Tax Act”) and went into effect in the third quarter of fiscal 2018.  The benefit of the carry back provision of the CARES Act was partially offset by valuation allowances recorded in fiscal year 2020 on the deferred tax assets. As a result of the factors discussed above, net incomeloss and diluted earningsloss per share for fiscal year 2016 decreased 38.1%2020 increased 75.6% and 37.5%74.3%, respectively, compared with fiscal year 2015.2019.

Fiscal Year 2015 Compared to Fiscal Year 2014

Revenues. Revenues for fiscal year 2015 decreased 1.9% as compared to fiscal year 2014. Revenue from the public carriers, contractors and program managers market decreased by 14.6% due to a dramatic slowdown in purchases by our cellular carriers, primarily the two largest U.S. carriers and the general contractors and integrators doing work on their behalf. This slowdown also affected our commercial dealers and resellers market which decreased by 4.5%. Revenue within the government system operators market decreased by 6.7% for fiscal year 2015 as compared to fiscal year 2014.  These declines were partially offset by increases in the private system operators and the retail, independent dealer agent and carriers markets of 6.3% and 9.5%, respectively. Growth in our retail, independent dealer agent and carriers market was largely driven by the launch of various new Samsung and Apple devices.  

Gross Profit. Gross profit decreased 6.9% in fiscal year 2015 compared to fiscal year 2014. This decrease was primarily driven by a 24.5% decrease in our public carriers, contractors, and program managers market, and to a much lesser extent by a 4.4% decrease in our commercial dealers and resellers market, a 3.3% decrease in our government system operators market, and a 2.8% decrease in our private system operator market. The gross margin decline in the public carriers, contractors and program manager market was largely a result of increased lower margin DAS projects coupled with a decline in cellular site building and upgrades. Although we saw growth in the private system operator market in fiscal year 2015, we also saw margin compression due to several larger sales of lower margin test equipment and DAS products. These declines were partially offset by a 1.7% increase in retailers, independent dealer agents and carriers market. Overall gross profit margin decreased to 21.4%, compared to 22.6% in fiscal year 2014, primarily due to changes in customer and product mix.

Selling, General and Administrative Expenses. Total selling, general and administrative expenses increased by 2.8% during fiscal year 2015 as compared to fiscal year 2014. Total selling, general and administrative expenses as a percentage of revenues increased from 17.8% in fiscal year 2014 to 18.7% in fiscal year 2015, primarily as a result of investments in talent and technology. The following are descriptions of changes in significant components of selling, general, and administrative expenses:

·

Marketing expenses increased by $1.2 million, or 33.8%, in fiscal year 2015 as compared to fiscal year 2014, primarily due to direct marketing costs associated with improved design and content of our TESSCO.com website.

·

Corporate support expense increased approximately $1.7 million, or 25.5%, in fiscal year 2015 as compared to fiscal year 2014. This increase was primarily related to higher bad debt expense, as described below, in addition to higher new product development costs associated with our proprietary products. 

·

Compensation and benefits expense increased by $3.2 million, or 5.4%, in fiscal year 2015 as compared to fiscal year 2014, primarily due to investments in key business generation positions.

·

Pay for performance bonus expense (including both cash and equity plans) decreased by $3.5 million in fiscal year 2015 as compared to fiscal year 2014. Our bonus programs are all based on annual performance targets. The relationship between targeted performance and actual performance led to lower bonus accruals in fiscal year 2015 than in fiscal year 2014. 

We continually evaluate the credit worthiness of our existing customer receivable portfolio and provide an appropriate reserve based on this evaluation. We also evaluate the credit worthiness of prospective and current customers and make decisions regarding extension of credit terms to such customers based on this evaluation. Accordingly, we recorded a provision for bad debts of $943,300 and $202,000 for fiscal year 2015 and fiscal year 2014, respectively. During fiscal year 2014, we experienced lower than normal bad debt expense due in part to changes in estimates of amounts previously reserved.

3134


Restructuring Charge. During the fourth quarter of fiscal year 2015, we incurred a one-time restructuring charge of $0.6 million related to severance costs.

Interest, Net. Net interest expense decreased from $177,700 in fiscal year 2014 to $167,300 in fiscal year 2015.

Income Taxes, Net Income and Diluted Earnings Per Share. The effective tax rates in fiscal year 2015 and 2014 were 39.2% and 38.2%, respectively. As a result of the factors discussed above, net income and diluted earnings per share for fiscal year 2015 decreased 46.9% and 46.3%, respectively, compared with fiscal year 2014.

Liquidity and Capital Resources

In summary, our cash flows were as follows:follows (includes both continuing and discontinued operations):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

2016

    

2015

    

2014

 

Cash flow provided by operating activities

 

 

$

20,141,100

 

$

11,079,800

 

$

18,665,400

 

Cash flow used in investing activities

 

 

 

(3,513,800)

 

 

(2,947,600)

 

 

(4,715,500)

 

Cash flow used in financing activities

 

 

 

(7,268,500)

 

 

(12,076,100)

 

 

(6,950,000)

 

Net increase (decrease) in cash and cash equivalents

 

 

$

9,358,800

 

$

(3,943,900)

 

$

6,999,900

 

Fiscal Year

    

2021

    

2020

    

2019

 

Cash flow (used in) provided by operating activities

$

(684,200)

$

908,200

$

8,246,700

Cash flow used in investing activities

 

(2,654,400)

 

(6,845,700)

 

(5,164,700)

Cash flow provided by (used in) financing activities

 

4,398,600

 

5,957,200

 

(3,071,100)

Net increase in cash and cash equivalents

$

1,060,000

$

19,700

$

10,900

We generated $20.1used $0.7 million of net cash from operating activities during fiscal year 2016.2021. This outflow was driven by net loss (net of depreciation and amortization, gain on the retail sale, and non-cash stock compensation expense), and a decrease in accounts payable partially offset by the decreases in accounts receivable and inventory. A decrease in deferred income tax assets was offset by an increase income taxes receivable. Accounts receivable, inventory, and accounts payable decreased due to our exit of the Retail business during the third quarter of fiscal 2021.

We generated $0.9 million of net cash from operating activities during fiscal year 2020. This inflow was driven by net loss (net of depreciation and amortization, goodwill impairment loss, and non-cash stock compensation expense) and a decrease in accounts receivable, partially offset by an increase in prepaid expenses and other current assets and an increase in deferred income taxes. Accounts receivable decreased due to the timing of sales at the end of the fourth quarter of fiscal year 2020 as compared to the fourth quarter of fiscal year 2019. Prepaid expenses and other current assets increased due to an increase in income taxes receivable. Due to the CARES Act, the Company is able to carry back net operating losses up to five years and receive a refund of taxes paid in prior years.

We generated $8.2 million of net cash from operating activities during fiscal year 2019. This inflow was driven by net income (net of depreciation and amortization and non-cash stock compensation expense), a decreasean increase in accounts receivable and product inventory,payable and a decrease in prepaid expenses and other current assets,inventory, partially offset by a decrease in trade accounts payable and accrued expense and other current liabilities. The decreasean increase in accounts receivable. Accounts payable increased due to strategic purchase of inventory during the fourth quarter with extended terms to support our public carrier business. Inventory decreased due to an intentional reduction of overall inventory in line with our efforts to manage working capital. Accounts receivable was primarily relatedincreased due to better collections inthe timing of sales at the end of the fourth quarter of fiscal year 20162019 as compared to the fourth quarter of fiscal year 2015. The decrease in inventory was primarily due an effort to reduce overall inventory levels while maintaining high service levels.  The reduction in prepaid expenses and other assets as well as the decrease in accrued expense and other liabilities are both primarily related to a tower owner customer whose inventory we have held on its behalf since fiscal year 2015.  Because we held the inventory on the tower owner’s behalf, the cost of these goods was recorded in prepaid expenses and other current assets, and we were unable to recognize the revenue and related cost of goods sold associated with the transaction until the product physically ships.  During fiscal year 2016, the customer took possession of the majority of this inventory and therefore the deferred revenue and cost of goods sold were partially recognized.2018.

We generated $11.1 million of net cash from operating activities during fiscal year 2015. This inflow was driven by net income (net of depreciation and amortization and non-cash stock compensation expense), a decrease in accounts receivable, and an increase in accrued expenses and other current liabilities, partially offset by an increase in product inventory, prepaid expenses and other current assets. The decrease in accounts receivable was primarily related to lower sales volume in the fourth quarter of fiscal year 2015 as compared to the fourth quarter of fiscal year 2014. The increase in inventory was primarily due to a $7.0 million increase in mobile device accessories inventory related to iPhone 6 products, the purchase of Apple connectors for our Ventev® charging solutions and increased inventory from key suppliers.  Inventory related to our base station infrastructure product remained relatively flat. We increased inventory levels in fiscal year 2015 in preparation of the build season, but this increase was almost fully offset by payment in fiscal year 2015 from a tower owner customer of approximately $8 million for inventory that we continued to hold on its behalf.  Because the Company continued to hold the inventory on the tower owner’s behalf, the cost of these goods was recorded in prepaid expenses and other current assets, and we were unable to recognize the revenue and related cost of goods sold associated with the transaction because the product had not physically shipped. This tower owner operates in the public carrier, contractor and program manager market. The $8.1 million increase in accrued expenses and other current liabilities and offsetting increase of $8.5 million in prepaid expenses and other current assets was primarily due to the deferral of this transaction.

32


In fiscal year 2014 our cash inflow from operating activities of $18.7 million was driven by net income (net of depreciation and amortization and non-cash stock compensation expense) and a decrease in accounts receivable, partially offset by a decrease in trade accounts payable and accrued payroll, benefits, and taxes. The decrease in accounts receivable was related to the transition of our former relationship with AT&T, which was completed during the fourth quarter of fiscal year 2013. The decrease in trade accounts payable was caused by the timing of inventory purchases in the fourth quarter. The decrease in accrued payroll, benefits, and taxes was driven by higher bonus accruals in fiscal year 2013 (and their subsequent payouts in fiscal year 2014) compared to bonus accruals in fiscal year 2014.

Capital expenditures of $3.5$11.9 million in fiscal year 20162021 were up from $3.0$6.8 million in fiscal year 20152020 and down from $4.7$5.2 million in fiscal year 2014.2019. Fiscal year 2016, 20152020, 2019 and 20142018 capital expenditures were largely comprised of investments in information technology of $3.1$11.4 million, $2.6$6.8 million, and $4.3$4.4 million, respectively.respectively, primarily related to the anticipated replacement of our legacy ERP system with a modern SAP ERP system.  In fiscal year 2021, we generated $9.2 million in cash proceeds related to the sale of certain retail assets to Voice Comm.

Cash flows generated from financing in fiscal year 2021 were primarily related to borrowings from our line of credit. Cash flows generated from financing in fiscal year 2020 were primarily related to borrowings from our line of credit, partially offset by cash dividends paid to shareholders. During the fourth quarter of fiscal year 2020, the Board of Directors decreased the cash dividend from $0.20 to $0.02 in order to reallocate resources to increase investment in the technology and talent to accelerate the Company’s long-term growth. Subsequent to fiscal year 2020, the Board of Directors suspended Tessco’s dividend to further strengthen its cash position as the Company continues to monitor and address the effects of the COVID-19 pandemic and other challenges. Cash flows used in financing activitiesin fiscal year 2019 were primarily related to cash dividends paid to shareholders and purchases of stock from employees and directors for minimum tax withholdings related to equity compensation, partially offset by the excess tax benefitborrowings from stock-based compensation and proceeds from issuanceour line of stock. The significant increase in cash used in financing activities during fiscal year 2015 was due to the purchase of shares under our expanded stock buyback program, as discussed below.credit.

On April 23, 2014, our Board of Directors expanded our then existing stock buyback program and authorizedOctober 29, 2020, we entered into a Credit Agreement (the “Credit Agreement”) among the purchase on a non-accelerated basis of up to $10.0 million ofCompany, the Company’s stock over a 24-month period, ending in April 2016. Our Board of Directors believes thatprimary operating subsidiaries as co-borrowers, the repurchase of our shares, when appropriate, is an excellent use of funds to enhance long-term shareholder value. Purchases were funded from working capital and/or our revolving credit facility. Shares could be purchased from time to time in the open market, by block purchase, or through negotiated transactions, or other transactions managed by broker-dealers. During fiscal year 2015, we purchased 157,954 shares under the expanded stock buyback program for approximately $4.6 million, or an average cost of $29.17 per share. No shares were repurchased during fiscal years 2016 or 2014. The stock buyback program expired in April 2016.   

We also withhold shares from our employees and directors, at their request, equal to the minimum federal and state tax withholdings related to vested equity grants. For fiscal years 2016 and 2015 this totaled $937,300 and $1,612,900, respectively.

We have a term loan in the original principal amount of $4.5 million from Wells Fargo Bank, National Association and SunTrust Bank, that is payable in monthly installments of principal and interest with the balance due at maturity, on October 1, 2018. The note bears interest at a floating rate of LIBOR plus 2.00%. The note is secured by a first position deed of trust encumbering our company-owned real property in Hunt Valley, Maryland. The loan is subject to generally the same financial covenants as are applicable to our revolving credit facility described below, and had a balance of $1.9 million as of March 27, 2016.

We areLenders party to an unsecured revolving credit facility with SunTrust Bankthereto, and Wells Fargo Bank, National Association with interest payable monthly at the LIBOR rate plus(“Wells”), as Administrative Agent, swingline lender and an applicable margin. Borrowing availability under this facility is determined in accordance withissuing bank, and terminated our previous secured Revolving Credit Facility. The Credit Agreement provides for a borrowing base, and the applicable credit agreement includes financial covenants, including a minimum tangible net worth, minimum cash flow coverage of debt service, and a maximum funded debt to EBITDA ratio. These financial covenants also apply to the separate but related term loansenior secured by our Hunt Valley, Maryland facility discussed below. The terms applicable to ourasset based revolving credit facility and term loan also limit our ability of up

35

to engage$75 million (the “Revolving Credit Facility”), which matures in certain transactions or activities, including (but not limited to) investments and acquisitions, sales of assets, payment of dividends, issuance of additional debt and other matters.forty-two months, on April 29, 2024. As of March 27, 2016 we had no balance outstanding on our $35.0 million revolving credit facility;28, 2021, borrowings under the secured Revolving Credit Facility totaled $30.6 million; therefore, we then had $35.0$44.4 million available, on our revolving line of credit facility, subject to the Borrowing Base limitations imposed by the borrowing base and our continued compliance with the other applicable terms including the covenants discussed above. We have entered into several modification agreements providing for term extensions and certain modifications to the provisions applicable to the credit facility.

33


During the second quarter of fiscal year 2016, we entered into a Tenth Modification Agreement (the “Tenth Modification Agreement”), dated as of September 24, 2015, further modifying the Credit Agreement and related promissory note for the revolving credit facility discussed above. Pursuant to and in connection with the Tenth Modification Agreement, the term of the revolving credit facility was extended from October 1, 2016 to October 1, 2018. In addition, the amount of dividend payments allowable under the Credit Facility was increased from $8.0 million (the previous stated amount) to $9.0 million in any 12 month period, assuming continued compliance with the otherwise applicable terms.

The terms of this revolving credit facility, as amended, allow us to repurchase up to $30.0 million of our common stock (measured forward to the present date from the date of inception of the Credit Agreement May 31, 2007). As of March 27, 2016, we had repurchased an aggregate of $18.3 million of common stock since May 31, 2007, leaving $11.7 million available for future repurchases, withoutdiscussed in Note 6 to our Consolidated Financial Statements included in this Annual Report on Form 10-K. Borrowings under the consent ofCredit Agreement accrue interest at the rates, and the Company is required to pay a monthly commitment fee, as also discussed in Note 6 to our lenders or a further amendment to the terms of the facility.Consolidated Financial Statements included in this Annual Report on Form 10-K.

At the end of fiscal year 2016,2021, we were in compliance with theall required financial covenants applicable under our revolving credit facility and term loan with SunTrust Bank and Wachovia Bank, National Association. Many of these covenants are, however, measured on a rolling four quarter basis.   Accordingly, our fourth quarter fiscal year 2016 operating results put pressure on these covenants going forward.  We previously issued financial guidance that suggests that our first quarter fiscal year 2017 operating results will be lower than the first quarter of fiscal year 2016, which would put yet additional pressure on these covenants, and likely result in us not meeting one of our current financial covenants at the end of the first quarter of fiscal year 2017. Absent a covenant waiver or adjustment, any such violation would eliminate our borrowing capacity under our revolving credit facility and entitle the banks to exercise the remedies available to them under the applicable loan documents, including to demand payment of all amounts outstanding. Bank.

At the end of fiscal year 2016, there was no balance outstanding under our revolving line of credit and $1.9 million outstanding under the term loan. We have not borrowed under our revolving credit facility since the third quarter of fiscal year 2016. 

To mitigate this potential bank covenant violation risk and any corresponding impact on liquidity, we are engaged in ongoing discussions and negotiations with SunTrust Bank to replace our existing unsecured revolving credit facility and term loan with an asset based revolving credit facility.  This new facility, if established, would be secured and would therefore in some respects be more restrictive, but also should allow for improved pricing and greater flexibility in terms of financial covenants and ratios going forward. We are actively pursuing the establishment of this new facility with a goal of it being in place by the end of the first quarter of fiscal year 2017.  However, there is no binding commitment on the part of SunTrust Bank and no assurance that we will be successful in establishing this facility by then, or at all.  We consider our relationship with our banks to be good, but could also seek and expect that we would be able to access financing elsewhere, if needed.  Although under some circumstances we may be forced to more closely manage our operating cash flow, we believe, based on our forecast operating cash flow and under the circumstances, that our anticipated cash on hand and access to financing will provide us with sufficient liquidity, and that the circumstances, as described above, will not have a material impact on our business or operations.  We ended fiscal year 2016 with $16.9 million in cash on our balance sheet and did not borrow on our existing credit facility at all during the fourth quarter of fiscal year 2016 or through the first two months of fiscal year 2017. 

On March 31, 2009, we entered into a term loan with the Baltimore County Economic Development Revolving Loan Fund for an aggregate principal amount of $250,000. The term loan is payable in equal monthly installments of principal and interest of $2,300, with the balance due at maturity on April 1, 2019. The term loan bears interest at 2.00% per annum and is secured by a subordinate position on our Hunt Valley, Maryland facility. At March 27, 2016, the principal balance of this term loan was approximately $82,600.

Working capital (current assets less current liabilities) increased slightly to $82.5$67.8 million as of March 27, 2016, from $82.228, 2021 as compared to $51.2 million as of March 29, 2015.2020. Shareholders' equity decreased to $112.5was $76.8 million as of March 27, 2016, from $113.128, 2021, and $83.7 million as of March 29, 2015, primarily due to fiscal year 2015 net income being offset by the combination of cash dividends paid.2020.  

34


We believe that our existing cash, payments from customers, pending tax refunds and availability under our revolving credit facility (including any amendment or replacement thereof), or if needed, financing we believe would be available to us from other sources, will be sufficient to support our operations for at least the next twelve months. We expect to meet short-term liquidity needs through cash on our balance sheet and operating cash flow, supplemented by our revolving credit facility, assuming it remains available;facility; and we expect to meet long termlong-term liquidity needs through these same resources, except that we expect to replace our existing revolving credit facility, if needed, with a new asset based facility, as discussed above.resources. If we were to undertake an acquisition or other major capital purchases that require funds in excess of itsour existing sources of liquidity, we would look to sources of funding from additional credit facilities, debt and/or equity issuances. There can be no assurances that such additional future sources of funding, either to fund an acquisition or major capital purchase, or to support our cash flow needs in the event of the termination of our existing revolving credit facility before it can be replaced with an asset based facility, would be available on terms acceptable to us, if at all.

In addition, our liquidity could be negatively impacted by decreasing revenues and profits resulting from a decrease in demand for our products or a reduction in capital expenditures by our customers, or by the weakened financial conditions of our customers or suppliers, in each case as a result of thea possible downturn in the global economy, caused in part by the COVID-19 pandemic among other factors. Anticipated capital expenditures for fiscal year 2022 are expected to range from $6 million to $10 million.

Reconciliation of Non-GAAP Measures

We believe that presenting certain non-GAAP financial measures may enhance an investor’s understanding of our financial performance. We further believe that these financial measures are useful in assessing our operating performance from period to period by excluding certain items that we believe are not representative of our core business. We also use certain of these financial measures for business planning purposes, including management incentives.

Accordingly, the below selected financial data includes certain non-GAAP financial measures we believe are commonly used by investors to evaluate our performance and that of our competitors. The use of EBITDA (earnings before interest, taxes, depreciation, and amortization) and Adjusted EBITDA (EBITDA, less stock compensation and goodwill impairment) should not be considered as an alternative to operating income (loss), net income (loss) or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance, operating cash flows or liquidity.

In accordance with the SEC staff Financial Reporting Manual and in conjunction with the filing of the fiscal 2021 Form 10-K, we elected not to recast the selected financial data for fiscal year 2017 and 2018 for the exit of the Retail business that occurred in fiscal 2021 as discontinued operations. As such, the below selected financial data for fiscal years 2017 and 2018 includes the results of the since divested Retail segment, while fiscal years 2021, 2020, and 2019 exclude that Retail activity.

36

Fiscal Years Ended

 

    

March 28, 2021

    

March 29, 2020

    

March 31, 2019

    

April 1, 2018

    

March 26, 2017

 

 

Net income (loss) from continuing operations

$

(14,373,300)

$

(15,601,400)

$

(8,882,300)

$

5,195,400

$

1,445,100

Add:

 

 

 

 

 

(Benefit from) provision for income taxes

 

(3,844,500)

 

(7,474,800)

 

(2,913,800)

 

2,277,200

 

1,041,200

Interest, net

426,300

1,116,300

853,800

429,100

58,600

Depreciation and amortization

 

3,744,500

 

4,026,100

 

3,618,900

 

3,992,600

 

4,238,900

EBITDA

 

(14,047,000)

 

(17,933,800)

 

(7,323,400)

 

11,894,300

 

6,783,800

Add:

 

Stock-based compensation

1,211,000

1,174,600

1,244,000

1,002,100

434,400

Goodwill impairment

9,108,600

Adjusted EBITDA

$

(12,836,000)

$

(7,650,600)

$

(6,079,400)

$

12,896,400

$

7,218,200

Contractual Obligations

The following tables reflect a summary of our contractual cash obligations and other commercial commitments as of March 27, 2016:28, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment Due by Fiscal Year

 

 

 

 

 

 

Less Than

 

 

 

 

 

 

 

More Than

 

 

 

Total

 

1 Year

 

Years 1-3

 

Years 4-5

 

5 Years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-Term Debt Obligations

    

$

1,957,500

    

$

251,200

    

$

504,000

    

$

1,202,300

    

$

 —

 

Revolving credit facility

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Lease Obligations

 

 

5,176,200

 

 

2,987,400

 

 

2,172,700

 

 

16,100

 

 

 —

 

Interest payments (1)

 

 

155,200

 

 

44,500

 

 

71,000

 

 

39,700

 

 

 —

 

Other Long-Term Liabilities (2)

 

 

1,162,500

 

 

75,000

 

 

150,000

 

 

150,000

 

 

787,500

 

Tax contingency reserves (3)

 

 

528,600

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Total contractual cash obligations

 

$

8,980,000

 

$

3,358,100

 

$

2,897,700

 

$

1,408,100

 

$

787,500

 

Payment Due by Fiscal Year

 

Less Than

More Than

 

Total

1 Year

Years 1-3

Years 4-5

5 Years

 

Revolving credit facility (1)

$

35,156,000

$

1,487,300

$

2,974,600

$

30,694,100

$

Lease obligations

 

13,505,500

 

3,164,000

 

5,744,000

 

4,597,500

 

Other long-term liabilities (2)

 

954,800

 

63,300

 

126,600

 

126,600

 

638,300

Total contractual cash obligations

$

49,616,300

$

4,714,600

$

8,845,200

$

35,418,200

$

638,300

(1)

(1)

Interest payments include amounts owedWe are subject to a variable interest rate on notes payable at their stated contractual rate, as well asthe outstanding balance on our revolving credit facility and a 0.25% fee on the unused portion of our revolving credit facility. This balance includes projected variable interest payments based on there being no movement on the note for our long term loanline from what was outstanding at March 28, 2021, with the variable payments based on a variablestatic rate of LIBOR plus 2.00%.

4.5% on the outstanding balance and 0.25% related to the unused commitment fee.

(2)

(2)

Other Long-Term Liabilities reflected on the Consolidated Balance Sheet include amounts owed under a Supplemental Executive Retirement Plan.

(3)

We are unable to make a reasonably reliable estimate of the period of the cash settlement with the respective taxing authorities for the $0.5 million balance of our tax contingency reserves, net of federal tax benefits. See further discussion in Note 13—"Income Taxes" to the consolidated financial statements set forth elsewhere herein.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of our 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 financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

We have identified the policies below as critical to our business operations and the understanding of our results of operations:

35


Revenue Recognition. We record revenuesaccount for revenue in accordance with ASC No. 606, Revenue from Contracts with Customers, which we adopted on April 2, 2018, using the modified retrospective method. We recognize revenue when 1) persuasive evidencecontrol of an arrangement exists, 2) delivery has occurred or services have been rendered, 3) our price to the buyerpromised goods is fixed or determinable, and 4) collectability is reasonably assured. Our revenue recognition policy includes evidence of arrangements for significant revenue transactions through either receipt of a customer purchase order or a web-based order. We record revenues when risk of loss has passedtransferred to the customer. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for transferring the goods.

37

In most cases, shipments are made using FOBFreight on Board (FOB) shipping terms. ForFOB destination terms are used for a portion of our sales, we use FOB destination terms and record the revenue for these sales is recorded when the product is received by the customer. Our pricesPrices are always fixed at the time of sale. Historically, there have not been any material price concessions provided to or by customers, future discounts provided by the Company, or other incentives subsequent to a sale. We sellThe Company sells under normal commercial terms and, therefore, we only record revenuesrecords sales on transactions where collectability is reasonably assured. The Company recognizes revenues net of sales tax.

Because a large portion of our sales transactions meet the conditions set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) on revenue recognition, weWe recognize revenues from sales transactions containing sales returns provisions at the time of the sale.  These conditions require that 1) ourThe potential for customer returns are considered a component of variable consideration under ASC No. 606 and it is therefore considered when estimating the transaction price be substantially fixed or determinable atfor a sale.  We use the date of sale, 2) the buyer is obligatedmost likely amount method to pay us, and such obligation is not contingent on their resale of the product, 3) the buyer’s obligation to us does not change in the event of theft or physical destruction or damage of the product, 4) the buyer has economic substance apart from us, 5) we do not have significant obligations for future performance to directly bring about resale of the product by the buyer, and 6)determine the amount of futureexpected returns.  The amount of expected returns can be reasonably estimated. Because our normal terms and conditionsis recognized as a refund liability, representing the obligation to return the customer’s consideration.  The return asset is measured at the former carrying amount of sale are consistent with conditions 1-5 above, and we are ablethe inventory, less any expected costs to perform condition 6, we make a reasonable estimate of product returns in sales transactions and accrue a sales return reserve based on this estimate.recover the goods.

Our current and potential customers are continuing to look for ways to reduce their inventories and lower their total costs, including distribution, order taking and fulfillment costs, while still providing their customers excellent service. Some of these companies have turned to us to implement supply chain solutions, including purchasing inventory, assisting in demand forecasting, configuring, packaging, kitting and delivering products and managing customer and vendorsupplier relations, from order taking through cash collections. In performing these solutions, we assume varying levels of involvement in the transactions and varying levels of credit and inventory risk. As our offerings continually evolve to meet the needs of our customers, we constantly evaluate our revenue accounting based on the guidance set forth in accounting standards generally accepted in the United States. When applying this guidance in accordance with the FASB standard regarding revenue recognition for principal-agent considerations, we look at the following indicators: whether we are the primary obligor in the transaction; whether we have general inventory risk; whether we have latitude in establishing price; whether the extent to which we changecustomer holds us responsible for the acceptability of the product; whether the product or perform part of the service; whether we have responsibility for supplier selection; whether wereturns are involved in the determination of product and service specifications; whether we have physical inventory risk; whether we have credit risk;handled by us; and whether an obligation exists between the amount we earn is fixed.other parties and our customer. Each of our customer relationships is independently evaluated based on the above guidance and revenues are recorded on the appropriate basis.  Based on a review of the factors above, in the majority of our sales relationships, we have concluded that we are the principal in the transaction, and we record revenues based upon the gross amounts earned and booked. However, we do have certain relationships where we are not the principal and we record revenues on a net fee basis, regardless of amounts billed (less than 1% of our total revenues for fiscal year 2016)2021).

Allowance for Doubtful Accounts. We use estimates to determine the amount of the allowance for doubtful accounts necessary to reduce accounts receivable and unbilled receivables to their expected net realizable value. We estimate the amount of the required allowance by reviewing the status of past-due receivables and analyzing historical bad debt trends. Actual collection experience has not varied significantly from estimates, due primarily to credit policies, collection experience and our stability as it relates to our current customer base. Typical payments from commercial customers are due 30 days from the date of the invoice. We charge-offwrite-off receivables deemed to be uncollectible to the allowance for doubtful accounts. Accounts receivable balances are not collateralized.collateralized by our customers.

Inventory Reserves. We establish inventory reserves for excess and obsolete inventory. We regularly review inventory to evaluate continued demand and identify any obsolete or excess quantities of inventory. We record a provision for the difference between excess and obsolete inventory and its estimated realizable value. Estimated realizable value is based on anticipated future product demand, market conditions and liquidation values. Actual results differing from these projections could have a material effect on our results of operations.

36


Impairment of Long-Lived and Indefinite-Lived Assets. Our Consolidated Balance Sheet as of March 27, 2016,28, 2021, includes goodwill of approximately $11.7 million and other indefinite lived intangible assets of $850,000.$0.8 million. We perform an annual impairment teststest for goodwill and otherthe indefinite lived assetsasset on the first day of our fourth quarter. We also periodically evaluate our long-lived assets for potential impairment indicators. The goodwill and intangible assets impairment test involves an initial qualitative analysis to determine if it is more likely than not that an intangible asset’s fair value is less than its carrying amount. If qualitative factors suggest a possible impairment the companyCompany then performs an additional two-step approach.a quantitative analysis. Our judgments regarding the existence of impairment indicators are based on estimated future cash flows, market conditions, operational performance and legal factors. The key assumptions used to determine the fair value

38

Future events, such as significant changes in cash flow assumptions, could cause us to conclude that impairment indicators exist and that the net book value of goodwill, long-lived assets or intangible assets are impaired. We will continue to monitor our market capitalization as a potential impairment indicator considering overall market conditions and specific industry events. Had the determination been made that the goodwill and other indefinite lived intangible assets were impaired, the value of these assetsthis asset would have been reduced by an amount up to $12.5$0.8 million, resulting in a corresponding charge to operations.

The methods of assessing fair value for reporting units with goodwill as well as for indefinite lived assets require significant judgments to be made by management, including future revenues, expenses, cash flows and discount rates. Changes in such estimates or the application of alternative assumptions could produce significantly different results.

Income Taxes. We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability. This review is based on historical taxable income, projected future taxable income and the expected timing of the reversals of existing temporary differences. Based on this review, we have not established a valuation allowance because our deferred tax assets are more likely than not realizable.  If we are unable to generate sufficient taxable income, or if there is a material change inon the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to establish a valuation allowance against all or a significant portion of our deferred tax assets that are not more likely than not realizable, resulting in a substantial increase in our effective tax rate and a material adverse impact on our operating results.realizable.  

We account for income taxes under the FASB’s ASC No. 740 on accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition,de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of March 27, 2016, we had total net unrecognized tax benefits of approximately $528,600, all of which, if recognized, would favorably affect the effective income tax rate in future periods.

Stock-Based Compensation. We record stock-based compensation in accordance with the FASB standard regarding stock compensation and share-based payments, which requires us to include in our calculation of periodic stock compensation expense anpayments. We account for forfeitures as they occur rather than estimate of futureexpected forfeitures. The standard also requires stock awards granted or modified after the adoption of the standard that include both performance conditions and graded vesting to be amortized by an accelerated method rather than the straight-line method.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements.

37


Recent Accounting Pronouncements

In February 2016, the FASBA description of recently issued Accounting Standards Update (ASU) No. 2016-02, Leases. This ASU require lesseesand adopted accounting pronouncements is contained in Note 2 to recognize most leases on their balance sheets related to the rights and obligations created by those leases. The ASU also requires additional qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on itsour Consolidated Financial Statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation – Stock Compensation. The new standard will modify several aspects of the accounting and reporting for employee share-based payments and related tax accounting impacts, including the presentation in the statements of operations and cash flows of certain tax benefits or deficiencies and employee tax withholdings, as well as the accounting for award forfeitures over the vesting period. The new standard is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on its Consolidated Financial Statements.Forward-Looking Statements

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes. Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. The new standard simplifies the presentation of deferred tax assets and liabilities and requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, with early adoption permitted. The company elected to adopt this standard effective March 27, 2016, and has applied the guidance retrospectively. The Company restated its consolidated balance sheet as of March 29, 2015 to reflect the reclassification of $3.9 million of deferred tax assets from current to noncurrent.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. This guidance will supersede Topic 605, Revenue Recognition, in addition to other industry-specific guidance, once effective. The new standard requires a company to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services.  In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, as a revision to ASU 2014-09, which revised the effective date to fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted but not prior to periods beginning after December 15, 2016 (i.e. the original adoption date per ASU 2014-09). In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, which clarifies certain aspects of the principal-versus-agent guidance, including how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements, such as service transactions. The amendments also reframe the indicators to focus on evidence that an entity is acting as a principal rather than as an agent. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies how an entity should evaluate the nature of its promise in granting a license of intellectual property, which will determine whether it recognizes revenue over time or at a point in time. The amendments also clarify when a promised good or service is separately identifiable (i.e., distinct within the context of the contract) and allow entities to disregard items that are immaterial in the context of a contract. We are currently in the process of assessing what impact this new standard may have on our ongoing financial reporting and determining what transition method will be used. 

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30). This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, and is to be adopted on a retrospective basis. Early adoption is permitted for financial statements that have not been previously issued. The Company does not expect this ASU will have a material impact on the Company’s consolidated financial statements or related disclosures.

38


Forward‑Looking Statements

This Report may contain 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. All statements other than statements of historical facts contained herein, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. These forward-looking statements may generally be identified by the use of the words “may,” “will,” “expects,” “anticipates,” “believes,” “estimates,” and similar expressions, but the absence of these words or phrases does not necessarily mean that a statement is not forward looking.

We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives, and financial needs. Forward looking statements involve a number of risks and uncertainties. Our actual results may differ materially from those described in or contemplated by any such forward-looking statement for a variety of reasons, including those described in Part I, Item IA “Risk Factors.”In light of these risks, identifieduncertainties and assumptions, the forward-looking events and circumstances included herein may not occur, and actual results could differ materially and adversely from those anticipated or implied in our most recent Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission, under the heading “Risk Factors” and otherwise.forward-looking statements. Consequently, the reader is cautioned to consider all forward-looking statements in light of the risks to which they are subject.

We Forward-looking statements include, but are not ablelimited to, identify or control all circumstancesstatements about:

our expectations regarding the continuing impact of the COVID-19 pandemic on our business, operations, revenues, profits, customers or suppliers;

39

our ability to sustain or grow our customer base and market share;
our ability to sustain and grow our supplier relationships;
our expectations regarding the size and growth in markets;
the needs and demands of our customers and the production capacity of our suppliers;
trends in the wireless communications industry, our competitors and competing business models;
the execution of our business plans and strategies;
our ability to benefit from the disposition of our Retail business, including royalty revenues;
our ability to benefit from our Commercial business;
our liquidity and working capital requirements and ability to access capital;
our ability to secure, maintain and upgrade our information technology, telecommunications and e-commerce systems;
our ability to anticipate and navigate existing and changes in laws or regulations, including tariffs and trade restrictions, applicable to our business;
our ability to enter into and perform contracts and to realize anticipated revenues or anticipated savings; and
our expectations regarding future revenues, expenses and profitability, and financial results generally.  

Although we believe that could occurthe expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future thatresults, level of activity, performance or achievements. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Any forward-looking statement made by us in this Annual Report speaks only as of the date on which it is made. We disclaim any duty to update any of these forward-looking statements after the date of this Annual Report to confirm these statements to actual results or revised expectations.

The above list should not be construed as exhaustive and should be read in conjunction with our other disclosures, including but not limited to the risk factors described in Part I, Item 1A of this Annual Report. Other risks may adversely affect our business and operating results. Without limiting the risks that we describebe described from time to time in our periodic reports and elsewhere, amongfilings made under the securities laws. New risks that could leademerge from time to a materially adverse impact on our business or operating results are the following: termination or non-renewal of limited duration agreements or arrangements with our vendors and affinity partners which are typically terminable by either party upon several months or otherwise relatively short notice; loss of significant customers or relationships, including affinity relationships; loss of customers either directly or indirectly as a result of consolidation among large wireless service carriers and others within the wireless communications industry; the strength of our customers’, vendors’ and affinity partners’ businesses; increasingly negative or prolonged adverse economic conditions, including those adversely affecting consumer confidence or consumer or business spending, or otherwise adversely affecting our vendors or customers, including their access to capital or liquidity or our customers’ demandtime. It is not possible for our abilitymanagement to fund or pay for the purchase of our products and services; our dependence on a relatively small number of suppliers and vendors, which could hamper our ability to maintain appropriate inventory levels and meet customer demand; failure of our information technology system or distribution system; technology changes in the wireless communications industry, which could lead to significant inventory obsolescence and/or our inability to offer key products that our customers demand; third-party freight carrier interruption; increased competition from competitors, including manufacturers or national and regional distributors of the products we sell and the absence of significant barriers to entry which could result in pricing and other pressures on profitability and market share; our relative bargaining power and inability to negotiate favorable terms with our vendors and customers; our inability to access capital and obtain or retain financing as and when needed; transitional and other risks associated with acquisitions of companies that we may undertake in an effort to expand our business; the possibility that, for unforeseen reasons, we may be delayed in entering into or performing, or may fail to enter into or perform, anticipated contracts or may otherwise be delayed in realizing or fail to realize anticipated revenues or anticipated savings; our inability to protect certain intellectual property, including systems and technologies on which we rely; claims against us for breach of the intellectual property rights of third parties; product liability claims; and our inability to hire or retain for any reason our key professionals, management and staff.predict all risks.

39


Available Information

Our internet web site address is: www.tessco.com. We make available free of charge through our website, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Exchange Act as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the Securities and Exchange Commission. Also available on our website is our Code of Business Conduct and Ethics. We have not incorporated herein by reference the information on our website, and it should not be considered a part of this filing.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk:

We are exposed to an immaterial level of market risk from changes in interest rates. We have from time to time previously used interest rate swap agreements to modify variable rate obligations to fixed rate obligations, thereby reducing our exposure to interest rate fluctuations. We do not have a current interest rate swap relating to our bank term loan.  Our variable rate debt obligations of approximately $1.9 million at March 27, 2016 expose us to the risk of rising interest rates, but management does not believe that the potential exposure is material to our overall financial position or results of operations.  Based on March 27, 201628, 2021 borrowing levels, a 1.0% increase or decrease in current market interest rates would not have an immaterialmaterial effect on our statementConsolidated Statements of income.(Loss) Income.

Foreign Currency Exchange Rate Risk:

We are exposed to an immaterial level of market risk from changes in foreign currency rates.  Over 99%Almost all of our sales are made in U.S. Dollars so we have an immaterial amount of foreign currency risk.  Those sales not made in U.S. Dollars are made in Canadian Dollars.

40


Item 8. Financial Statements and Supplementary Data.

TESSCO TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

    

 

March 27,

    

March 29,

 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

16,882,800

 

$

7,524,000

 

Trade accounts receivable, net of allowance for doubtful accounts of $841,400 and $664,900, respectively

 

 

 

58,315,700

 

 

59,572,100

 

Product inventory, net

 

 

 

53,903,900

 

 

72,363,600

 

Prepaid expenses and other current assets

 

 

 

5,917,100

 

 

10,868,900

 

Total current assets

 

 

 

135,019,500

 

 

150,328,600

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

 

19,895,400

 

 

21,111,800

 

Goodwill, net

 

 

 

11,684,700

 

 

11,684,700

 

Deferred tax assets

 

 

 

 

 

495,900

 

Other long-term assets

 

 

 

2,816,400

 

 

2,619,600

 

Total assets

 

 

$

169,416,000

 

$

186,240,600

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Trade accounts payable

 

 

$

41,986,000

 

$

51,804,200

 

Payroll, benefits and taxes

 

 

 

4,927,900

 

 

5,531,900

 

Income and sales tax liabilities

 

 

 

1,456,800

 

 

1,832,400

 

Accrued expenses and other current liabilities

 

 

 

3,874,100

 

 

8,688,500

 

Revolving line of credit

 

 

 

 

 

 

Current portion of long-term debt

 

 

 

251,100

 

 

250,700

 

Total current liabilities

 

 

 

52,495,900

 

 

68,107,700

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities

 

 

 

379,400

 

 

 

Long-term debt, net of current portion

 

 

 

1,706,500

 

 

1,957,500

 

Other long-term liabilities

 

 

 

2,306,900

 

 

3,033,300

 

Total liabilities

 

 

 

56,888,700

 

 

73,098,500

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 500,000 shares authorized and no shares issued and outstanding

 

 

 

 

 

 

Common stock $0.01 par value, 15,000,000 shares authorized, 13,970,394 shares issued and 8,272,124 shares outstanding as of  March 27, 2016, and 13,817,239 shares issued and 8,159,592 shares outstanding as of March 29, 2015

 

 

 

97,600

 

 

96,100

 

Additional paid-in capital

 

 

 

58,113,800

 

 

56,517,600

 

Treasury stock, at cost,  5,698,270 shares outstanding as of March 27, 2016 and 5,657,647 shares outstanding as of March 29, 2015

 

 

 

(57,245,200)

 

 

(56,307,900)

 

Retained earnings

 

 

 

111,561,100

 

 

112,836,300

 

Total shareholders’ equity

 

 

 

112,527,300

 

 

113,142,100

 

Total liabilities and shareholders’ equity

 

 

$

169,416,000

 

$

186,240,600

 

 

March 28,

 

March 29,

 

 

2021

2020

 

 

 

ASSETS

Current assets:

Cash and cash equivalents

$

1,110,000

$

50,000

Trade accounts receivable, net

 

70,045,700

 

82,868,400

Product inventory, net

 

53,060,000

 

50,298,100

Income taxes receivable

10,432,500

5,746,700

Prepaid expenses and other current assets

3,980,900

5,960,800

Current portion of assets held for sale

 

1,196,900

 

18,849,900

Total current assets

 

139,826,000

 

163,773,900

Property and equipment, net

 

12,571,600

 

13,433,700

Intangible assets, net

19,136,500

11,157,400

Deferred tax assets, net

3,032,500

Lease asset - right of use

11,285,800

13,949,800

Other long-term assets

 

6,258,000

 

3,361,400

Total assets

$

189,077,900

$

208,708,700

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Trade accounts payable

$

59,415,600

$

75,512,600

Payroll, benefits and taxes

 

6,279,800

 

4,258,300

Income and sales tax liabilities

 

803,900

 

450,800

Accrued expenses and other current liabilities

 

2,912,300

 

4,244,400

Revolving line of credit

 

 

25,563,900

Lease liability, current

2,573,500

2,579,200

Total current liabilities

 

71,985,100

 

112,609,200

Deferred tax liabilities, net

26,500

Revolving line of credit

30,583,200

Non-current lease liability

8,923,500

11,481,100

Other non-current liabilities

 

809,400

 

915,700

Total liabilities

 

112,327,700

 

125,006,000

Shareholders’ equity:

Preferred stock, $0.01 par value per share, 500,000 shares authorized and 0 shares issued and outstanding

 

 

Common stock, $0.01 par value per share, 15,000,000 shares authorized, 8,844,083 shares issued and 8,833,833 shares outstanding as of March 28, 2021, and 14,354,368 shares issued and 8,577,549 shares outstanding as of March 29, 2020

 

104,200

 

101,400

Additional paid-in capital

 

67,227,700

 

65,318,500

Treasury stock, at cost, 10,250 shares as of March 28, 2021 and 5,776,819 shares as of March 29, 2020

 

(62,800)

 

(58,496,200)

Retained earnings

 

9,481,100

 

76,779,000

Total shareholders’ equity

 

76,750,200

 

83,702,700

Total liabilities and shareholders’ equity

$

189,077,900

$

208,708,700

The accompanying Notes to the Consolidated Financial Statements are an integral part of these consolidated statements.

41


TESSCO TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

Consolidated Statements of (Loss) Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Years Ended

 

    

 

 

March 27, 2016

    

March 29, 2015

 

March 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

$

530,682,100

 

$

549,619,000

 

$

560,086,600

Cost of goods sold

 

 

 

 

418,716,200

 

 

431,980,500

 

 

433,728,700

Gross profit

 

 

 

 

111,965,900

 

 

117,638,500

 

 

126,357,900

Selling, general and administrative expenses

 

 

 

 

102,932,300

 

 

102,686,700

 

 

99,868,000

Restructuring Charge

 

 

 

 

 —

 

 

573,400

 

 

 —

Income from operations

 

 

��

 

9,033,600

 

 

14,378,400

 

 

26,489,900

Interest expense, net

 

 

 

 

161,300

 

 

167,300

 

 

177,700

Income before provision for income taxes

 

 

 

 

8,872,300

 

 

14,211,100

 

 

26,312,200

Provision for income taxes

 

 

 

 

3,531,800

 

 

5,576,800

 

 

10,063,100

Net income

 

 

 

$

5,340,500

 

$

8,634,300

 

$

16,249,100

Basic earnings per share

 

 

 

$

0.65

 

$

1.05

 

$

1.98

Diluted earnings per share

 

 

 

$

0.65

 

$

1.04

 

$

1.94

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

 

 

$

0.80

 

$

0.80

 

$

0.74

 

Fiscal Years Ended

    

March 28, 2021

    

March 29, 2020

    

March 31, 2019

Revenues

$

373,340,700

$

409,014,400

$

419,044,800

Cost of goods sold

 

305,625,100

 

329,372,500

 

334,640,100

Gross profit

 

67,715,600

 

79,641,900

 

84,404,700

Selling, general and administrative expenses

 

85,507,100

 

92,005,200

 

95,347,000

Goodwill impairment

9,108,600

Restructuring charge

488,000

Operating loss

 

(17,791,500)

 

(21,959,900)

 

(10,942,300)

Interest expense, net

 

426,300

 

1,116,300

 

853,800

Loss from continuing operations before benefit from income taxes

 

(18,217,800)

 

(23,076,200)

 

(11,796,100)

Benefit from income taxes

 

(3,844,500)

 

(7,474,800)

 

(2,913,800)

Net loss from continuing operations

(14,373,300)

(15,601,400)

(8,882,300)

Income (loss) from discontinued operations, net of taxes

5,630,400

(5,967,500)

14,428,100

Net loss

$

(8,742,900)

$

(21,568,900)

$

5,545,800

Basic (loss) income per share

Continuing operations

$

(1.65)

$

(1.83)

$

(1.05)

Discontinued operations

$

0.65

$

(0.70)

$

1.71

Consolidated operations

$

(1.01)

$

(2.53)

$

0.66

Diluted (loss) income per share

Continuing operations

$

(1.65)

$

(1.83)

$

(1.05)

Discontinued operations

$

0.65

$

(0.70)

$

1.68

Consolidated operations

$

(1.01)

$

(2.53)

$

0.65

Basic weighted-average common shares outstanding

8,697,369

8,526,965

8,436,796

Effect of dilutive options and other equity instruments

Basic and diluted weighted-average common shares outstanding

8,697,369

8,526,965

8,436,796

Cash dividends declared per common share

$

$

0.62

$

0.80

The accompanying Notes to these Consolidated Financial Statements are an integral part of these consolidated statements.

42


TESSCO TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Additional 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

Paid-in

 

Treasury

 

Retained

 

Shareholders’

 

 

 

Shares

 

Amount

 

Capital

 

Stock

 

Earnings

 

Equity

 

Balance at March 31, 2013

    

7,987,900

 

 

91,500

 

 

50,481,600

 

 

(48,438,300)

 

 

100,667,800

 

 

102,802,600

 

Proceeds from issuance of stock

 

23,542

 

 

200

 

 

602,800

 

 

 —

 

 

 —

 

 

603,000

 

Treasury stock purchases

 

(72,116)

 

 

 —

 

 

 —

 

 

(1,646,300)

 

 

 —

 

 

(1,646,300)

 

Non-cash stock compensation expense

 

241,158

 

 

2,500

 

 

2,084,600

 

 

 —

 

 

 —

 

 

2,087,100

 

Excess tax benefit from stock-based compensation

 

 —

 

 

 —

 

 

818,700

 

 

 —

 

 

 —

 

 

818,700

 

Cash dividends paid

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(6,086,100)

 

 

(6,086,100)

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

16,249,100

 

 

16,249,100

 

Balance at March 30, 2014

 

8,180,484

 

 

94,200

 

 

53,987,700

 

 

(50,084,600)

 

 

110,830,800

 

 

114,828,100

 

Proceeds from issuance of stock

 

19,425

 

 

200

 

 

540,000

 

 

 —

 

 

 —

 

 

540,200

 

Treasury stock purchases

 

(211,033)

 

 

 —

 

 

 —

 

 

(6,223,300)

 

 

 —

 

 

(6,223,300)

 

Non-cash stock compensation expense

 

170,716

 

 

1,700

 

 

1,159,600

 

 

 —

 

 

 —

 

 

1,161,300

 

Excess tax benefit from stock-based compensation

 

 —

 

 

 —

 

 

830,300

 

 

 —

 

 

 —

 

 

830,300

 

Cash dividends paid

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(6,628,800)

 

 

(6,628,800)

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

8,634,300

 

 

8,634,300

 

Balance at March 29, 2015

 

8,159,592

 

 

96,100

 

 

56,517,600

 

 

(56,307,900)

 

 

112,836,300

 

 

113,142,100

 

Proceeds from issuance of stock

 

25,067

 

 

300

 

 

487,000

 

 

 —

 

 

 —

 

 

487,300

 

Treasury stock purchases

 

(40,623)

 

 

 —

 

 

 

 

 

(937,300)

 

 

 —

 

 

(937,300)

 

Non-cash stock compensation expense

 

128,088

 

 

1,200

 

 

727,800

 

 

 —

 

 

 —

 

 

729,000

 

Excess tax benefit from stock-based compensation

 

 —

 

 

 —

 

 

381,400

 

 

 —

 

 

 —

 

 

381,400

 

Cash dividends paid

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(6,615,700)

 

 

(6,615,700)

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

5,340,500

 

 

5,340,500

 

Balance at March 27, 2016

 

8,272,124

 

$

97,600

 

$

58,113,800

 

$

(57,245,200)

 

$

111,561,100

 

$

112,527,300

 

Common Stock

Additional 

Total

 

Paid-in

Treasury

Retained

Shareholders’

 

Shares

Amount

Capital

Stock

Earnings

Equity

 

Balance at April 1, 2018

    

8,396,537

 

99,000

 

60,611,900

 

(57,503,000)

 

104,843,700

 

108,051,600

Proceeds from issuance of stock

 

52,067

500

810,800

 

811,300

Treasury stock purchases

 

(6,332)

(111,100)

 

(111,100)

Non-cash stock compensation expense

 

26,257

300

1,243,700

 

1,244,000

Cash dividends paid

 

(6,754,400)

 

(6,754,400)

Net income

 

5,545,800

 

5,545,800

Balance at March 31, 2019

 

8,468,529

 

99,800

 

62,666,400

 

(57,614,100)

 

103,635,100

 

108,787,200

Proceeds from issuance of stock

 

72,430

700

797,300

 

798,000

Treasury stock purchases

 

(55,321)

(882,100)

 

(882,100)

Non-cash stock compensation expense

 

43,786

400

1,174,200

 

1,174,600

Exercise of stock options

 

48,125

500

680,600

 

681,100

Cash dividends paid

 

(5,287,200)

 

(5,287,200)

Net income

 

(21,568,900)

 

(21,568,900)

Balance at March 29, 2020

 

8,577,549

101,400

65,318,500

(58,496,200)

76,779,000

83,702,700

Proceeds from issuance of stock

 

130,907

1,300

699,700

 

701,000

Treasury stock purchases

 

(23,031)

(121,600)

 

(121,600)

Non-cash stock compensation expense

 

148,408

1,500

1,209,500

 

1,211,000

Retirement of treasury stock

 

58,555,000

(58,555,000)

 

Net loss

 

(8,742,900)

 

(8,742,900)

Balance at March 28, 2021

 

8,833,833

$

104,200

$

67,227,700

$

(62,800)

$

9,481,100

$

76,750,200

The accompanying Notes to these Consolidated Financial Statements are an integral part of these consolidated statements.

43


TESSCO TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

 

March 27, 2016

 

March 29, 2015

 

March 30, 2014

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

    

 

 

    

    

 

    

 

 

    

Net income

 

 

$

5,340,500

 

$

8,634,300

 

$

16,249,100

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

4,730,000

 

 

4,583,600

 

 

4,865,000

Gain on sale of property and equipment

 

 

 

 —

 

 

(3,000)

 

 

(29,500)

Non-cash stock-based compensation expense

 

 

 

729,000

 

 

1,161,300

 

 

2,087,100

Deferred income taxes and other

 

 

 

(47,687)

 

 

1,347,200

 

 

(1,042,400)

Change in trade accounts receivable

 

 

 

1,256,400

 

 

7,923,600

 

 

14,681,900

Change in product inventory

 

 

 

18,459,700

 

 

(10,407,900)

 

 

(1,042,100)

Change in prepaid expenses and other current assets

 

 

 

4,951,800

 

 

(8,532,300)

 

 

1,145,700

Change in trade accounts payable

 

 

 

(9,818,200)

 

 

1,047,300

 

 

(14,452,400)

Change in payroll, benefits and taxes

 

 

 

(604,000)

 

 

(2,138,200)

 

 

(4,008,400)

Change in income and sales tax liabilities

 

 

 

(375,600)

 

 

(645,300)

 

 

(53,000)

Change in accrued expenses and other current liabilities

 

 

 

(4,480,800)

 

 

8,109,200

 

 

264,400

Net cash provided by operating activities

 

 

 

20,141,113

 

 

11,079,800

 

 

18,665,400

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

 

(3,513,813)

 

 

(2,950,600)

 

 

(4,745,000)

Proceeds from sale of property and equipment

 

 

 

 —

 

 

3,000

 

 

29,500

Net cash used in investing activities

 

 

 

(3,513,813)

 

 

(2,947,600)

 

 

(4,715,500)

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

Payments on long-term debt

 

 

 

(250,600)

 

 

(250,200)

 

 

(249,600)

Proceeds from issuance of stock

 

 

 

153,700

 

 

195,900

 

 

213,300

Cash dividends paid

 

 

 

(6,615,700)

 

 

(6,628,800)

 

 

(6,086,100)

Purchases of treasury stock and repurchases of common stock from employees and directors for minimum tax withholdings

 

 

 

(937,300)

 

 

(6,223,300)

 

 

(1,646,300)

Excess tax benefit from stock-based compensation

 

 

 

381,400

 

 

830,300

 

 

818,700

Net cash used in financing activities

 

 

 

(7,268,500)

 

 

(12,076,100)

 

 

(6,950,000)

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

 

9,358,800

 

 

(3,943,900)

 

 

6,999,900

 

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, beginning of period

 

 

 

7,524,000

 

 

11,467,900

 

 

4,468,000

 

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, end of period

 

 

$

16,882,800

 

$

7,524,000

 

$

11,467,900

 

Year Ended

    

March 28, 2021

    

March 29, 2020

    

March 31, 2019

CASH FLOWS FROM OPERATING ACTIVITIES:

    

    

    

    

Net Income (Loss)

$

(8,742,900)

$

(21,568,900)

$

5,545,800

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

Depreciation and amortization

 

3,744,500

 

4,026,100

 

3,618,900

Goodwill impairment

11,677,700

Gain on sale of discontinued operations

(3,020,800)

Non-cash stock-based compensation expense

 

1,211,000

 

1,174,600

 

1,244,000

Deferred income taxes and other

 

3,032,500

 

(2,977,200)

 

665,200

Change in trade accounts receivable

 

12,676,000

 

11,097,800

 

(6,103,900)

Change in product inventory

 

9,279,900

 

2,697,400

 

477,600

Change in prepaid expenses and other current assets

 

(2,007,600)

 

(6,144,700)

 

(1,073,700)

Change in other assets and other liabilities

(3,304,200)

(251,400)

938,900

Change in trade accounts payable

 

(15,197,600)

 

905,300

 

5,073,600

Change in payroll, benefits and taxes

 

2,021,500

 

(1,671,200)

 

(2,361,600)

Change in income and sales tax liabilities

 

353,100

 

(298,200)

 

(1,590,200)

Change in accrued expenses and other current liabilities

 

(729,600)

 

2,240,900

 

1,812,100

Net cash (used in) provided by operating activities

 

(684,200)

 

908,200

 

8,246,700

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property and equipment

 

(806,100)

 

(288,000)

 

(2,855,200)

Proceeds from sale of discontinued operations

9,201,500

Purchases of internal use software licenses eligible for capitalization

(11,049,800)

(6,557,700)

(2,309,500)

Net cash used in investing activities

 

(2,654,400)

 

(6,845,700)

 

(5,164,700)

CASH FLOWS FROM FINANCING ACTIVITIES

Net proceeds (borrowings) from 2016 Revolving Credit Facility

(25,565,300)

11,185,800

3,542,700

Gross proceeds from borrowings from 2020 Revolving Credit Facility

137,868,500

Repayments of borrowings on 2020 Revolving Credit Facility

(107,283,900)

Payments of debt issuance costs

(698,300)

Payments on long term debt

 

 

(2,300)

 

(27,300)

Proceeds from issuance of stock

199,200

262,400

279,000

Proceeds from exercise of stock options

680,600

Cash dividends paid

 

 

(5,287,200)

 

(6,754,400)

Purchase of treasury stock and repurchase of stock from employees and directors for minimum tax withholdings

(121,600)

 

(882,100)

 

(111,100)

Net cash provided by (used in) financing activities

 

4,398,600

 

5,957,200

 

(3,071,100)

Net increase in cash and cash equivalents

 

1,060,000

 

19,700

 

10,900

CASH AND CASH EQUIVALENTS, beginning of period

 

50,000

 

30,300

 

19,400

CASH AND CASH EQUIVALENTS, end of period

$

1,110,000

$

50,000

$

30,300

The accompanying Notes to the Consolidated Financial Statements are an integral part of these consolidated statements.

44


Note 1. Organization

TESSCO Technologies Incorporated, a Delaware corporation (TESSCO, we,(“Tessco”, “we”, “our”, or the Company)“Company”), architects and delivers innovative product and value chain solutions to support wireless systems. The Company provides marketing and sales services, knowledge and supply chain management, product-solution delivery and control systems utilizing extensive internet and information technology. Approximately 98%97% of the Company’s sales are made to customers in the United States. The Company takes orders in several ways, including phone, fax, online and through electronic data interchange. Almost all of the Company’s sales are made in United States Dollars.

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Fiscal Year

The Company's fiscal year is the 52 or 53 weeks ending on the Sunday falling on or between March 26 and April 1 to allow the financial year to better reflect the Company's natural weekly accounting and business cycle.  The fiscal years ended March 27, 2016,28, 2021, March 29, 2015,2020 and March 30, 2014 each contain31, 2019 contained 52 weeks.

Reclassifications

Certain prior period amounts have been reclassified to conform to current year presentations, including Income taxes receivable on the Company’s Consolidated Balance Sheets. The Company has filed for a refund with the IRS.

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid investments with an original maturity of 90 days or less.

Allowance for Doubtful Accounts

The Company uses estimates to determine the amount of the allowance for doubtful accounts necessary to reduce accounts receivable to their expected net realizable value. The Company estimates the amount of the required allowance by reviewing the status of past-due receivables and analyzing historical bad debt trends and current economic conditions. Actual collection experience has not varied significantly from estimates, due primarily to consistent credit policies, collection experience, as well as the Company’s stability as it relates to its current customer base. Typical payments from a large majority of commercial customers are due 30 days from the date of the invoice. The Company charges-off receivables deemed to be uncollectible to the allowance for doubtful accounts. Accounts receivable balances are not collateralized.collateralized by our customers. At March 28, 2021 and March 29, 2020, the Company had a reserve for the allowance for doubtful accounts related to customers in continuing operations of $1,584,200 and $3,288,800, respectively.

Product Inventory

Product inventory, consisting primarily of finished goods, is stated at the lower of cost or market,net realizable value, cost being determined on the first-in, first-out (“FIFO”) method and includes certain charges directly and indirectly incurred in bringing product inventories to the point of sale. Inventory is written down for estimated obsolescence equal to the difference between the cost of inventory and the estimated marketnet realizable value, based upon specifically known inventory-related risks (such as technological obsolescence and the nature of vendorsupplier terms surrounding price protection and product returns), and assumptions about future demand. At March 27, 201628, 2021 and March 29, 2015,2020, the Company had a reserve for excess and/orand obsolete inventory of $6,071,100$3,359,000 and $5,780,600,$9,666,100, respectively. At March 28, 2021 and March 29, 2020, the reserve for excess and obsolete inventory included balances related to the discontinued Retail operations of $81,000 and $6,350,800 respectively, which are included in the Current portion of assets held for sale on the Consolidated Balance Sheets. The reduction in the reserve is primarily related to the exit from the Retail business that occurred in fiscal year 2020. The reserve as of March 29, 2020 included reserves on retail inventory and were higher than normal levels due in part to concerns surrounding the COVID-19 pandemic at that time.

45


Property and Equipment

Property and equipment is stated at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets as follows:

 

 

 

 

 

    

Useful lives

 

 

 

 

 

Information technology equipment and software

 

1

-

5

years

Configuration, Fulfillment and Delivery technology system

 

 

 

7

years

    

Useful lives

 

Information technology equipment

 

1

-

3

years

Furniture, telephone system, equipment and tooling

 

3

-

10

years

 

3

-

10

years

Building, building improvements and leasehold improvements

 

2

-

40

years

 

2

-

40

years

Leasehold improvements are amortized over the shorter of their useful lives or the remaining lease term.

Intangibles

The Company capitalizes computer software costs incurred in connection with developing or obtaining computer software for internal use when both the preliminary project stage is completed and when management authorizes and commits to funding the project and it is probable that the project will be completed.  Development and acquisition costs are capitalized when the focus of the software project is either for the development ofto develop new software, to increase the life of existing software or to add significantly to the functionality of existing software. Capitalization ceases when the software project is substantially complete and ready for its intended use.

Leasehold improvements are amortized Amortization is recorded using the straight-line method over the shorter of theirestimated useful lives or the remaining lease term.life which ranges from one to three years.

Impairment of Long-Lived Assets

Long-lived assets, including amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans, or changes in anticipated future cash flows. If an impairment indicator is present, the Company evaluates recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. Assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. If future undiscounted cash flows are less than the carrying value of the asset group, the Company calculates the fair value of the asset group. If the assets are impaired, the impairment recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets. Fair value is generally determined by estimates of discounted cash flows. The discount rate used in any estimate of discounted cash flows would be the rate required for a similar investment of like risk. There were no0 impairment charges in fiscal years 2016, 2015, or 2014.

Assets to be disposed of are reported at the lower of carrying value or fair values, less estimated costs of disposal.

Goodwill and Other Intangible Assets

Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill amounts and indefinite lived intangible assets are not amortized, but rather are tested for impairment at least annually or whenever an impairment indicator is identified. The Company performs its annual impairment test on the first day of its fourth quarter. Intangible assets that are not considered to have an indefinite useful life are amortized over their useful life of 4 to 6 years using the straight-line method. Intangiblelong-lived assets other than goodwill, are recorded within other long-term assets in the Company’s Consolidated Balance Sheets. The goodwill impairment test involves an initial qualitative analysis to determine if it is more likely than not that an intangible asset’s fair value is less than its carrying amount. If qualitative factors suggest a possible impairment, the Company then performs an additional two-step approach. Under the first step, the Company determines the fair value of each reporting unit to which goodwill has been assigned. The Company then compares the fair value of each reporting unit to its carrying value, including goodwill. The Company estimates the fair value of each reporting unit using various valuation techniques, with the primary technique being a discounted cash flowfiscal years 2021, 2020, or income approach, under which the Company estimates the present value of the reporting unit’s future cash flows. Key assumptions used to determine the present value of a reporting unit’s future cash flows include (a) a cash flow period; (b) a terminal value based on a growth rate; and (c) a discount rate,

46


which is based on the Company’s weighted average cost of capital adjusted for risks associated with our operations. If the fair value exceeds the carrying value, no impairment loss is recognized. If the carrying value exceeds the fair value, the goodwill of the reporting unit is considered potentially impaired and the second step is completed in order to measure the impairment loss. Under the second step, the Company calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets, including any unrecognized intangible assets, of the reporting unit from the fair value of the reporting unit as determined in the first step. The Company then compares the implied fair value of goodwill to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, the Company recognizes an impairment loss equal to the difference.2019.

Indefinite-Lived Intangible Assets

The indefinite lived intangible asset impairment test involves an initial qualitative analysis to determine if it is more likely than not that an intangible asset’s fair value is less than its carrying amount. If qualitative factors suggest a possible impairment, the Company then determines the fair value of the intangible asset. If the fair value of the intangible asset is less than its carrying value, an impairment loss is recognized for an amount equal to the difference. The intangible asset is then carried at its new fair value. FairWe measure the fair value is determinedof our indefinite-lived intangible asset using the “relief from royalty” method. Significant estimates of discounted cash flows. Thesein this approach include projected revenues and royalty and discount rates. The estimates of discounted cash flows will likely change over time as impairment tests are performed. Estimates of fair value are also adversely affected by increases in interest rates and the applicable discount rate.

Based on the Company’s qualitative and/or quantitative impairment testingtests performed, the Company recognized a $11.7 million impairment loss on goodwill in fiscal year 2020 ($9.1 million related to continuing operations and $2.6 million related to discontinued operations). The Company did not0t recognize an impairment loss on goodwill or other indefinite lived intangible assets in fiscal years 2016, 2015,2021 or 2014.2019.

The methods of assessing fair value for our reporting unitunits with goodwill as well as for indefinite lived assets require significant judgments to be made by management, including future revenues, expenses, cash flows and discount rates. Changes in such estimates or the application of alternative assumptions could produce significantly different results.

46

Other Long-Term Assets

Other long-term assets consist of capitalized implementation costs of hosting arrangements, cash surrender value of life insurance policies related to a Supplemental Executive Retirement Plan (see Note 13), and deferred debt financing costs. Capitalized implementation costs of hosting arrangements that are accounted for as service contracts, which relate to our SAP ERP implementation, was $3.1 million and $0.8 million as of March 28, 2021 and March 29, 2020, respectively.

Revenue Recognition

The Company records revenuesWe account for revenue in accordance with ASC No. 606, Revenue from Contracts with Customers, which we adopted on April 2, 2018, using the modified retrospective method. We recognize revenue when 1) persuasive evidencecontrol of an arrangement exists, 2) delivery has occurred or services have been rendered, 3) price to the buyerpromised goods is fixed or determinable, and 4) collectability is reasonably assured. The Company’s revenue recognition policy includes evidence of arrangements for significant revenue transactions through either receipt of a customer purchase order or a web-based order. The Company records revenues when risk of loss has passedtransferred to the customer. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for transferring the goods. 

In most cases, shipments are made using FOB (freight on board) shipping terms. FOB destination terms are used for a portion of sales, and revenue for these sales is recorded when the product is received by the customer. Prices are always fixed at the time of sale. Historically, there have not been any material concessions provided to or by customers, future discounts provided by the company,Company, or other incentives subsequent to a sale.The Company sells under normal commercial terms and, therefore, only records sales on transactions where collectability is reasonably assured.at the estimated transaction price. The Company recognizesrecognized revenues net of sales tax.

Because the Company’s sales transactions meet the conditions set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) No. 605 and/or 606, it recognizesWe recognize revenues from sales transactions containing sales returns provisions at the time of the sale.  These conditions require that 1)The potential for customer returns are considered a component of variable consideration under ASC No. 606 and it is therefore considered when estimating the transaction price be substantially fixed or determinable atfor a sale.  We use the date of sale, 2) the buyer is obligatedmost likely amount method to pay, and the payment is not contingent on their resale of the product, 3) the buyer’s obligation to the Company does not change in the event of theft or physical destruction or damage of the product, 4) the buyer has economic substance apart from the Company, 5) the Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer, and 6)determine the amount of futureexpected returns.  The amount of expected returns can be reasonably estimated. Becauseis recognized as a refund liability, representing the Company’s normal termsobligation to return the customer’s consideration.  The return asset is measured at the former carrying amount of the inventory, less any expected costs to recover the goods, which is included in prepaid expenses and conditionsother current assets on the accompanying Consolidated Balance Sheets.

Our current and potential customers are continuing to look for ways to reduce their inventories and lower their total costs, including distribution, order taking and fulfillment costs, while still providing their customers excellent service. Some of sale are consistent with conditions 1-5 above, and the Company is able to perform condition 6, it makes a reasonable estimate of product returns in sales transactions and accrues a sales return reserve based on this estimate.

Certainthese companies have turned to TESSCOus to implement supply chain solutions, including purchasing inventory, assisting in demand forecasting, configuring, packaging, kitting and delivering products and managing customer and vendorsupplier relations, from order taking through cash collections. In performing these solutions, the Company assumeswe assume varying levels of involvement in the transactions and varying levels of credit and inventory risk. As the Company’s solutionsour offerings continually evolve to meet the needs of itsour customers, the Company constantly evaluates its revenue accounting based on the guidance set forth in accounting standards generally accepted in the United States. When applying this

47


guidance in accordance with the ASC No. 605-45,606, the Company looks at the following indicators: whether it iswe are the primary obligor in the transaction; whether it haswe have general inventory risk; whether it haswe have latitude in establishing price; whether the extent to which it changescustomer holds us responsible for the acceptability of the product; whether the product or performs part of the service; whether it has discretion in supplier selection; whether it is involved in the determination of product and service specifications; whether it has physical inventory risk; whether it has credit risk;returns are handled by us; and whether obligation exists between the amount it earns is fixed.other parties and our customer. Each of the Company’s customer relationships is independently evaluated based on the above guidance and revenues are recorded on the appropriate basis. Based on a review of the factors above, in the majority of the Company’s sales relationships, the Company has concluded that it is the principal in the transaction and records revenues based upon the gross amounts earned and booked. However, the Company does have relationships where it is not the principal and records revenues on a net fee basis, regardless of amounts billed (less than 1% of total revenues for fiscal year 2016)2021).  If applying this revenue recognition guidance resulted in recording revenues on a different basis from which the Company has previously concluded, or if the factors above change significantly, revenues could increase or decrease; however, gross profit and net income would remain constant.

Service revenue associated with training and other services is recognized when the training or work is complete and the four criteria discussed above have been met. Service revenues have represented less than 1% of total revenues for fiscal years 2016, 2015 and 2014.

Other than sales relating to the Company’s private brands, we offer no product warranties in excess of original equipment manufacturers’ warranties. The Company’s warranty expense is estimated and accrued at the time of sale. Warranty expense was immaterial for fiscal years 2016, 2015,2021, 2020, and 2014.2019.

VendorSupplier Programs

Funds received from vendorssuppliers for price protection, product rebates and marketing/promotion are recorded as a reduction in cost of goods sold in accordance with ASC 605-50-45: Customer’s CharacterizationNo. 705-20: Cost of Certain ConsiderationsSales and Services - Accounting for Consideration Received from a Vendor.

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Shipping and Handling Costs

Shipping costs incurred to ship products from our distribution centers to our customers’ sites are included in selling, general and administrative expenses in the Consolidated Statements of (Loss) Income and totaled $13,642,700, $13,700,000,$10,036,100, $10,222,800, and $13,364,600$11,647,700 for fiscal years 2016, 2015,2021, 2020, and 2014,2019, respectively.

Stock Compensation Awards Granted to Team Members

The Company records stock compensation expense for awards in accordance with ASC No. 718, which requires the718. The Company to include in its calculation of periodic stock compensation expense anaccounts for forfeitures as they occur rather than estimate of futureexpected forfeitures. The standard also requires stock awards granted or modified after the adoption of the standard that include both performance conditions and graded vesting based on service to the Company to be amortized by an accelerated method rather than the straight-line method.

Income Taxes

The Company accounts for income taxes under the asset and liability method in accordance with ASC No. 740. Under this method, deferred income tax assets and liabilities arise from differences between the tax basis of assets or liabilities and their reported amounts in the financial statements. Deferred tax balances are determined by using the enacted tax rate to be in effect when the taxes are paid or refunds received. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

In accordance with ASC No. 740, the Company recognizes a0 provision for tax uncertainties in its financial statements. See Note 12 for further discussionwas determined to be necessary as of the standardMarch 28, 2021, March 29, 2020 and its impact on the Company’s consolidated financial statements.March 31, 2019.

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Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company reviews and evaluates its estimates and assumptions, including but not limited to, those that relate to tax reserves, stock-based compensation, accounts receivable reserves, inventory reserves and future cash flows associated with impairment testing for goodwill and other long-lived assets. Actual results could significantly differ from those estimates.

Impact of Recently Issuedissued accounting pronouncements not yet adopted:

In June 2016, the Financial Accounting Standards

In February 2015, the FASB Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases.2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. This ASU require lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases. The ASU also requires additional qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. The guidance is effective for fiscal yearsperiods beginning after December 15, 2018,2022. The Company is currently evaluating the impact the adoption of this new standard will have on its Consolidated Financial Statements and will adopt the standard on the first day of the Company’s 2024 fiscal year.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, and the methodology for calculating income taxes in an interim period.  This ASU is effective for periods within those fiscal years. Early adoption is permitted.beginning after December 15, 2020.  The Company is currently evaluating the impact the adoption of this new standard will have on its Consolidated Financial Statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation – Stock Compensation. The new standard will modify several aspects of the accounting and reporting for employee share-based payments and related tax accounting impacts, including the presentation in the statements of operations and cash flows of certain tax benefits or deficiencies and employee tax withholdings, as well as the accounting for award forfeitures over the vesting period. The new standard is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on its Consolidated Financial Statements.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes. Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. The new standard simplifies the presentation of deferred tax assets and liabilities and requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, with early adoption permitted. The company elected to adopt this standard effective March 27, 2016, and has applied the guidance retrospectively. The Company restated its consolidated balance sheet as of March 29, 2015 to reflect the reclassification of $3.9 million of deferred tax assets from current to noncurrent.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. This guidance will supersede Topic 605, Revenue Recognition, in addition to other industry-specific guidance, once effective. The new standard requires a company to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services.  In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, as a revision to ASU 2014-09, which revised the effective date to fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted but not prior to periods beginning after December 15, 2016 (i.e. the original adoption date per ASU 2014-09). In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, which clarifies certain aspects of the principal-versus-agent guidance, including how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements, such as service transactions. The amendments also reframe the indicators to focus on evidence that an entity is acting as a principal rather than as an agent. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies how an entity should evaluate the nature of its promise in granting a license of intellectual property, which will determine whether it recognizes revenue over time or at a point in time. The amendments also clarify when a promised good or service is separately identifiable (i.e., distinct within the context of the contract) and allow entities to disregard items that are immaterial in the context of a contract. The company

4948


is currently in the process of assessing what impact this new standard may have on our ongoing financial reporting and determining what transition method will be used. 

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30). This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, and is to be adopted on a retrospective basis. Early adoption is permitted for financial statements that have not been previously issued. The Company does not expect this ASU will have a material impact on the Company’s consolidated financial statements or related disclosures.

Note 3. Reclassification

Prior to the third quarter of fiscal year 2016, the Company classified indirect costs relieved from inventory upon a sale as selling, general and administrative expenses, as opposed to cost of goods sold. The financial results presented in these financial statements correctly reflect indirect costs relieved from inventory as cost of goods sold for all periods. The accompanying Consolidated Statements of Income have been adjusted to correct this immaterial error in the classification of indirect inventory costs in the income statement. This resulted in an increase in cost of goods sold, and a corresponding decrease in selling, general and administrative expenses, of $13.3 million and $11.8 million, respectively, for fiscal years 2015 and 2014. These corrections had no impact on previously reported revenues, operating margin, net income, earnings per share or on previously reported Consolidated Balance Sheets or Consolidated Statements of Cash Flows.

As of March 27, 2016 the Company adopted Accounting Standards Update No. 2015-17, Income Taxes, as discussed in Note 2. As such, the Company restated its consolidated balance sheet as of March 29, 2015 to reflect the reclassification of $3.9 million of deferred tax assets from current to noncurrent.

Note 4.3. Property and Equipment

All of the Company’s property and equipment is located in the United States and is summarized as follows:

 

 

 

 

 

 

 

    

2016

    

2015

 

 

 

 

 

 

 

 

    

2021

    

2020

 

 

Land

 

$

4,740,800

 

$

4,740,800

 

$

4,740,800

$

4,740,800

Building, building improvements and leasehold improvements

 

 

21,437,200

 

 

21,375,500

 

 

21,265,400

 

20,921,800

Information technology equipment and computer software

 

 

28,856,300

 

 

25,751,500

 

Information technology equipment

 

5,003,000

 

5,255,000

��

Furniture, telephone system, equipment and tooling

 

 

7,732,600

 

 

7,809,400

 

 

8,910,500

 

9,039,000

 

 

62,766,900

 

 

59,677,200

 

Less accumulated depreciation and amortization

 

 

(42,871,500)

 

 

(38,565,400)

 

 

39,919,700

 

39,956,600

Less accumulated depreciation

 

(27,348,100)

 

(26,522,900)

Property and equipment, net

 

$

19,895,400

 

$

21,111,800

 

$

12,571,600

$

13,433,700

Depreciation and amortization of property and equipment was $4,730,000, $4,583,600,$1,667,500, $1,683,000, and $4,852,800$1,507,300 for fiscal years 2016, 20152021, 2020 and 2014,2019, respectively.

Capitalized internally developed computer software, net of accumulated amortization, as of March 27, 2016 and March 29, 2015 was $2,212,400 and $844,000, respectively. Amortization expense of capitalized internally developed computer software was $1,194,200, $797,800, and $980,300 for fiscal years 2016, 2015, and 2014.

Note 5.4. Goodwill and Other Intangible Assets

Other intangible assets, which are includedDue to lower than expected results and a significant reduction in other long-term assetsmarket capitalization (due to reduced stock price), we performed a quantitative impairment test for goodwill during the third and fourth quarters of fiscal year 2020. Based on the accompanyingquantitative tests we did in fiscal year 2020, we recorded $9.1 million of non-cash goodwill impairment loss related to continuing operations and $2.6 million of impairment loss related to discontinued operations. There was 0 goodwill carrying amount at any time during fiscal year 2021.

Intangibles, net on our Consolidated Balance Sheets as of March 27, 201628, 2021 and March 29, 2015,2020, consists of capitalized software for internal use and an indefinite lived intangible assets in the amountassets. Capitalized software for internal use, net of $850,000.accumulated amortization, which primarily related to our SAP ERP implementation as of March 28, 2021 and March 29, 2020 was $18,341,100 and $10,362,100, respectively. Amortization expense relating to other intangible assetsof capitalized software for internal use was $12,300$2,077,000, $1,954,700, and $1,620,800 for fiscal year 2014. At March 27, 2016years 2021, 2020, and March

50


29, 2015, amortizable2019. Indefinite lived intangible assets were fully amortized. There were no changes in the carrying amount$795,400 as of goodwill for the fiscal years ended March 27, 201628, 2021 and March 29, 2015.2020.

Note 6.5. Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following:

    

March 28, 2021

    

March 29, 2020

 

Returns Reserve

$

1,967,300

$

3,440,100

Other Accrued Expenses

 

945,000

 

804,300

Total Accrued Expenses and other current liabilities

$

2,912,300

$

4,244,400

The amount of expected returns are recognized as a refund liability within the Accrued expenses and other current liabilities line item on the Consolidated Balance Sheets. This liability represents the obligation to return customer consideration. The value of the expected goods returned by customers is recognized as a return asset within the Prepaid expenses and other current assets line item of the Consolidated Balance Sheets. The return asset value is initially measured at the former carrying amount in inventory, less any expected costs to recover the goods. The Company expects products returned by customers to be in new and salable condition, as required by our standard terms and conditions, and therefore impairment of the return asset is unlikely. Changes to the return liability are recorded as revenue adjustments and changes to the return asset are recorded as reductions to cost of goods sold. As of March 28, 2021, the return asset and return liability amounts were $1.0 million and $2.0 million, respectively. As of March 29, 2020, the return asset and return liability amounts were $2.7 million and $3.4 million, respectively.

 

 

 

 

 

 

 

 

 

    

March 27, 2016

    

March 29, 2015

 

Deferred Revenue

 

$

2,136,600

 

$

6,959,300

 

Other Accrued Expenses

 

 

1,737,500

 

 

1,729,200

 

Total Accrued Expenses

 

$

3,874,100

 

$

8,688,500

 

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Note 7.6. Borrowings Under Revolving Credit Facility  

Fiscal Year 2020 Revolving Credit Facility Activity

On May 31, 2007, pursuant toJune 24, 2016, the Company and its primary operating subsidiaries entered into a Credit Agreement the Company established a revolving credit facility(the “Credit Agreement”) with bothSunTrust Bank, as Administrative Agent and Lender, and Wells Fargo Bank, National Association, and SunTrust Bank. The facility is unsecured and providesas a Lender, for monthly payments of interest accruing at a rate of LIBOR plus an applicable margin. The terms of thesenior asset based secured revolving credit facility requireof up to $35 million (the Revolving Credit Facility”). On October 19, 2017, the Company and its primary operating subsidiaries, as co-borrowers, entered into an Amended and Restated Credit Agreement with SunTrust Bank, as Administrative Agent and Lender, and Wells Fargo Bank, National Association, as a Lender (the “Amended and Restated Credit Agreement”). Pursuant to meet certain financial covenantsthe Amended and ratios and contain other limitations, including certain restrictions on dividend payments. Borrowing availability under the facility is also subject to a borrowing base, based on levels of trade accounts receivable and inventory. This credit facility has been amended several times, most recently on September 24, 2015 (the Tenth Modification Agreement).  Currently the credit facility has a maximum borrowing limit of $35.0 million and has a term expiring in October 2018.  In addition, the credit facility now contains an accordion feature that permits the lenders’ aggregate commitment to be increased to a maximum of $45.0 million, subject to lenders’ discretion and other customary conditions. The amount of dividend payments allowed to be made by the Company under theRestated Credit Facility is $9.0 million in any 12 month period.  The dollar amount of stock repurchases permitted under the term of the credit facility is $30.0 million. As of March 27, 2016, the Company had the ability to purchase approximately $11.7 million in additional shares of common stock without violating this covenant. The financial covenants included inAgreement, the Credit Agreement for the unsecured revolving credit facility are alsosecured Revolving Credit Facility, as previously established in June 2016, was amended and restated in order to, among other things, increase the Company’s borrowing limit from up to $35 million to up to $75 million. Capitalized terms used but not otherwise defined in this Note 6 under the heading, “Fiscal Year 2020 Revolving Credit Facility Activity” have the meanings ascribed to each in the Amended and Restated Credit Agreement.

On March 29, 2020, the interest rate applicable to borrowings under the Company's existing term loan (see Note 8) with the same lenders. Accordingly, any amendment to the financial covenants in theRevolving Credit Agreement also has the effect of amending the financial covenants applicable to the term loan.

The facility provides for monthly payments of interest accruing at a rate of LIBOR plus an applicable margin ranging from 1.50% to 2.50%Facility was 3.09%. The weighted average interest rate on borrowings under the Company’s revolving credit facilitiesRevolving Credit Facility during fiscal year 2020 was 1.69%, 1.65%, and 2.35% for fiscal years 2016, 2015, and 2014, respectively. 3.52%. Under certain circumstances, the Applicable Rate was subject to change at the Lenders’ option from the Eurodollar Rate plus the Applicable Margin to the Base Rate plus the Applicable Margin.

Interest expense on this revolving credit facilitythe Revolving Credit Facility for fiscal years 2016, 2015, and 2014year 2020 totaled $59,000, $78,200, and $53,400, respectively.$1,114,900. Average borrowings under this revolving credit facilityRevolving Credit Facility totaled $3,454,500, $4,672,300, and $2,243,900$33,755,700 and maximum borrowings totaled $12,301,100, $17,331,900, and $13,467,000,$56,069,900 for fiscal years 2016, 2015,year 2020. In addition to the interest charged on borrowings, the Company was subject to a 0.25% fee on the unused portion of this Revolving Credit Facility.

Borrowings under this Revolving Credit Facility could be used for working capital and 2014, respectively.

other general corporate purposes, and as further provided in, and subject to the applicable terms of, the Amended and Restated Credit Agreement. As of March 27, 201629, 2020, borrowings under this Revolving Credit Facility totaled $25.6 million and, March 29, 2015,therefore, the Company had no outstanding balance on its revolving credit facility. Therefore, the Company had $35.0$49.4 million available on its revolvingfor borrowing as of March 29, 2020, subject to the Borrowing Base limitation and compliance with the other applicable terms of the Amended and Restated Credit Agreement, including the applicable covenants. The Company’s previous line of credit facilityhad a lockbox arrangement associated with it and therefore the outstanding balance was classified as a current liability on our Consolidated Balance Sheet as of both March 27, 2016 and March 29, 2015.2020.

There is a financial covenant that the Company was required to maintain at any time during which borrowings under this Revolving Credit Facility exceeded $65 million. The Company’s borrowings did not exceed $65 million during fiscal year 2020. The Company was in compliance with the terms and financialother covenants applicable to each of the revolving credit facility and term loan facility at the end of fiscal years 2016, 2015,year 2020.

This Revolving Credit Facility restricted our ability to pay dividends and 2014.to repurchase our shares, either upon a default or when our borrowing availability was below $15.0 million, or in certain more limited circumstances $11.3 million, and also limited to $2.0 million the aggregate dollar value of shares that may be withheld or repurchased in connection with satisfaction of tax withholding obligations related to vested equity grants during any 12 month period. It also contained other financial covenants and ratios that could restrict dividends and repurchases. At March 29, 2020, we had the ability to withhold or repurchase $1.8 million in additional shares of our common stock during fiscal 2020, without violating this covenant.

Fiscal Year 2021 Revolving Credit Facility Activity

Note 8. Long-Term Debt

On June 30, 2004, the Company refinanced its previously existing term loan with a bank. The original principal amount of the loan was $4.5 million, payable in monthly installments of principal and interest with the balance due at the initial maturity date, June 30, 2011. On October 7, 2015,29, 2020, the Company entered into an agreement witha Credit Agreement (the “2020 Credit Agreement”) among the Company, the Company’s primary operating subsidiaries as co-borrowers, the Lenders party thereto, and Wells Fargo Bank, National Association (“Wells”), as Administrative Agent, swingline lender and SunTrust Bank,an issuing bank, and terminated the secured Revolving Credit Facility discussed above. Terms used, but not defined, in this Note 6 under the heading “Fiscal Year 2021 Revolving Credit Facility Activity” have the meanings set forth in the Credit Agreement or the related Guaranty and Security Agreement.

50

The 2020 Credit Agreement provides for a senior secured asset based revolving credit facility of up to extend$75 million (the “2020 Revolving Credit Facility”), which matures in forty-two months, on April 29, 2024. The 2020 Revolving Credit Facility includes a $5.0 million letter of credit sublimit and provides for the maturity dateissuance of Swing Loans. The 2020 Credit Agreement also includes a provision permitting the Company, subject to certain conditions, to increase the aggregate amount of the commitments under the 2020 Revolving Credit Facility to an aggregate commitment amount of up to $125 million with optional additional commitments from then existing term loanLenders or new commitments from additional lenders, although no Lender is obligated to October 1, 2020.increase its commitment. Availability is determined in accordance with the Borrowing Base, which is generally 85% of Eligible Accounts minus the Dilution Reserve, plus a calculated value of Eligible Inventory aged less than 181 days plus the lesser of $4 million and a calculated value of Inventory aged more than 180 days minus a calculated Reserve, as further detailed and set forth in the Credit Agreement.

Borrowings initially accrue interest from the applicable borrowing date: (A) if a LIBOR Rate Loan, at a per annum rate equal to the LIBOR Rate plus the LIBOR Rate Margin of 2.25% until the March 2021 financial statements are delivered and thereafter (i) if the Fixed Charge Coverage Ratio is less than 1.10:1.00, then 2.25% or (ii) if the Fixed Charge Coverage Ratio is greater than or equal to 1.10:1.00, then 2.00%; (B) if a Base Rate Loan, at a per annum rate equal to the Base Rate plus the Base Rate Margin of 1.25% per annum until the March 2021 financial statements are delivered and thereafter (i) if the Fixed Charge Coverage Ratio is less than 1.10:1.00, then 1.25% or (ii) if the Fixed Charge Coverage Ratio is greater than or equal to 1.10:1.00, then 1.00%. The Credit Agreement contains a LIBOR floor of 0.25% so that if the LIBOR Rate is below 0.25%, then the LIBOR Rate will be deemed to be equal to 0.25% for purposes of the Credit Agreement. On March 28, 2021, the interest rate applicable to borrowings under the secured 2020 Revolving Credit Facility was 4.50%.

Following an Event of Default, the Lenders’ may at their option increase the applicable per annum rate to a rate equal to 2 percentage points above such rate and, with certain events of default such increase is automatic.

The Company is required to pay a monthly Unused Line Fee on this term loanthe average daily unused portion of the 2020 Revolving Credit Facility, at a per annum rate equal to 0.25%.

The Credit Agreement contains 1 financial covenant, a Fixed Charge Coverage Ratio, which is LIBOR plus 2.00%. The notetested only if Excess Availability is securedless than the greater of (a) 16.7% of the maximum amount of the Credit Facility (at closing, $12,525,000) and (b) $12,500,000.  In addition, the 2020 Credit Agreement contains provisions that could limit our ability to engage in specified transactions or activities, including (but not limited to) investments and acquisitions, sales of assets, payment of dividends, issuance of additional debt and other matters.

Borrowings under the 2020 Revolving Credit Facility were initially used to pay all indebtedness outstanding under the previously existing credit facility among the Company and certain subsidiaries, the lenders party thereto and Truist Bank (successor by a first position deed of trust encumbering Company-owned real propertymerger to SunTrust Bank), as administrative agent, and may be used for working capital and other general corporate purposes, and as further provided in, Hunt Valley, Maryland. The loan is generallyand subject to the same financial covenants as

51


the Company’s revolving credit facility (see Note 7), which requires2020 Credit Agreement.

The Company is required to make certain prepayments under the Company to meet2020 Revolving Credit Facility under certain financialcircumstances, including from net cash proceeds from certain asset dispositions in excess of certain thresholds.

The 2020 Credit Agreement contains representations, warranties and affirmative covenants. The Credit Agreement also contains negative covenants and ratios and containsrestrictions on, among other limitations, includingthings:  (i) Indebtedness, (ii) liens, (iii) fundamental changes, (iv) disposition of assets, (v) restricted payments (including certain restrictions on redemptions and dividends, discussed below), (vi) investments and (vii) transactions with affiliates. The 2020 Credit Agreement also contains events of default, such as payment defaults, cross-defaults to other material indebtedness, misrepresentations, bankruptcy and insolvency, the occurrence of a Change of Control and the failure to observe the negative covenants and other covenants contained in the 2020 Credit Agreement and the other loan documents.

The secured Revolving Credit Facility also restricts our ability to pay dividends and to repurchase our shares.  Assuming that no default exists, we may redeem or repurchase up to $2,000,000 of our shares in any twelve consecutive month period in connection with the payment or satisfaction of tax withholding obligations of participants under our equity

51

compensation plans.  We may pay dividends or effect redemptions provided that no default exists or will exist after giving effect to the dividend payments.or repurchase, and the average Excess Availability is not less than $18,750,000 during the immediately preceding thirty-day period and after giving effect to the dividend or repurchase on a pro forma basis, and for each day of the thirty-day period not less than $12,500,000.  Excess Availability is generally defined as Availability minus the aggregate amount of trade payables aged in excess of historical levels and all book overdrafts in excess of historical practices. In addition to these conditions, dividends and repurchase of our shares are in any event limited to $625,000 per quarter and not more than $2,500,000 in the aggregate during the period October 29, 2020 through October 28, 2021, at which time these quarterly and aggregate limits expire.  

Pursuant to a related Guaranty and Security Agreement, by and among the Company, the other borrowers under the 2020 Credit Agreement and other operating subsidiaries of the Company (collectively, the “Loan Parties”), and Wells, as Administrative Agent, the Obligations, which include the obligations under the 2020 Credit Agreement, are guaranteed by the Loan Parties, and secured by continuing first priority security interests in the Company’s and the other Loan Parties’ (including both borrowers and guarantors) Accounts, Books, Chattel Paper, Deposit Accounts, General Intangibles, Inventory, Negotiable Collateral, Supporting Obligations, Money, Cash Equivalents or other assets that come into the possession, custody or control of the Agent or any Lender, and related assets, and the proceeds and products of any of the foregoing (the “Collateral”). The balancesecurity interests in the Collateral are in favor of this note atthe Administrative Agent, for the benefit of the Lenders party to the 2020 Credit Agreement from time to time. The Obligations secured also include certain other obligations of the Loan Parties to the Lenders and their affiliates arising from time to time, relating to swaps, hedges and cash management and other bank products.

On March 27, 2016 and March 29, 201528, 2021, the interest rate applicable to borrowings under the 2020 Revolving Credit Facility was $1,875,000 and $2,100,000, respectively.4.50%. The weighted average interest rate on borrowings under this notethe Company’s Revolving Credit Facility during fiscal year 2021 was 2.21%, 2.19%,2.89%. Under certain circumstances, the Applicable Rate is subject to change at the Lenders’ option from the Eurodollar Rate plus the Applicable Margin to the Base Rate plus the Applicable Margin.

Interest expense on both Revolving Credit Facilities in the aggregate for fiscal year 2021 totaled $556,100, net of capitalized interest of $450,200. Average borrowings under the facilities totaled $34,404,500 and 2.18%maximum borrowings totaled $43,283,000 for fiscal year 2021. In addition to the interest charged on borrowings, the Company continues to be subject to a 0.25% fee on the unused portion of the 2020 Revolving Credit Facility.

Borrowings under the 2020 Revolving Credit Facility may be used for working capital and other general corporate purposes, and as further provided in, and subject to the applicable terms of, the 2020 Credit Agreement. As of March 28, 2021, borrowings under the 2020 Revolving Credit Facility totaled $30.6 million and, therefore, the Company had $44.4 million available for borrowing as of March 28, 2021, subject to the Borrowing Base limitation and compliance with the other applicable terms referenced above. The 2020 Revolving Credit Facility has no lockbox arrangement associated with it, and therefore the outstanding balance is classified as a long-term liability on the Consolidated Balance Sheet as of March 28, 2021. Accordingly, borrowings from and repayments to the Company’s current line of credit are reflected on a gross basis in the cash flows from financing activities in the Consolidated Statements of Cash Flow.

Note 7. Lease

The Company is committed to making rental payments under non-cancelable operating leases covering various facilities and equipment. Our leases have remaining lease terms of 1 to 5 years, some of which include options to extend the leases for up to 5 years. Rent expense for fiscal years 2016, 2015,2021, 2020 and 2014, respectively. Interest expense under this note was $43,900, $48,400,2019 totaled $3,453,500, $3,046,000, and $54,500 for fiscal years 2016, 2015, and 2014,$3,001,800, respectively.

On March 31, 2009,The Company leases office space in Timonium, Maryland, where the Company entered into a term loan withCompany’s sales, marketing and administrative offices are located. This space is nearby to the Baltimore County Economic Development Revolving Loan Fund for an aggregate principal amount of $250,000. At March 27, 2016 and March 29, 2015, the principal balance of this term loan was $82,600 and $108,200, respectively. The term loan is payable in equal monthly installments of principal and interest of $2,300, with the balance due at maturity on April 1, 2019. The term loan bears interest at 2.00% per annum. Interest expense under this note was $2,000, $2,400, and $2,900 for fiscal years 2016, 2015, and 2014, respectively. The term loan is secured by a subordinate position on Company-owned real property locatedCompany’s Global Logistics Center in Hunt Valley, Maryland. The Agreement of Lease expires on December 31, 2025. Monthly rent payments now range from $183,000 to $203,800 through the remaining lease term.

AsThe Company also leases office and warehouse space in Hunt Valley, Maryland, adjacent to the Company’s Global Logistics Center, expiring on July 31, 2023. The Company has an ongoing annual option to terminate the lease. The monthly rental fee ranges from $40,500 to $43,000 through the remaining lease term.

52

Additional sales and marketing offices are located in additional leased office space in San Antonio, Texas.  This space is leased pursuant to a lease agreement expiring on October 31, 2021.  Monthly rent payments are $19,100 through the remaining lease term.

Quantitative information regarding the Company’s leases is as follows:

 

 

 

 

 

Fiscal year:

    

    

 

 

2017

 

$

251,100

 

2018

 

 

251,900

 

2019

 

 

252,300

 

2020

 

 

227,300

 

2021

 

 

975,000

 

Thereafter

 

 

 —

 

 

 

$

1,957,600

 

As of March 28, 2021

Maturities of lease liabilities by fiscal year are as follow:

2022

$

3,164,000

2023

3,018,300

2024

2,725,700

2025

2,609,900

2026

1,987,600

Total

13,505,500

Less: present value discount

(2,008,500)

Present value of lease liabilities

$

11,497,000

Weighted-average discount rate:

3.9%

Weighted-average remaining lease term

4.5 years

Note 9.8. Commitments and Contingencies

The Company is committed to making rental payments under non-cancelable operating leases covering various facilities and equipment. Rent expense for fiscal years 2016, 2015 and 2014 totaled $3,035,600, $2,970,300, and $3,004,300, respectively.

The Company leases office space in Timonium, Maryland, where the Company’s sales, marketing and administrative offices are located. This space is nearby to the Company’s Global Logistics Center in Hunt Valley, Maryland. The Agreement of Lease expires on December 31, 2017. Monthly rent payments now range from $167,600 to $177,700 through the remaining lease term.

The Company also leases office and warehouse space in Hunt Valley, Maryland, adjacent to the Company’s Global Logistics Center, expiring on July 31, 2017; however, the Company has an ongoing annual option to terminate the lease. The monthly rental fee ranges from $34,300 to $35,700 through the remaining lease term.

Additional sales and marketing offices are located in additional leased office space in San Antonio, Texas.  This space is leased pursuant to a lease agreement expiring on October 31, 2018.  Monthly rent payments range from $15,800 to $16,900 through the remaining lease term.

52


The Company’s minimum future obligations as of March 27, 2016 under existing operating leases are as follows:

 

 

 

 

 

Fiscal year: 

    

 

 

 

2017

 

$

2,987,400

 

2018

 

 

2,024,800

 

2019

 

 

147,900

 

2020

 

 

15,400

 

2021

 

 

700

 

Thereafter

 

 

 —

 

 

 

$

5,176,200

 

Lawsuits and claims are filed against the Company from time to time in the ordinary course of business. The Company does not believe that any lawsuits or claims pending against the Company, individually or in the aggregate, are material, or will have a material adverse effect on the Company’s financial condition or results of operations. In addition, from time to time, the Company is also subject to review from federal and state taxing authorities in order to validate the amounts of income, sales and/or use taxes which have been claimed and remitted. No federal, state and local tax returns are currently under examination.

As the Company is routinely audited by state taxing authorities, the Company has estimated exposure and established reserves for its estimated sales tax audit liability.

Note 10.9. Operating Segment

The Company evaluates its business as one1 segment, as the chief operating decision maker reviews results as one1 unit. However, to provide investors with increased visibility into the markets it serves, the Company also reports revenue and gross profit by the following customer markets: (1) public carriers contractors and program managers that are generally responsible for building and maintaining the infrastructure system and provide airtime service to individual subscribers; and (2) value-added resellers and integrators, which includes value-added resellers, the government system operators including federal agencieschannel and state and local governments that run wireless networks for their own use; (3) private system operators including commercialoperator markets. Inventory typically has a life cycle that tends to be tied to changes in regulation or technology and includes products typically used by business entities such as major utilities and transportation companies that run wireless networks for their own use; (4) commercial dealers and resellers that sell, install and/or service cellular telephone, wireless networking, broadband and two-way radio communications equipment primarily for the enterprise market; and (5) retailers, independent dealer agents and carriers. Beginning in the third quarter of fiscal year 2015, the Company began reporting private system operators and government system operators as two separate markets. All prior periods have been restated to reflect this change.governments.  

The Company evaluates revenue, gross profit and net profit contribution, and income before provision for income taxes in the aggregate. Net profit contribution is defined as gross profit less any expenses that can be directly attributed.  This includes sales, product management, purchasing, credit and collections and distribution team expenses, plus freight out and internal and external marketing costs.  Corporate support expenses includes administrative costs – finance, human resources, information technology, operating facility occupancy expenses, depreciation, amortization and interest, plus the company-wide pay on performance bonus expense.

Certain cost of sales and other applicable expenses have been allocated to each market based on a percentage of revenues and/or gross profit, where appropriate.

53


Market activity for the fiscal years ended 2016, 20152021, 2020 and 20142019 is as follows (in thousands):

Year Ended

March 28, 2021

March 29, 2020

March 31, 2019

Revenues

Public Carrier

$

149,825

$

156,395

$

156,983

Value-added resellers and Integrators

223,516

252,619

262,062

Total revenues

$

373,341

$

409,014

$

419,045

Gross Profit

Public Carrier

$

16,585

$

18,699

$

20,275

Value-added resellers and Integrators

51,131

60,943

64,130

Total gross profit

$

67,716

$

79,642

$

84,405

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 27, 2016

    

March 29, 2015

    

March 30, 2014

 

Revenues

    

 

 

 

 

 

 

 

 

 

 

 

Public Carriers, Contractors & Program Managers

 

 

 

$

89,171

 

$

127,426

 

$

149,195

 

Government System Operators

 

 

 

 

33,009

 

 

31,495

 

 

33,757

 

Private System Operators

 

 

 

 

85,563

 

 

86,725

 

 

81,560

 

Commercial Dealers & Resellers

 

 

 

 

129,986

 

 

134,195

 

 

140,552

 

Retailer, Independent Dealer Agents & Carriers

 

 

 

 

192,953

 

 

169,778

 

 

155,023

 

Total revenues

 

 

 

$

530,682

 

$

549,619

 

$

560,087

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

Public Carriers, Contractors & Program Managers

 

 

 

$

15,155

 

$

20,915

 

$

27,708

 

Government System Operators

 

 

 

 

7,713

 

 

7,535

 

 

7,791

 

Private System Operators

 

 

 

 

20,601

 

 

20,866

 

 

21,475

 

Commercial Dealers & Resellers

 

 

 

 

33,781

 

 

34,948

 

 

36,567

 

Retailer, Independent Dealer Agents & Carriers

 

 

 

 

34,716

 

 

33,375

 

 

32,817

 

Total gross profit

 

 

 

$

111,966

 

$

117,639

 

$

126,358

 

 

 

 

 

 

 

 

 

 

 

 

 

 

53

Note 10. Stock Buyback

The Company also reviews revenue and gross profit by its four product categories:

·

Base station infrastructure products are used to build, repair and upgrade wireless telecommunications. Products include base station antennas, cable and transmission lines, small towers, lightning protection devices, connectors, power systems, miscellaneous hardware, and mobile antennas. Our base station infrastructure service offering includes connector installation, custom jumper assembly, site kitting and logistics integration.

·

Network systems products are used to build and upgrade computing and internet networks.  Products include fixed and mobile broadband equipment, wireless networking, filtering systems, distributed antenna systems, two-way radios and security and surveillance products.  This product category also includes training classes, technical support and engineering design services.

·

Installation, test and maintenance products are used to install, tune, and maintain wireless communications equipment. Products include sophisticated analysis equipment and various frequency-, voltage- and power-measuring devices, as well as an assortment of tools, hardware, GPS, safety and replacement and component parts and supplies required by service technicians.  

·

Mobile devices and accessory products include cellular phone and data device accessories such as replacement batteries, cases, speakers, mobile amplifiers, power supplies, headsets, mounts, car antennas, music accessories and data and memory cards. Retail merchandising displays, promotional programs, customized order fulfillment services and affinity-marketing programs, including private label internet sites, complement our mobile devices and accessory product offering.

54


Supplemental revenue and gross profit information by product category for the fiscal years 2016, 2015 and 2014 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

March 27, 2016

    

March 29, 2015

    

March 30, 2014

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

Base station infrastructure

 

 

$

206,604

 

$

224,135

 

$

252,983

 

Network systems

 

 

 

83,480

 

 

96,399

 

 

89,411

 

Installation, test and maintenance

 

 

 

34,936

 

 

41,790

 

 

45,343

 

Mobile device accessories

 

 

 

205,662

 

 

187,295

 

 

172,350

 

Total revenues

 

 

$

530,682

 

$

549,619

 

$

560,087

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

 

 

 

 

 

 

 

 

 

Base station infrastructure

 

 

 

51,610

 

 

55,732

 

 

64,318

 

Network systems

 

 

 

12,893

 

 

13,549

 

 

13,988

 

Installation, test and maintenance

 

 

 

6,607

 

 

8,351

 

 

9,306

 

Mobile device accessories

 

 

 

40,856

 

 

40,007

 

 

38,746

 

Total gross profit

 

 

$

111,966

 

$

117,639

 

$

126,358

 

 

 

 

 

 

 

 

 

 

 

 

 

Note 11. Restructuring Charge

In the fourth quarter of fiscal year 2015, recognizing the ongoing challenging conditions caused by the carrier spending slowdown, the Company took actions to restructure costs, resulting in a $0.6 million pre-tax charge, which is included in our Consolidated Statements of Income for fiscal year 2015. The restructuring charge primarily consists of severance-related expenses associated with a reduction in headcount paid in the fourth quarter of fiscal year 2015 through the first quarter fiscal year 2016. 

Note 12. Stock Buyback

On April 23, 2014, the Board of Directors expanded the Company’s then existingcommon stock buyback program and authorized the purchase on a non-accelerated basis of up to $10.0 million of the Company’s stock over a 24-month period, ending in April 2016. Shares may be purchased from time to time in the open market, by block purchase, or through negotiated transactions, or possibly other transactions managed by broker-dealers. During fiscal year 2015, the Company purchased 157,954 shares under the expanded stock buyback program for approximately $4.6 million, or an average cost of $29.17 per share. No shares were repurchased under the program in fiscal years 2016 and 2014. As of March 27, 2016, $5.4 million remained available for repurchase under this program. The stock buyback program expired in April 2016.  

The Company also withholds shares from its employees and directors, at their request, equal to the minimum federal and state tax withholdings related to vested performance stock units, stock option exercises and restricted stock awards. For fiscal years 2016, 2015,2021, 2020, and 20142019 the total value of shares withheld for taxes was $937,300, $1,612,900,$121,500, $201,000, and $1,646,300,$111,100, respectively.

55


Note 13.12. Income Taxes

A reconciliation of the difference between the provision for income taxes computed at statutory rates and the provision for income taxes from continuing operations provided in the consolidated statements of income is as follows:

 

 

 

 

 

 

 

    

2016

    

2015

    

2014

 

 

 

 

 

 

 

 

    

2021

    

2020

    

2019

 

 

Statutory federal rate

 

34.0

%  

34.2

%  

35.0

%

 

21.0

%  

21.0

%  

21.0

%

State taxes, net of federal benefit

 

4.5

 

4.1

 

3.3

 

 

3.4

1.8

(1.3)

Non-deductible expenses

 

2.1

 

0.9

 

0.7

 

 

(1.2)

(0.7)

2.2

Change in uncertain tax positions

2.8

Change in valuation allowance

(7.6)

(2.9)

Rate change for loss carrybacks

6.2

12.5

Other

 

(0.8)

 

 —

 

(0.8)

 

 

(0.7)

0.7

Effective rate

 

39.8

%  

39.2

%  

38.2

%

 

21.1

%  

32.4

%  

24.7

%

The provision for income taxes from continuing operations was comprised of the following:

    

2021

    

2020

    

2019

 

Federal:    Current

$

(4,263,700)

$

(4,008,000)

$

(3,120,400)

Deferred

 

(48,200)

 

(2,642,800)

 

509,400

State:        Current

 

16,700

 

(411,000)

 

(321,500)

Deferred

 

450,700

 

(413,000)

 

18,700

Benefit from income taxes

$

(3,844,500)

$

(7,474,800)

$

(2,913,800)

 

 

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

    

2014

 

 

 

 

 

 

 

 

 

 

 

 

Federal:    Current

 

$

2,350,000

 

$

3,035,400

 

$

9,252,700

 

Deferred

 

 

763,100

 

 

1,964,800

 

 

(396,600)

 

State:        Current

 

 

345,100

 

 

398,500

 

 

1,212,400

 

Deferred

 

 

73,600

 

 

178,100

 

 

(5,400)

 

Provision for income taxes

 

$

3,531,800

 

$

5,576,800

 

$

10,063,100

 

54

Total net deferred tax assets (liabilities) as of March 27, 201628, 2021 and March 9, 2015,29, 2020, and the sources of the differences between financial accounting and tax basis of the Company's assets and liabilities which give rise to the deferred tax assets, and liabilities, are as follows:

 

 

 

 

 

 

 

    

2016

    

2015

 

Net deferred tax assets (liabilities):

 

 

 

 

 

 

 

    

2021

    

2020

 

Deferred tax assets:

Deferred compensation

 

$

357,500

 

$

802,700

 

$

163,600

$

264,300

Accrued vacation

 

 

534,200

 

 

554,100

 

 

362,600

 

469,100

Deferred rent

 

 

459,100

 

 

687,500

 

 

2,638,100

 

3,258,600

Allowance for doubtful accounts

 

 

266,300

 

 

232,800

 

 

357,300

 

1,130,900

Inventory reserves

 

 

2,264,500

 

 

2,175,500

 

 

766,300

 

2,794,200

Sales tax reserves

 

 

366,500

 

 

459,600

 

 

104,500

 

122,900

Sales return assets

451,400

1,200,400

Net operating loss

518,500

275,400

Business interest limitation carryforward

383,800

259,300

Other assets

 

 

475,200

 

 

516,000

 

 

925,900

 

1,013,600

Restricted Stock

 

 

 —

 

 

89,600

 

Tax contingency reserve

 

 

247,600

 

 

286,200

 

6,672,000

10,788,700

Valuation allowance

(2,866,800)

(2,047,300)

Total deferred tax assets

3,805,200

8,741,400

Deferred tax liabilities:

Depreciation and amortization

 

 

(3,646,200)

 

 

(3,354,600)

 

 

(214,600)

 

(419,200)

Other liabilities

 

 

(374,100)

 

 

(312,400)

 

Accrued compensation

 

 

(577,600)

 

 

(873,700)

 

Prepaid expenses

 

 

(752,400)

 

 

(767,400)

 

 

 

 

 

 

 

 

Net Deferred Tax Asset (Liability)

 

$

(379,400)

 

$

495,900

 

Sales return liabilities

 

(224,100)

(950,600)

Lease right of use

(2,589,600)

(3,232,900)

Prepaid expenses and other liabilities

 

(803,400)

 

(1,106,200)

Total deferred tax liabilities

(3,831,700)

(5,708,900)

Net deferred tax (liability) assets

$

(26,500)

$

3,032,500

The Company has reviewed its deferred tax assets realization and has determined that no valuation allowance is requiredrecorded by the Company as of March 27, 2016 or28, 2021 and March 29, 2015.2020 resulted from the uncertainties of the future realization of federal and state deferred tax assets. The Company will continue to assess and evaluate strategies that will enable the deferred tax asset, or portion thereof, to be realized, and will reduce the valuation allowance appropriately as such time when it is determined that the “more likely than not” criteria is satisfied.

As of March 27, 2016,28, 2021, the Company had gross unrecognized tax benefitstate net operating loss carryforwards of $290,400 ($188,800$72,966,720 which will generally begin to expire in fiscal year 2030 through fiscal year 2040.  Certain state net of federal benefit). operating loss carryovers do not expire.  

As of March 30, 2015,28, 2021 and March 29, 2020, the Company had gross0 unrecognized tax benefits of $394,400 ($256,400 net of federal benefit).benefits.

The Company’s accounting policy with respect to interest and penalties related to tax uncertainties is to classify these amounts as part of the provision for income taxes. The total amount of interest and penalties related to tax uncertainties recognized in the

56


consolidated statement of income for fiscal year 2016 was an expense of $16,600 (net of federal benefit) and the cumulative amount included as a liability in the consolidated balance sheet as of March 27, 2016 was $399,814 (net of federal benefit). The total amount of interest and penalties related to tax uncertainties recognized in the consolidated statement of income for fiscal year 20152021, 2020 and 2019 was a benefit of $31,600$0, $0, and $250,500 (net of federal expense) and thebenefit), respectively. The cumulative amount included in the consolidated balance sheet as of March 28, 2021 and March 29, 20152020 was $323,800 (net of federal expense). The total amount of interest and penalties related to tax uncertainties recognized in the consolidated statement of income for fiscal year 2014 was a benefit of $23,300 (net of federal benefit). $0.

As of March 27, 2016, the total net amount of unrecognized tax benefits, inclusive of indirect tax benefits and deferred tax benefits was $188,800 and associated penalties and interest were $339,800. The net amount of $528,600, if recognized, would affect the effective tax rate.

A reconciliation of the changes in the gross balance of unrecognized tax benefit amounts, netexclusive of interest, is as follows:

    

2021

    

2020

    

2019

 

Beginning balance of unrecognized tax benefit

$

$

$

112,700

Increases related to current period tax positions

 

 

 

3,500

Reductions as a result of a lapse in the applicable statute of limitations

 

 

 

(116,200)

Ending balance of unrecognized tax benefits

$

$

$

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

2016

    

2015

    

2014

 

Beginning balance of unrecognized tax benefit

 

 

$

394,400

 

$

1,665,000

 

$

631,100

 

Decrease due to reclassification to income tax payable

 

 

 

 —

 

 

(1,189,000)

 

 

 —

 

Increase related to prior period tax positions

 

 

 

 —

 

 

 —

 

 

1,189,000

 

Increases related to current period tax positions

 

 

 

3,800

 

 

10,600

 

 

22,800

 

Reductions as a result of a lapse in the applicable statute of limitations

 

 

 

(107,800)

 

 

(92,200)

 

 

(177,900)

 

Ending balance of unrecognized tax benefits

 

 

$

290,400

 

$

394,400

 

$

1,665,000

 

55

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, which we refer to herein as the 2017 Tax Act. While the changes from the Tax Act were generally effective for tax years beginning after December 31, 2017, ASC No. 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment.   Given the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allowed registrants to record provisional amounts in earnings for the year ended April 1, 2018.  The Company was required to complete its tax accounting for the 2017 Tax Act when it had obtained, prepared and analyzed the information to complete the income tax accounting but no later than December 22, 2018.   Accordingly, during fiscal year 2019, the Company completed its accounting for the tax effects of the enactment of the 2017 Tax Act based on the Company’s interpretation on the new tax regulations and related guidance issued by the U.S. Department of the Treasury and the IRS.  The Company did not record a material adjustment in fiscal year 2019 to the provided provisional amount of $0.2 million.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law making several changes to the Internal Revenue Code. The changes include but are not limited to: increasing the limitation on the amount of deductible business interest expense, allowing companies to carryback certain net operating losses to the preceding five years, and increasing the amount of net operating loss carryforwards that corporations can use to offset taxable income.

The Company files income tax returns in U.S. federal, state and local jurisdictions. Income tax returns filed for fiscal years 2008 and earlier are no longer subject to examination by U.S. federal, state and local tax authorities. No federal, state and local income tax returns are currently under examination.

Certain income taxTax returns for fiscal years 20122015 through 20162021 remain open to examination by U.S. federal, state and local tax authorities. All state net operating losses generated to date are subject to adjustment for state income tax purposes.

Note 14.13. Retirement Plans

The Company has a 401(k) plan that covers all eligible employees. Contributions to the plan can be made by employees and the Company may make matching contributions at its discretion. Expense related to this matching contribution was $635,500, $524,200,$806,000, $937,500, and $718,700$957,100 during fiscal years 2016, 2015,2021, 2020, and 2014,2019, respectively. As of March 27, 201628, 2021, plan assets included 133,102232,000 shares of common stock of the Company.

The Company maintains a Supplemental Executive Retirement Plan for Robert B. Barnhill, Jr., the Company’s Chairman President and CEO of the Company.Board. This plan is funded through life insurance policies for which the Company is the sole beneficiary. The cash surrender value of the life insurance policies and the net present value of the benefit obligation of approximately $1,966,400$2,680,700 and $966,400,$809,400, respectively, as of March 27, 201628, 2021 and $1,769,600$2,523,500 and $941,300,$915,700, respectively, as of March 29, 2015,2020, are included in otherOther long-term assets and other long-termOther non-current liabilities, respectively, in the accompanying Consolidated Balance Sheets.

Note 15.14. Earnings Per Share

The Company calculatespresents the computation of earnings per share considering ASC No. 260 in regards to accounting for participating securities, which requires the Company to use the two-class method to calculate earnings per share. Under the two-class method, earnings per common share are(“EPS”) on a basic and diluted basis. Basic EPS is computed by dividing the sum of the distributed earnings to common shareholders and undistributed earnings allocated to common shareholdersnet income by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the weighted average shares outstanding during the reported period. Diluted earnings per share are computed similarly to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential additional common shares that were dilutive had been issued. Shares of common stock are excluded from the calculation if they are determined to be anti-dilutive. In fiscal years 2021 and 2020, the Company had a net loss and accordingly recorded EPS by using only basic shares outstanding.

5756


The following table presents the calculation of basic and diluted earnings per common share:share from continuing operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts in thousands, except per share amounts

 

Amounts in thousands, except per share amounts

 

 

 

2016

 

2015

 

2014

 

Earnings per share – Basic:

    

 

 

 

    

    

 

    

 

 

    

 

Net earnings

 

 

 

$

5,341

 

$

8,634

 

$

16,249

 

Less: Distributed and undistributed earnings allocated to nonvested stock

 

 

 

 

(15)

 

 

(47)

 

 

(134)

 

Earnings available to common shareholders – Basic

 

 

 

$

5,326

 

$

8,587

 

$

16,115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – Basic

 

 

 

 

8,220

 

 

8,171

 

 

8,134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share – Basic

 

 

 

$

0.65

 

$

1.05

 

$

1.98

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share – Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 

$

5,341

 

$

8,634

 

$

16,249

 

Less: Distributed and undistributed earnings allocated to nonvested stock

 

 

 

 

(1)

 

 

(19)

 

 

(132)

 

Earnings available to common shareholders – Diluted

 

 

 

$

5,340

 

$

8,615

 

$

16,117

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – Basic

 

 

 

 

8,220

 

 

8,171

 

 

8,134

 

Effect of dilutive options

 

 

 

 

 —

 

 

102

 

 

192

 

Weighted average common shares outstanding – Diluted

 

 

 

 

8,220

 

 

8,273

 

 

8,326

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share – Diluted

 

 

 

$

0.65

 

$

1.04

 

$

1.94

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Anti-dilutive equity awards not included above

 

 

 

 

100

 

 

 

 

 

 

Amounts in thousands, except per share amounts

Amounts in thousands, except per share amounts

 

2021

2020

 

2019

Earnings per share from continuing operations – Basic:

    

    

    

    

Net loss

$

(14,373)

$

(15,601)

$

(8,882)

Weighted average common shares outstanding – Basic

 

8,697

 

8,527

 

8,437

Earnings per common share from continuing operations – Basic

$

(1.65)

$

(1.83)

$

(1.05)

Earnings per share – Diluted:

Net loss

$

(14,373)

$

(15,601)

$

(8,882)

Weighted average common shares outstanding – Basic

 

8,697

 

8,527

 

8,437

Effect of dilutive options

 

 

 

Weighted average common shares outstanding – Diluted

 

8,697

 

8,527

 

8,437

Loss per common share from continuing operations – Diluted

$

(1.65)

$

(1.83)

$

(1.05)

Anti-dilutive equity awards not included above

 

755

 

852

 

94

There were noAt March 28, 2021, March 29, 2020, and March 31, 2019 stock options with respect to shares of common stock outstanding as of March 29, 2015925,000, 862,000 and March 30, 2014. At March 27, 2016, stock options with respect to 100,000591,500 shares of common stock were outstanding, all of which were anti-dilutive.respectively. The anti-dilutive stock options outstanding at March 28, 2021, March 29, 2020, and March 31, 2019 total 755,000, 852,000 and 94,000, respectively.  There were no0 anti-dilutive Performance Stock Units or Restricted Stock Units outstanding as of March 27, 2016,28, 2021, March 29, 2015, or2020, and March 30, 2014.31, 2019.

Note 16. Stock‑Based15. Stock-Based Compensation

The Company’s selling, general and administrative expenses for the fiscal years ended March 27, 2016,28, 2021, March 29, 2015,2020, and March 30, 201431, 2019 includes $729,000, $1,161,300,$1,211,000, $1,174,600, and $2,087,100,$1,244,000, respectively, of stock compensation expense. Provision for income taxes for the fiscal years ended March 27, 2016,28, 2021, March 29, 2015,2020, and March 30, 201431, 2019 includes $290,100, $441,300,$255,600, $386,100, and $797,300,$307,300, respectively, of income tax benefits related to our stock-based compensation arrangements. Stock compensation expense is primarily related to our Performance Stock Unit Program as described below.

TheUnits (PSUs), Restricted Stock Units (RSUs) and Stock Options, granted or outstanding under the Company’s stock incentive plan is the SecondThird Amended and Restated 1994 Stock and Incentive Plan (the 1994 Plan). On July 21, 2011, the Company’s shareholders approved an amendment to“1994 Plan”) and 2019 Stock and Incentive Plan (the “2019 Plan” and together with the 1994 Plan, increasing the number“Plans), which was approved at the Annual Meeting of shares of common stock available forShareholders held on July 25, 2019. No additional awards may be granted under the grant of1994 Plan, although awards outstanding under the 1994 Plan remain outstanding and governed by 690,000 shares, from 2,638,125 to an aggregate of 3,553,125 shares of the Company's common stock. its terms.

As of March 27, 2016, 306,29628, 2021, 528,709 shares were available for issue in respect of future awards under the 19942019 Plan. Subsequent to the Company’s 20162021 fiscal year end, on May 11, 2016, based on fiscal year 2016 results, 103,000 shares related to Performance Stock Units (PSUs) were canceled, and as a result, these shares were made available for future grants. On April 30, 2016, 20,00015, 2021, the Compensation Committee of the Board of Directors with concurrence of the full Board of Directors, granted stock options were canceled due to an employee termination and these shares were also made available for future grants. Also on May 27, 2016 and May 11, 2016, respectively, additional PSUs and restricted stock awards were issued providing recipients with the opportunityselect key employees to earn up

58


topurchase an aggregate of 194,000 and 10,000 additional187,500 shares respectively of the Company’s common stock. In addition, as further discussed below, RSU awards for 12,000 shares and restricted stock awards for 22,252 shares were made on April 29, 2021, entitling the recipients to receive up to 34,252 shares of common stock in the aggregate, depending upon vesting.  Accordingly, as of May 27, 2016,June 2, 2021, and after accounting for shares added back to the 2019 Plan in the interim, an aggregate of 225,296303,279 shares were available for issue pursuant to future awards.

No additional awards can be made under the 1994 Plan after July 21, 2016, without or unless made subject to shareholder approval of an extension of the plan term. The Company intends to seek shareholder approval at our 2016 Annual Meeting for an amended and restated 1994 Plan which would provide for, among other things, extension of the date through which awards may be granted and an increase in the number of shares available for future awards. Stock Options, restricted stock and PSU awards have historically been granted as awards under the 1994 Plan. Shares which are subject to outstanding PSU or other awards under the 1994 Plan, and which are not earned, are returned to the 1994 Plan and become available for future issuance in accordance with and otherwise subject to the terms of the 19942019 Plan.

Performance Stock Units: The Company’s equity-based compensation philosophy is generally focused on granting performance-based and time-vested stock grants. Under a program established by the Board of Directors, Performance Stock Units (PSUs)PSUs have been granted under the 1994 PlanPlans to selected employees. Each PSU entitles the participant to earn TESSCOTessco common stock, but only after earnings per share and, for non-director employee participants, individual performance targets are met over a defined performance cycle. Performance cycles, which are fixed for each grant at the date of grant, are one year. Once earned, shares vest and are issued over a specified period of time determined at the time of the grant, provided that the

57

participant remains employed by or associated with the Company at the time of share issuance. Earnings per share targets, which take into account the earnings impact of this program, are set by the Board of Directors in advance for the complete performance cycle at levels designed to grow shareholder value. If actual performance does not reach the minimum annual or threshold targets, no shares are issued. In accordance with ASC No. 718, the Company records compensation expense on its PSUs over the service period, based on the number of shares management estimates will ultimately be issued. Accordingly, the Company determines the periodic financial statement compensation expense based upon the stock price at the PSU grant date, net of the present value of dividends expected to be paid on TESSCOTessco common stock before the PSU vests, management’s projections of future EPS performance over the performance cycle,period, and the resulting amount of estimated share issuances, net of estimatedissuances. As discussed in Note 2 above, theCompany accounts for forfeitures as they occur rather than estimate expected forfeitures. TheTo the extent that forfeitures occur, stock-based compensation related to the restricted awards may be different from the Company’s estimated forfeiture rate is approximately 0% which is estimated primarily based on historical experience and expectations of future forfeitures.expectations.

The following table summarizes the activity under the Company’s PSU program for fiscal years 2016, 20152021, 2020 and 2014:2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

2016

    

2015

 

2014

 

 

 

 

 

 

Weighted

 

 

 

Weighted

 

 

 

Weighted

 

 

 

 

 

 

Average Fair

 

 

 

Average Fair

 

 

 

Average Fair

 

 

 

 

Shares

 

Value at Grant

 

Shares

 

Value at Grant

 

Shares

 

Value at Grant

 

Unvested shares available for issue under outstanding PSUs, beginning of period

 

 

203,841

 

$

20.65

 

317,127

 

$

15.96

 

455,979

 

$

12.77

 

PSU’s Granted

 

 

103,000

 

 

22.15

 

91,000

 

 

29.28

 

112,000

 

 

19.91

 

PSU’s Vested

 

 

(87,648)

 

 

13.88

 

(125,347)

 

 

14.44

 

(199,066)

 

 

10.22

 

PSU’s Forfeited/Cancelled

 

 

(80,268)

 

 

28.57

 

(78,939)

 

 

21.61

 

(51,786)

 

 

18.47

 

Unvested shares available for issue under outstanding PSUs, end of period

 

 

138,925

 

$

21.46

 

203,841

 

$

20.65

 

317,127

 

$

15.96

 

 

2021

    

2020

2019

 

 

Weighted

Weighted

 

Weighted

 

 

Average Fair

Average Fair

 

Average Fair

 

Shares

Value at Grant

Shares

Value at Grant

Shares

Value at Grant

Unvested shares available for issue under outstanding PSUs, beginning of period

68,355

$

15.00

 

98,306

$

14.55

67,000

$

12.65

PSUs Granted

 

 

51,616

 

15.93

71,000

 

15.58

PSUs Vested

(21,690)

 

14.21

 

(29,036)

 

14.09

(14,257)

 

12.66

PSUs Forfeited/Cancelled

(33,113)

 

15.69

 

(52,532)

 

9.82

(25,437)

 

13.46

Unvested shares available for issue under outstanding PSUs, end of period

13,552

$

14.57

 

68,355

$

15.00

98,306

$

14.55

As of March 27, 2016,28, 2021, there was approximately $41,700 of total$16,943 unrecognized compensation cost, net of forfeitures, related to PSUs earned. These costs are expected to be recognized over a weighted average period of one year. Total fair value of shares vested during fiscal years 2016, 20152021, 2020 and 20142019 was $2,543,000, $4,364,500$103,300, $780,400 and $4,531,700,$460,800, respectively.

Of the 80,268The PSUs canceled during fiscal year 2016, 74,5002021 primarily related to the fiscal year 20152020 grant of PSUs which had a one-year measurement period (fiscal 2020) and were canceled in May 2015.employee departures. The PSUs were canceled because the minimum applicable fiscal year 20152020 performance targets were not fully satisfied. The remaining 5,768 PSUs were forfeited due to employee departures during fiscal year 2016. Per the provisions of the 19942019 Plan, the shares related to these forfeited and canceled PSUs were added back to the 19942019 Plan and became available for future issuance.issuance under the 2019 Plan.

59


Of the PSUs outstanding at the end of fiscal year 2016 covering 138,925 non-vested shares, PSUs covering 103,000 shares were subsequently canceled in May 2016, based on fiscal year 2016 performance. These PSUs were canceled because fiscal year 2016 earnings per share did not fully reach the target performance set forth in the PSU grants. The remaining 35,92513,552 shares covered by PSUs outstanding at the end of fiscal year 20162021 were earned based on previousfiscal year 2019 and 2018 performance, but were not yet vested as of March 27, 2016.28, 2021. Assuming the respective participants remain employed by, or affiliated with the Company, on the applicable vesting dates, these shares have vested and been issued, or will vest and be issued, on or about May 1 of 2016,2021 and 2017,2022 as follows:

 

 

 

 

 

    

Number of Shares

 

2016

 

26,736

 

2017

 

9,189

 

 

 

35,925

 

Number of Shares

Fiscal Year 2022

9,023

Fiscal Year 2023

 

4,529

13,552

Subsequent to the Company’s 20162021 fiscal year end, on May 27, 2016, the Compensation Committee, with the concurrence of the full Board of Directors, granted additional PSUs to selected key employees, providing them with the opportunity to earn up to 194,000 additional shares of the Company’s common stock in the aggregate, depending upon whether certain threshold or goal earnings per share targets are met and individual performance metrics are satisfied in fiscal year 2017. These PSUs have only one measurement year (fiscal year 2017), with any shares earned at the end of fiscal year 2017 to vest 25% on or about each of May 1 of 2017, 2018, 2019 and 2020. Pursuant to the typical PSU award agreement, however, performance metrics are deemed met upon the occurrence of a change in control, and shares earned are issued earlier upon the occurrence of a change in control, or death or disability of the participant, or upon termination of the participant’s employment without cause or by the participant for good reason, as those terms are defined in the agreement.

Restricted Stock/Restricted Stock Units: During the second quarter of fiscal year 2007, the Company granted 225,000 shares of the Company’s common stock to its Chairman and Chief Executive Officer as a restricted stock award under the 1994 Plan. These shares vested ratably over ten fiscal years based on service, beginning on the last day of fiscal year 2007 and ending on the last day of fiscal year 2016. The weighted average fair value for these shares at the grant date was $10.56. On both March 27, 2016 and March 29, 2015, 22,500 shares of restricted stock were released and vested. As of March 27, 2016, there were no remaining unvested shares related to restricted stock.

On May 14, 2013,26, 2021, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 15,00096,603 PSU awards to certain employees of the Company.  These awards will be earned based on achievement of pre-defined EBITDA targets for the Company’s continuing operations and if earned, provide for the issuance of shares of the Company’s common stock in accordance with a vesting schedule.  These awards, if earned, will vest and shares will be issued June 1, 2022 provided that the participant remains associated with the Company (or meets other criteria as prescribed in the agreement) on that date.

Restricted Stock/Restricted Stock Units: On May 10, 2018 and June 6, 2018, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 21,000 RSU awards to the non-employee directors of the Company withand to the exception of one individual who retired from the Board of Directors in July 2013.then Executive Chairman.  These awards provide for the issuance of shares of the Company’s

58

common stock in accordance with a vesting schedule.  These awards have vested or will vest, and shares have been or will be issued, 25% on or about each of May 1 of 2014, 2015, 20162019, 2020, 2021 and 2017,2022, provided that the participant remains associated with the Company (or meets other criteria as prescribed in the agreement) on each such date. As of March 27, 2016,28, 2021, there was less than $0.1 million of total unrecognized compensation costs related to these awards. Unrecognized compensation costs related to these awards are expected to be recognized ratably over a period of approximately one years.  

On May 10, 2019, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 21,000 RSU, ratably to the then 6 non-employee directors, including the then Chairman of the Board of the Company.  These RSU awards provide for the issuance of shares of the Company’s common stock in four equal installments beginning on May 10, 2020 and continuing on the same date in 2021, 2022 and 2023, provided that the director remains associated with the Company on each such date (or meets other criteria as prescribed in the applicable award agreement). As of March 28, 2021, there was less than $0.1 million of total unrecognized compensation costs related to these awards. Unrecognized compensation costs related to these awards are expected to be recognized ratably over a period of approximately two years.

On May 15, 2020, July 24, 2020 and November 12, 2020, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 30,000 RSU awards to the then non-employee directors of the Company.  These RSU awards provide for the issuance of shares of the Company’s common stock in accordance with a vesting schedule.  These awards provide for vesting and that shares will be issued 25% on or about each of May 1 of 2021, 2022, 2023 and 2024, provided that the participant remains associated with the Company (or meets other criteria as prescribed in the agreement) on each such date. As of March 28, 2021, there was approximately $0.1 million of total unrecognized compensation costs related to these awards. Unrecognized compensation costs related to these awards are expected to be recognized ratably over a period of approximately one year.three years.

OnIn addition, and also on May 8, 2014,15, 2020 and July 24, 2020, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 10,000 RSU awards72,202 shares of restricted stock to non-employee directors of the Company.Company in lieu of their annual cash retainer for fiscal 2021.  The amount of shares issued was the cash equivalent of the required retainers on the approval date.  These awards provide for the issuance of shares of the Company’s common stock subject to a risk of forfeiture that will lapse in accordance with a vesting schedule.  These awards have vestedwhole or in part in July 2021, generally depending on the length of continued service of the recipient on the Board for fiscal 2021. Dividends accruing in respect of the shares of restricted stock, if any, will vest,accrue but will not be paid until July 1, 2021 and only in respect of those shares have been or will be issued, 25% on or about eachfor which the risk of May 1forfeiture has then lapsed. At March 28, 2021, 56,805 of 2015, 2016, 2017 and 2018, provided that the participant remains associated with the Company (or meets other criteria as prescribedthese shares were expected to vest.

Changes in the agreement)composition of the Board during fiscal year 2021, in connection with or occurring during the term of a consent solicitation initiated by certain of our stockholders during the year resulted in the accelerated vesting of 30,000 of the current and prior year RSUs discussed in the previous two paragraphs and the issuance of a corresponding number of shares of Common Stock to departing directors.

Subsequent to the Company’s 2021 fiscal year end, on each such date. As of March 27, 2016, there was approximately $0.1 million of total unrecognized compensation costs related to these awards. Unrecognized compensation costs related to these awards are expected to be recognized ratably over a period of approximately two years.

On May 11, 2015,April 29, 2021, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 10,000 RSU awards to non-employee directors of the Company.  These awards provide for the issuance of shares of the Company’s common stock in accordance with a vesting schedule.  These awards have vested or will vest, and shares have been or will be issued 25% on or about each of May 1 of 2016, 2017, 2018 and 2019, provided that the participant remains associated with the Company (or meets other criteria as prescribed in the agreement) on each such date. As of March 27, 2016, there was approximately $0.2 million of total unrecognized compensation costs related to

60


these awards. Unrecognized compensation costs related to these awards are expected to be recognized ratably over a period of approximately three years. 

Subsequent to the Company’s 2016 fiscal year end, on May 11, 2016, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 10,00012,000 RSU awards to non-employee directors of the Company.  These awards provide for the issuance of shares of the Company’s common stock in accordance with a vesting schedule.  These awards will vest and shares will be issued 25% on or about each of May 1April 29 of 2017, 2018, 20192022, 2023, 2024 and 2020,2025, provided that the participant remains associated with the Company (or meets other criteria as prescribed in the agreement) on each such date.

Also subsequent to the Company’s 2021 fiscal year end, on May 25, 2021, the Compensation expenseCommittee, with the concurrence of the full Board of Directors, granted an aggregate of 24,761 RSU awards to non-employee directors of the Company.  These awards were awarded in lieu of the directors’ receiving estimated cash payments that would otherwise be received for attendance at Board and Committee meetings during fiscal 2022 and provide for the vesting and issuance of shares of the Company’s common stock to the non-employee director on May 25, 2022, provided that the director remains associated with the Company (or meets service and other criteria as prescribed in the agreement) on that date.

In addition, and also on April 29, 2021, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 22,252 shares of restricted stock is measured usingto non-employee directors of the Company in lieu of

59

their annual cash retainer for fiscal 2022.  The amount of shares issued was the cash equivalent of the required retainers on the approval date.  These awards provide for the issuance of shares of the Company’s common stock subject to a risk of forfeiture that will lapse in whole or in part on July 1, 2022, generally depending on the length of continued service of the recipient on the Board for fiscal 2022. Dividends accruing in respect of the shares of restricted stock, if any, will accrue but will not be paid until July 1, 2022 and only in respect of those shares for which the risk of forfeiture has then lapsed.

PSUs, RSUs and restricted stock awards are expensed based on the grant date fair value, calculated as the closing price net of Tessco common stock as reported by Nasdaq on the date of grant minus, in the case of PSUs and RSUs, the present value of dividends expected to be paid on TESSCOthe common stock before the RSU award vests.vests, because dividends or dividend-equivalent amounts do not accrue and are not paid on unvested PSUs and RSUs.

The Company accounts for forfeitures as they occur rather than estimate expected forfeitures. To the extent that forfeitures occur, stock-based compensation related to the restricted awards may be different from the Company’s expectations.

Stock Options:  The grant date value of the Company’s stock options has been determined using the Black-Scholes-Merton pricing model, based upon facts and assumptions existing at the date of grant. Stock options granted have exercise prices equal to the market price of the Company’s stock on the grant date. The stock options vest 25% after one year and then 1/36 per month for the following three years. During fiscal 2021, stock options for 177,042 shares were forfeited due to employee departures. The weighted-average remaining contractual term of options exercisable as of March 28, 2021 was 2.8 years.

The value of each option at the date of grant is amortized as compensation expense over the service period. This occurs without regard to subsequent changes in stock price, volatility or interest rates over time, provided the option remains outstanding. The following tables summarize the pertinent information for outstanding options.

 

2021

    

2020

 

Weighted

Weighted

 

Average Fair

Average Fair

Shares

Value at Grant

Shares

Value at Grant

Unvested options, beginning of period

465,374

$

2.38

 

281,292

2.39

Options Granted

240,000

 

2.05

 

405,000

2.53

Options Forfeited/Cancelled

(127,625)

 

3.13

 

(81,376)

3.23

Options Vested

(194,079)

 

3.28

 

(139,542)

2.32

Unvested options, end of period

383,670

1.47

465,374

2.38

March 28, 2021

Grant Fiscal Year

Options Granted

Option Exercise Price

Options Outstanding

Options Exercisable

2021

240,000

$

4.70

165,000

-

2020

405,000

$

13.54

341,000

138,788

2019

66,500

$

16.31

35,000

23,749

2018

230,000

$

15.12

80,000

74,791

2017

410,000

$

12.57

263,958

263,961

2016

100,000

$

22.42

40,000

40,000

Total

924,958

541,288

Grant Fiscal Year

Expected Stock Price Volatility

Risk-Free Interest Rate

Expected Dividend Yield

Average Expected Term

Resulting Black Scholes Value

2021

46.82

%

1.17

%

0.00

%

4.0

$

2.05

2020

35.88

%

2.00

%

5.82

%

4.0

$

2.53

2019

35.59

%

3.11

%

4.99

%

4.0

$

3.38

As of March 28, 2021, there was approximately $0.8 million of total unrecognized compensation costs related to these awards. Unrecognized compensation costs related to these awards are expected to be recognized ratably over a period of approximately three years. Total value of options exercised during fiscal 2020 was $681,100. 48,125 shares were

60

exercised, and the weighted average exercise price of these shares was $14.15. NaN options were exercised during fiscal 2021 or 2019.

On April 30, 2020, May 15, 2020, August 19, 2020 and February 8, 2021, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 165,000 stock options to select key employees.  The grant date value of these stock options has been determined using the Black-Scholes-Merton pricing model, based upon facts and assumptions existing at the date of grant. Stock options granted have exercise prices equal to the market price of the Company’s stock on the grant date. The stock options vest 25% after one year and then 1/36 per month for the following three years.

On May 15, 2020, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 65,000 performance-based stock options to select key employees. The grant date value of these stock options has been determined using the Black-Scholes-Merton pricing model, based upon facts and assumptions existing at the date of grant. Stock options granted have exercise prices equal to the market price of the Company’s stock on the grant date. If certain performance-based milestones are met and the employee remains employed by the Company, the stock options vest 25% after one year and then 1/36 per month for the following three years.

Subsequent to the Company’s 2021 fiscal year end, on April 29, 2021, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 187,500 stock options to select key employees.  The grant date value of these stock options has been determined using the Black-Scholes-Merton pricing model, based upon facts and assumptions existing at the date of grant. Stock options granted have exercise prices equal to the market price of the Company’s stock on the grant date. The stock options vest 25% after one year and then 1/36 per month for the following three years.

Team Member Stock Purchase Plan: The Company has a Team Member Stock Purchase Plan that permits eligible employees to purchase up to an aggregate of 450,000 shares of the Company's common stock at 85% of the lower of the market price on the first day of a six-month period or the market price on the last day of that same six-month period. Expenses incurred for the Team Member Stock Purchase Plan during the fiscal years ended March 27, 2016,28, 2021, March 29, 2015,2020, and March 30, 201431, 2019 were $48,900, $67,300,$61,500, $78,400, and $68,400,$82,600, respectively. During the fiscal years ended March 27, 2016,28, 2021, March 29, 2015,2020, and March 30, 2014, 9,113, 8,547,31, 2019, 40,493, 34,829, and 9,60419,183 shares were sold to employees under this plan, having a weighted average market value of $16.86, $22.93,$4.92, $7.51, and $22.21,$14.54, respectively.

Stock Options:  During fiscal year 2016, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 100,000 stock options to employees of the Company with an average exercise price of $22.42 and a grant date fair value of $3.43.  The stock options vest 25% after one year and then 1/36 per month for the following three years. Subsequent to the Company’s 2016 fiscal year end, 20,000 of the stock options were forfeited due to employee departure during fiscal year 2017.  The unrecognized stock compensation related to stock options at March 27, 2016 was $0.3 million and will be recognized ratably over approximately four years.

The fair value of the Company’s stock options have been determined using the Black-Scholes-Merton option pricing model, with the following assumptions and resulting value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected Stock Price Volatility

 

Risk-Free Interest rate

 

Expected Dividend Yield

 

Average Expected Term

 

 

Resulting Black Scholes Value

2016 Grants

 

26.40%

 

1.67%

 

3.50%

 

4.0

 

$

3.43

Stock options granted have exercise prices equal to the market price of the Company’s common stock on the grant date. The value of each option on the date of grant is amortized as a compensation expense over the option service period. This occurs without regard to the subsequent changes in stock price, volatility or interest rates over time, provided that the option remains outstanding. As of 2016 fiscal yearend, no options were available for exercise and no options had intrinsic value.

Note 17.16. Fair Value Disclosure

Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

·

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

·

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, and quoted prices for identical or similar assets or liabilities in markets that are not active.

61


·

Level 3: Unobservable inputs for the asset or liability that reflect the reporting entity’s own assumptions about the inputs used in pricing the asset or liability.

As of March 27, 201628, 2021 and March 29, 2015,2020, the Company has no0 assets or liabilities recorded at fair value.

The carrying amounts of cash and cash equivalents, trade accounts receivable, product inventory, trade accounts payable, accrued expenses, our term loan,revolving credit facility, life insurance policies and other current liabilities approximate their fair values as of March 27, 201628, 2021 and March 29, 20152020 due to their short termshort-term nature.

Fair value of long term debt is calculated using current market interest rates, which we consider to be a Level 2 input as described in the fair value accounting guidance on fair value measurements, and future principle payments, as of March 27, 2016 and March 29, 2015  is estimated as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

2015

 

 

 

 

Carrying

 

Fair 

 

Carrying

 

Fair 

 

 

 

 

Amount

 

Value

 

Amount

 

Value

 

Note payable to Baltimore County

 

 

$

82,600

 

$

78,700

 

$

108,200

 

$

102,300

 

Note 18.17. Supplemental Cash Flow Information

Cash paid for income taxes net of refunds, for fiscal years 2016, 2015,2021, 2020, and 20142019 totaled $1,979,800, $4,914,000,$21,000, $1,515,300, and $8,355,900,$1,835,400, respectively. Cash paid for interest during fiscal years 2016, 2015,2021, 2020, and 20142019 totaled $180,300, $174,600,$952,700, $1,106,300, and $198,400,$809,000, respectively. NoInterest capitalized during fiscal years 2021 and 2020 was $450,200 and $87,700, respectively. NaN interest was capitalized during fiscal years 2016 and 2014. Interestyear 2019.

61

Note 19.18. Concentration of Risk Related to Continuing Operations

Sales to customers and purchases from vendorssuppliers are largely governed by individual sales or purchase orders, so there is no guarantee of future business. In some cases, the Company has more formal agreements with significant customers or vendors,suppliers, but they are largely administrative in nature and are terminable by either party upon several months or otherwise short notice and they typically contain no obligation to make purchases from TESSCO.Tessco. In the event a significant customer decides to make its purchases from another source, experiences a significant change in demand internally or from its own customer base, becomes financially unstable, or is acquired by another company, the Company’s ability to generate revenues from these customers may be significantly affected, resulting in an adverse effect on its financial position and results of operations.

The Company is dependent on third-party equipment manufacturers, distributors and dealers for all of its supply of wireless communications equipment. For fiscal years 2016, 2015,2021, 2020, and 2014,2019, sales of products purchased from the Company's top ten vendors10 suppliers accounted for 42%53%, 41%54%, and 43%50% of total revenues, respectively. In fiscal year 2015 and 2014, sales of productProducts purchased from the Company’s largest vendor, CommScope Inc.,supplier related to continuing operations accounted for approximately 14%29%, 30%, and 16% of revenue, respectively. In fiscal year 2016, sales of product purchased from the Company’s largest vendor, Otter Products LLC, accounted for approximately 15%24% of total revenues in fiscal years 2021, 2020, and sales of product purchased from CommScope Inc. accounted for approximately 11%.2019, respectively. The Company is dependent on the ability of its vendorssuppliers to provide products on a timely basis and on favorable pricing terms. The Company believes that alternative sources of supply are available for many of the product types it carries, but not for all products offered by the Company. The loss of certain principal suppliers, including Otter Products LLC and CommScope Inc.,the suppliers referenced above, or of other suppliers whose products may be difficult to source on comparable terms elsewhere, or the loss of one or more of certain ongoing affinity relationships, would have a material adverse effect on the Company.

As noted, the Company's future results could also be negatively impacted by the loss of certain customers, and/or vendorsupplier relationships. For fiscal years 2016, 2015,2021, 2020, and 2014,2019, sales of products to the Company's top ten10 customer relationships accounted for 22%34%, 20%34%, and 19%31% of total revenues, respectively. NoThere was 1 customer that accounted for more than 7%11%, 15%, and 14% of total revenues in fiscal year 2016, 2015,2021, 2020 and 2014.2019, respectively.

Note 19. Discontinued Operations

On December 2, 2020, the Company sold most of its Retail inventory and certain other Retail-related assets to Voice Comm. In addition, we assigned or licensed Ventev®- related intellectual property to Voice Comm, including the Ventev® trademark, for their use in connection with the sale of mobile device and accessory products. Cash proceeds of $9.5 million were received at closing. As part of the sale agreement, the Company is entitled to royalty payments of up to $3.0 million in the aggregate on the sale of Ventev® branded products by Voice Comm over a four-year period after the closing. Additionally, future customer returns to the Company may be resold to Voice Comm over a two-year period after the closing.

A pre-tax gain on disposal of $3.0 million was recorded in the fiscal quarter ended December 27, 2020, which is included in Income (loss) from discontinued operations, net of taxes in the Consolidated Statements of (Loss) Income.

62


The accompanying Consolidated Financial Statements for all periods presented reflect the results of the Retail segment as a discontinued operation. The following table presents the financial results of the Retail segment for the fiscal years ended March 28, 2021, March 29, 2020 and March 31, 2019:

 

Fiscal Years Ended

 

    

March 28, 2021

    

March 29, 2020

    

March 31, 2019

    

Revenues

$

86,728,300

$

131,283,900

$

187,769,000

Cost of goods sold

 

74,238,800

 

119,102,800

 

150,815,000

Gross profit

 

12,489,500

 

12,181,100

 

36,954,000

Selling, general and administrative expenses

 

7,652,100

 

15,809,500

 

17,866,700

Goodwill impairment

2,569,100

Income (loss) from operations

 

4,837,400

 

(6,197,500)

 

19,087,300

Gain on disposal

 

3,020,800

 

 

Income (loss) before provision for (benefit from) income taxes

 

7,858,200

 

(6,197,500)

 

19,087,300

Provision for (benefit from) income taxes

 

2,227,800

 

(230,000)

 

4,659,200

Net income (loss) attributable to discontinued operations

$

5,630,400

$

(5,967,500)

$

14,428,100

The financial results reflected above may not fully represent our former Retail segment stand-alone operating net profit, as the results reported within Income (loss) from discontinued operations, net of taxes, include only certain costs that are directly attributable to this former segment and exclude certain corporate overhead and operational costs that may have been previously allocated for each period.

The following table summarizes the major classes of assets attributable to discontinued operations that are included in the Current portion of assets held for sale in the Company’s consolidated balance sheets as of March 28, 2021 and March 29, 2020:

 

March 28,

 

March 29,

 

 

2021

2020

 

 

 

ASSETS

Product inventory, net

$

1,196,900

$

18,849,900

Current portion of assets held for sale

$

1,196,900

$

18,849,900

The product inventory remaining at March 28, 2021 represents Retail inventory that was not sold to Voice Comm.  Management intends to sell through this inventory in the near term in alignment with its complete exit from the Retail business.

Discontinued operations related to this Retail sale in future years will primarily include:

Revenue related to royalty income, purchase price adjustments and selling inventory from customer returns to Voice Comm
Sale or liquidation of inventory continuing to be held for sale
Product returns from customers
Changes in estimates of inventory and returns reserves
Minor operating expenses related to above items

In our Consolidated Statements of Cash Flows, the cash flows from discontinued operations are not separately classified. Cash provided by operating activities from discontinued operations during fiscal 2021, 2020, and 2019 was $13.2 million, $11.3 million, and $17.3 million, respectively. Cash provided by investing activities from discontinued operations during fiscal 2021, 2020, and 2019 was $9.2 million, $0 million, and $0 million, respectively.

63

Note 20. Quarterly Results of Operations (Unaudited)

Summarized quarterly financial data for the fiscal years ended March 27, 201628, 2021 and March 29, 20152020 is presented in the table below:below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year 2016 Quarters Ended

 

Fiscal Year 2015 Quarters Ended

 

 

March 27,

 

December 27,

 

September 27,

 

June 28,

 

March 29,

 

December 28,

 

September 28,

 

June 29,

 

 

2016

 

2015

 

2015

 

2015

 

2015

 

2014

 

2014

 

2014

 

Fiscal Year 2021 Quarters Ended

Fiscal Year 2020 Quarters Ended

 

March 28,

December 27,

September 27,

June 28,

March 29,

December 29,

September 29,

June 30,

 

2021

2020

2020

2020

2020

2019

2019

2019

 

Revenues

    

$

114,154,100

    

$

139,510,700

    

$

142,353,300

    

$

134,664,000

    

$

112,962,200

    

$

135,188,700

    

$

148,521,800

    

$

152,946,300

 

    

$

88,733,100

    

$

99,237,600

    

$

88,892,400

    

$

96,477,600

    

$

105,839,700

    

$

100,844,000

    

$

103,651,000

    

$

98,679,700

Cost of goods sold

 

 

91,135,200

 

 

110,057,300

 

 

111,841,600

 

 

105,682,100

 

 

88,650,400

 

 

106,367,800

 

 

116,160,800

 

 

120,801,500

 

 

71,907,100

 

81,921,900

 

71,771,200

 

80,024,900

 

86,251,300

 

81,196,300

 

83,466,700

 

78,458,200

Gross profit

 

 

23,018,900

 

 

29,453,400

 

 

30,511,700

 

 

28,981,900

 

 

24,311,800

 

 

28,820,900

 

 

32,361,000

 

 

32,144,800

 

 

16,826,000

 

17,315,700

 

17,121,200

 

16,452,700

 

19,588,400

 

19,647,700

 

20,184,300

 

20,221,500

Selling, general and administrative expenses

 

 

26,202,100

 

 

24,742,400

 

 

25,865,400

 

 

26,122,400

 

 

23,983,100

 

 

26,136,800

 

 

26,494,400

 

 

26,072,400

 

 

19,580,000

 

23,606,800

 

20,787,800

 

21,532,500

 

23,547,600

 

21,994,800

 

22,029,900

 

24,432,900

Goodwill impairment

9,108,600

Restructuring charges

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

573,400

 

 

 —

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

488,000

Operating expenses

 

 

26,202,100

 

 

24,742,400

 

 

25,865,400

 

 

26,122,400

 

 

24,556,500

 

 

26,136,800

 

 

26,494,400

 

 

26,072,400

 

 

19,580,000

 

23,606,800

 

20,787,800

 

21,532,500

 

32,656,200

 

21,994,800

 

22,029,900

 

24,920,900

(Loss) income from operations

 

 

(3,183,200)

 

 

4,711,000

 

 

4,646,300

 

 

2,859,500

 

 

(244,700)

 

 

2,684,100

 

 

5,866,600

 

 

6,072,400

 

Operating loss

 

(2,754,000)

 

(6,291,100)

 

(3,666,600)

 

(5,079,800)

 

(13,067,800)

 

(2,347,100)

 

(1,845,600)

 

(4,699,400)

Interest, net

 

 

12,400

 

 

55,500

 

 

47,100

 

 

46,300

 

 

28,200

 

 

61,300

 

 

49,400

 

 

28,400

 

 

58,500

 

151,200

 

105,900

 

110,700

 

204,600

 

367,900

 

335,100

 

208,700

(Loss) income before provision for income taxes

 

 

(3,195,600)

 

 

4,655,500

 

 

4,599,200

 

 

2,813,200

 

 

(272,900)

 

 

2,622,800

 

 

5,817,200

 

 

6,044,000

 

Provision for income taxes

 

 

(1,205,800)

 

 

1,768,800

 

 

1,850,900

 

 

1,117,900

 

 

(41,000)

 

 

941,600

 

 

2,303,600

 

 

2,372,600

 

Loss from continuing operations before (benefit from) provision for income taxes

 

(2,812,500)

 

(6,442,300)

 

(3,772,500)

 

(5,190,500)

 

(13,272,400)

 

(2,715,000)

 

(2,180,700)

 

(4,908,100)

(Benefit from) provision for income taxes

 

(1,958,000)

 

(740,400)

 

(824,300)

 

(321,800)

 

(5,297,200)

 

(641,000)

 

(109,600)

 

(1,427,000)

Net loss from continuing operations

$

(854,500)

$

(5,701,900)

$

(2,948,200)

$

(4,868,700)

$

(7,975,200)

$

(2,074,000)

$

(2,071,100)

$

(3,481,100)

(Loss) income from discontinued operations, net of taxes

(2,075,700)

4,787,500

2,681,300

237,300

(6,101,500)

(2,947,400)

2,093,100

988,300

Net (loss) income

 

$

(1,989,800)

 

$

2,886,700

 

$

2,748,300

 

$

1,695,300

 

$

(231,900)

 

$

1,681,200

 

$

3,513,600

 

$

3,671,400

 

$

(2,930,200)

$

(914,400)

$

(266,900)

$

(4,631,400)

$

(14,076,700)

$

(5,021,400)

$

22,000

$

(2,492,800)

Diluted (loss) earnings per share

 

$

(0.24)

 

$

0.35

 

$

0.33

 

$

0.20

 

$

(0.03)

 

$

0.20

 

$

0.42

 

$

0.44

 

Basic and diluted (loss) earnings per share from continuing operations

Continuing operations

$

(0.10)

$

(0.66)

$

(0.34)

$

(0.56)

$

(0.93)

$

(0.24)

$

(0.24)

$

(0.41)

Discontinued operations

$

(0.24)

$

0.55

$

0.31

$

0.03

$

(0.71)

$

(0.35)

$

0.24

$

0.12

Consolidated operations

$

(0.33)

$

(0.11)

$

(0.03)

$

(0.54)

$

(1.65)

$

(0.59)

$

0.00

$

(0.29)

Basic weighted-average common shares outstanding

8,814,859

8,699,937

8,656,877

8,617,803

8,554,348

8,541,020

8,650,320

8,494,168

Effect of dilutive options and other equity instruments

Basic and diluted weighted-average common shares outstanding

8,814,859

8,699,937

8,656,877

8,617,803

8,554,348

8,541,020

8,650,320

8,494,168

Cash dividends declared per common share

 

$

0.20

 

$

0.20

 

$

0.20

 

$

0.20

 

$

0.20

 

$

0.20

 

$

0.20

 

$

0.20

 

$

$

$

$

$

0.02

$

0.20

$

0.20

$

0.20

6364


Report of Independent Registered Public Accounting Firm

TheTo the Shareholders and the Board of Directors and Shareholders of

TESSCO Technologies Incorporated

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of TESSCO Technologies Incorporated and subsidiaries (the Company) as of March 27, 201628, 2021 and March 29, 2015, and2020, the related consolidated statements of (loss) income, changes in shareholders' equity and cash flows for each of the three fiscal years in the period ended March 27, 2016. Our audits also included28, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(b)15(a)2 (collectively referred to as the “consolidated financial statements”). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 consolidated financial position of TESSCO Technologies Incorporated and subsidiariesthe Company at March 27, 201628, 2021 and March 29, 2015,2020, and the consolidated results of theirits operations and theirits cash flows for each of the three fiscal years in the period ended March 27, 2016,28, 2021, in conformity with U.S.U.S generally accepted accounting principles.Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), TESSCO Technologies Incorporated and subsidiaries’the Company's internal control over financial reporting as of March 27, 2016,28, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated June 6, 201611, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex auditor judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

65

is sensitive to changes in assumptions, including changes to future demand.

Inventory Reserve

Description of the Matter

The Company had inventories of $53.1 million as of March 28, 2021, net of reserves for excess and obsolete inventory of $3.4 million. The Company's inventory is evaluated for estimated obsolescence and is written down based on the difference between the cost of inventory and the estimated net realizable value. As described in Note 2 to the consolidated financial statements, management applies judgment to determine its reserves for excess and obsolete inventory, considering specifically known inventory risks and assumptions about future demand.  

Auditing the Company’s estimated inventory reserves were complex and highly judgmental because the estimate was sensitive to changes in assumptions, including changes to future demand.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company's process to estimate inventory reserves. For example, we tested controls over management’s review of the significant assumptions and data underlying the inventory reserve estimate. 

To test the adequacy of the Company's inventory reserves, our audit procedures included, among others, testing the accuracy and completeness of the underlying data, evaluating the consistency of the methodology between periods, and evaluating management’s significant assumptions.  For example, we tested the historical purchasing and sales data in the calculation of excess inventory and tested the mathematical accuracy of the Company’s reserve calculation. We assessed the future demand assumptions by performing inquiries with those who were involved in sales and inventory management, and we compared future demand assumptions to historical data and trends, sales subsequent to year end, and potential contrary information. To evaluate management's ability to accurately estimate future demand in their sales projections, we retrospectively reviewed inventory write-offs and reserves during the current year in order to assess the accuracy of the prior year reserve.  

/s/ ERNSTErnst & YOUNGYoung LLP

We have served as the Company’s auditor since 2002.

Baltimore, Maryland

June 6, 201611, 2021

6466


Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to management in a timely manner. Our chief executive officerChief Executive Officer and chief financial officerChief Financial Officer have evaluated our disclosure controls and procedures as of the end of the period covered by this annual report,Annual Report on Form 10-K, and have concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

Internal Control over Financial Reporting

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 13(a)-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our system of internal control is designed to provide reasonable assurance to management and the Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Any system of internal control over financial reporting, no matter how well designed, has inherent limitations and may not prevent or detect misstatements. Therefore, internal control systems determined to be effective can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may be inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our ChairmanPresident and Chief Executive Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls, and the conclusion of this evaluation. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of March 27, 2016.28, 2021.

The effectiveness of our internal control over financial reporting as of March 27, 201628, 2021 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included within this Item 9A of Part II of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There has not been any change in our internal control over financial reporting during the fourth quarter of fiscal year 20162021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We rely extensively on information systems and technology to manage our business and summarize operating results. We are in the process of implementation of a new enterprise resource planning (“ERP”) system, which will replace our existing operating and financial systems. The ERP system is designed to accurately maintain our financial records, enhance operational functionality and provide timely information to the Company’s management team related to the operation of the business. The implementation is expected to occur in phases over the next several quarters. There have been no significant changes in our internal control over financial reporting as of March 28, 2021. However, as the next phases of the updated processes are rolled out in connection with the ERP implementation, we will give appropriate consideration to whether these process changes necessitate changes in the design of and testing for effectiveness of internal controls over financial reporting.

6567


Report of Independent Registered Public Accounting Firm

TheTo the Shareholders and the Board of Directors and Shareholders of

TESSCO Technologies Incorporated

Opinion on Internal Control over Financial Reporting

We have audited TESSCO Technologies Incorporated and subsidiaries’ internal control over financial reporting as of March 27, 2016,28, 2021, based on criteria established in Internal Control—IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, TESSCO Technologies Incorporated and subsidiaries’subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of March 28, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of TESSCO Technologies Incorporated and subsidiaries as of March 28, 2021 and March 29, 2020, the related consolidated statements of (loss) income, changes in shareholders’ equity and cash flows for each of the three years in the period ended March 28, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a)2 and our report dated June 11, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control overOver Financial Reporting.Reporting, appearing in Item 9A. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, TESSCO Technologies Incorporated and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of March 27, 2016, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of TESSCO Technologies Incorporated and subsidiaries as of March 27, 2016 and March 29, 2015, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the three fiscal years in the period ended March 27, 2016 of TESSCO Technologies Incorporated and subsidiaries and our report dated June 6, 2016 expressed an unqualified opinion thereon.

/s/ ERNSTErnst & YOUNGYoung LLP

Baltimore, Maryland

June 6, 201611, 2021

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Item 9B. Other Information.

None.

Part III

Items 10, 11, 12, 13 and 14.

The information with respect to the identity and business experience of executive officers of the Company as required to be included in Item 10 to this Form 10-K is set forth in Part I of this Form 10-K. The information otherwise required by Items 10 through 14 will be contained in a definitive proxy statement for our Annual Meeting of Shareholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year pursuant to Regulation 14A, and accordingly, these items have been omitted in accordance with General Instruction G (3) to Form 10-K.

Part IV

Item 15. Exhibits and Financial Statement Schedules.

(a)The following documents are filed as part of this report:

(a)

1.

The following documents are filed as part of this report:

1.

The following consolidated financial statements are included in Item 8 of this report:

Consolidated Balance Sheets as of March 27, 201628, 2021 and March 29, 20152020

Consolidated Statements of (Loss) Income for the fiscal years ended March 27, 2016,28, 2021, March 29, 20152020 and March 30, 201431, 2019

Consolidated Statements of Changes in Shareholders' Equity for the fiscal years ended March 27, 2016,28, 2021, March 29, 20152020 and March 30, 201431, 2019

Consolidated Statements of Cash Flows for the fiscal years ended March 27, 2016,28, 2021, March 29, 20152020 and March 30, 201431, 2019

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

2.

The following financial statement schedules are required to be filed by Item 8 and paragraph (b) of this Item 15 included herewith:

Schedule IIValuation and Qualifying Accounts

Schedules not listed above have been omitted because the information required to be set forth therein is not applicable.

6769


3.

3.

Exhibits

3.1.1

Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on September 29, 1993 (incorporated by reference to Exhibit 3.1.1 to the Company's Registration Statement on Form S‑1S-1 (No. 33‑81834)33-81834)).

3.1.2

Certificate of Retirement of the Company filed with the Secretary of State of Delaware on January 13, 1994 (incorporated by reference to Exhibit 3.1.2 to the Company's Registration Statement on Form S‑1S-1 (No. 33‑81834)33-81834)).

3.1.3

Certificate of Amendment to Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on July 20, 1994 (incorporated by reference to Exhibit 3.1.3 to the Company's Registration Statement on Form S‑1S-1 (No. 33‑81834)33-81834)).

3.1.4

Certificate of Amendment to Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on September 6, 1996 (incorporated by reference to Exhibit 3.1.4 to the Company's Annual Report on Form 10‑K10-K filed for the fiscal year ended March 28, 1997).

3.1.5

Certificate of Correction filed with the Secretary of State of Delaware on February 7, 2007 to Certificate of Amendment to Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on September 6, 1996 (incorporated by reference to Exhibit 3.1.5 to the Company’s Quarterly Report on Form 10-Q filed for the fiscal quarter ended December 24, 2006).

3.2.1

Sixth Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 28, 2011).

3.2.2

First Amendment to Sixth Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 22, 2011).

3.2.3

Second Amendment to Sixth Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 29, 2016).

10.1.13.2.4

Third Amendment to Sixth Amended and Restated Employment Agreement, dated March 26, 2016, with Robert B. Barnhill, Jr.Bylaws of the Company (incorporated by reference to Exhibit 10.13.1 to the Company'sCompany’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 31, 2016)August 11, 2020).

10.2.13.2.5

Employee Incentive Stock Option Plan, as amended

Fourth Amendment to Sixth Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 10.213.1 to the Company's Registration StatementCompany’s Current Report on Form S‑1 (No. 33‑81834))8-K filed with the Securities and Exchange Commission on December 17, 2020).

10.3.14.1.1

Description of Capital Stock (incorporated by reference to Exhibit 4.1.1 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 29, 2020).

10.1.1

Team Member Stock Purchase Plan (incorporated by reference to Appendix No. 2 to the Company's Definitive Proxy Statement filed with the Securities and Exchange Commission on July 15, 1999).

10.3.210.2.1

Form of Restricted Stock Award (incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed for the fiscal quarter ended June 26, 2011).

10.3.3

Form of Restricted Stock Unit Award (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 30, 2013).

10.3.4

Form of Stock Option (incorporated herein by reference to Exhibit 10.1.1 to the Company’s Quarterly Report on Form 10-Q filed for the fiscal quarter ended September 27, 2015).

10.4.1

TESSCO Technologies Incorporated SecondThird Amended and Restated 1994 Stock and Incentive Plan dated as of July 24, 2008 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 29, 2008).

10.4.2

First Amendment to Second Amended and Restated 1994 Stock and Incentive Plan of TESSCO Technologies Incorporated (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 22, 2011)June 27, 2016).

10.4.310.2.2

Form of TESSCO Technologies Incorporated Performance Share Unit Agreement – Officers and Employees (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed for the fiscal quarter ended June 27, 2004).

10.4.410.2.3

Form of TESSCO Technologies Incorporated Performance Share Unit Agreement – Non EmployeeNon-Employee Directors (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed for the fiscal quarter ended June 27, 2004).

10.2.4

Form of Restricted Stock Award under the TESSCO Technologies Incorporated Third Amended and Restated 1994 Stock and Incentive Plan (incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed for the fiscal quarter ended June 26, 2011).

10.2.5

Form of Restricted Stock Unit Award (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 30, 2013).

10.2.6

Form of Performance Stock Unit Agreement – Officers and Employees (incorporated by reference to Exhibit 10.5.1 to the Company’s Quarterly Report on Form 10-Q filed for the fiscal quarter ended June 26, 2016).

6870


10.5.110.2.7

Form of Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 10, 2017).

10.2.8

Form of Stock Option (incorporated herein by reference to Exhibit 10.1.1 to the Company’s Quarterly Report on Form 10-Q filed for the fiscal quarter ended July 1, 2018).

10.3.1

TESSCO Technologies Incorporated 2019 Stock and Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 30, 2019.

10.3.2

Form of Stock Option (Performance) under the Tessco Technologies Incorporated 2019 Stock and Incentive Plan (incorporated by reference to Exhibit 10.3.2 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 29, 2020).

10.3.3

Form of Restricted Stock Award under the Tessco Technologies Incorporated 2019 Stock and Incentive Plan (incorporated by reference to Exhibit 10.3.3 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 29, 2020).

10.3.4

Form of Stock Option under the Tessco Technologies Incorporated 2019 Stock and Incentive Plan (incorporated by reference to Exhibit 10.3.4 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 29, 2020).

10.3.5

Form of Restricted Stock Unit Award under the Tessco Technologies Incorporated 2019 Stock and Incentive Plan (incorporated by reference to Exhibit 10.3.5 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 29, 2020).

10.3.6

Form of Performance Share Unit Agreement – Officers and Employees, under the Tessco Technologies Incorporated 2019 Stock and Incentive Plan (incorporated by reference to Exhibit 10.3.6 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 29, 2020).

10.4.1

Agreement of Lease by and between Atrium Building, LLC and TESSCO Technologies Incorporated (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed for the fiscal quarter ended September 28, 2003).

10.5.210.4.2

Third Amendment to Agreement of Lease by and between Atrium Building, LLC and TESSCO Technologies Incorporated (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 18, 2011).

10.6.110.4.3

Credit

Sixth Amendment to Agreement dated June 30, 2004,of Lease by and among the Companybetween ATAPCO Padonia, LLC and affiliates, and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), SunTrust Bank and the lenders party thereto from time to time (Term Loan)TESSCO Technologies Incorporated (incorporated by reference to Exhibit 10.210.1 to the Company’s Quarterly Report on Form 10-Q filed for the fiscal quarter ended September 26, 2004).

10.6.2

Joinder, Assumption, Ratification and Modification Agreement, dated as of August 29, 2006, by and among the Company, various affiliates of the Company and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association) and SunTrust Bank, as lenders (Term Loan) (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed for the fiscal quarter ended September 24, 2006).

10.6.3

Second Amendment, dated as of May 31, 2007, by and among the Company, various affiliates of the Company and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association) and SunTrust Bank, as lenders (Term Loan) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K,10-K, filed with the Securities and Exchange Commission on June 6, 2007)August 2, 2019).

10.6.410.5.1

Joinder, Assumption and Third Amendment,

Credit Agreement dated as of May 20, 2011, by andOctober 29, 2020, among TESSCO Technologies Incorporated, the Company, various affiliates ofadditional borrowers party thereto, the CompanyLenders party thereto, and Wells Fargo Bank, National Association, (as successor to Wachovia Bank, National Association) and SunTrust Bank, as lenders (Term Loan) (incorporated by reference to Exhibit 10.7.4 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 27, 2011).

10.6.5

Fourth Modification Agreement, dated as of October 7, 2015, by and among the Company and certain subsidiaries, as borrowers and guarantor, as applicable, Wells Fargo Bank, National Association, as lender and Administrative Agent for each member of the Lender Group and SunTrustthe Bank as lender and Arrangement Agent (Term Loan)Product Providers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 13, 2015)November 4, 2020).

10.6.610.5.2

Term Note of Company and affiliates, dated June 30, 2004, payable to Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association) and SunTrust Bank (Term Loan) (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed for the fiscal quarter ended September 26, 2004).

10.6.7

Guaranty Agreement, dated June 30, 2004, of TESSCO Incorporated, to and for the benefit of Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), as agent (Term Loan) (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed for the fiscal quarter ended September 26, 2004).

10.6.8

CreditSecurity Agreement dated as of May 31, 2007, by andOctober 29, 2020, among the CompanyTESSCO Technologies Incorporated and its primary operating subsidiaries as borrowers, and SunTrust Bank and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), as lenders (Revolving Line of Credit Facility) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 6, 2007).

10.6.9

First Modification Agreement, made effective as of June 30, 2008, to Credit Agreement dated as of May 31, 2007, by and among the Company and its primary operating subsidiaries as borrowers, and SunTrust Bank and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), as lenders (Revolving Line of Credit Facility) (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 7, 2008).

10.6.10

Second Modification Agreement, made effective as of November 26, 2008, to Credit Agreement dated as of May 31, 2007, by and among the Company and its primary operating subsidiaries as borrowers, and SunTrust Bank and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), as lenders (Revolving Line of Credit Facility) (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 3, 2008).

69


10.6.11

Third Modification Agreement, made effective July 22, 2009, to Credit Agreement dated as of May 31, 2007, by and among the Company and its primary operating subsidiaries as borrowers, and SunTrust Bank and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), as lenders (Revolving Line of Credit Facility) (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed for the fiscal quarter ended June 28, 2009).

10.6.12

Fourth Modification Agreement, made effective April 28, 2010, to Credit Agreement dated as of May 31, 2007, by and among the Company and its primary operating subsidiaries as borrowers, and SunTrust Bank and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), as lenders (Revolving Line of Credit Facility) (incorporated by reference to Exhibit 10.7.7 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 28, 2010).

10.6.13

Joinder, Assumption, and Fifth Modification Agreement, made effective May 20, 2011, to Credit Agreement dated as of May 31, 2007, by and among the Company and its primary operating subsidiaries as borrowers, and SunTrust Bank and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), as lenders (Revolving Line of Credit Facility) (incorporated by reference to Exhibit 10.7.12 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 27, 2011).

10.6.14

Sixth Modification Agreement, made effective December 30, 2011, to Credit Agreement dated as of May 31, 2007, by an among the Company and its primary operating subsidiaries as borrowers, and SunTrust Bank and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), as lenders (Revolving Line of Credit Facility) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 5, 2012).

10.6.15

Seventh Modification Agreement, made effective November 30, 2012, to Credit Agreement dated as of May 31, 2007, by and among the Company and certain subsidiaries, as borrowers, and SunTrust and Wells Fargo Bank, National Association, as lenders (Revolving LineAdministrative Agent for each member of Credit Facility) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed withLender Group and the Securities and Exchange Commission on December 3, 2012).

10.6.16

Eighth Modification Agreement, made effective December 21, 2012, to Credit Agreement dated as of May 31, 2007, by and among the Company and certain subsidiaries, as borrowers, and SunTrust Bank and Wells Fargo Bank, national Association, as lenders (Revolving Line of Credit Facility) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 26, 2012).

10.6.17

Ninth Modification Agreement, made effective October 16, 2013, to Credit Agreement dated as of May 31, 2007, by and among the Company and certain subsidiaries, as borrowers, and SunTrust Bank and Wells Fargo Bank, National Association, as lenders (Revolving Line of Credit Facility) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 18, 2013).

10.6.18

Tenth Modification Agreement, made effective September 24, 2015, to Credit Agreement dated as of May 31, 2007, by and among the Company and certain subsidiaries, as borrowers, and SunTrust Bank and Wells Fargo Bank, National Association, as lenders (Revolving Line of Credit Facility) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 28, 2015).

10.6.19

Revolving Credit Note of Company and its primary operating subsidiaries, dated as of May 31, 2007, payable to SunTrust Bank and Wells Fargo Bank, National Association (as successor to Wachovia Bank, National Association), as lenders (Revolving Line of Credit Facility)Product Providers (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 6, 2007)November 4, 2020).

10.7.110.6.1

Supplemental Executive Retirement Plan, dated as of March 31, 1994, between the Company and Robert B. Barnhill, Jr., (originally filed as Exhibit C to Exhibit 10.2 to the Company’s Registration Statement on Form S-1 (No. 33-81834)) (incorporated by reference to Exhibit 10.9.1 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 29, 2009).

10.7.210.6.2

Amendment No. 1 to Supplemental Executive Retirement Plan, datedeffective as of December 31, 2008January 1, 2005, between the Company and Robert B. Barnhill, Jr. (incorporated by reference to Exhibit 10.9.2 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 29, 2009).

70


10.8.3*10.7.3

Form of Severance and Restrictive Covenant Agreement entered into between the Company and each of Craig A. Oldham and Steven K. Tom.Elizabeth S. Robinson (incorporated by reference to Exhibit 10.7.3 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended April 1, 2018).

10.8.410.7.4

Letter

Form of Severance and Restrictive Covenant Agreement, entered into between the Company and Joseph Cawley (incorporated by reference to Exhibit 10.7.4 to the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 29, 2020).

10.8.1

Employment Agreement, dated as of February 18, 2015,August 29, 2016, by and between the Company and Gerald T. GarlandMurray Wright (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 20, 2015)September 1, 2016).

10.8.510.8.2

Form of Stock Option to Murray Wright (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 1, 2016).

10.8.3

Letter Agreement dated as of May 26, 2015,August 14, 2019, by and between the Company and Said TofighiMurray Wright (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 20, 2019).

10.9.1

Employment Agreement, dated as of August 19, 2019, by and between the Company and Sandip Mukerjee (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 26, 2015)August 20, 2019).

11.1.1*10.9.2

Statement re: Computation

Form of Per Share Earnings.Stock Option to Sandip Mukerjee on November 15, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 19, 2019).

21.1.1*10.10.1

Inventory Purchase Agreement dated as of October 28, 2020, by and among Voice Comm, LLC and TESSCO Technologies Incorporated, TESSCO Communications Incorporated and TESSCO Incorporated (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 6, 2020).

21.1.1

*

Subsidiaries of the Company.

23.1.1*23.1.1

*

Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.

31.1.1*31.1.1

*

Rule 15d-14(a) Certification of Robert B. Barnhill, Jr.,Sandip Mukerjee, Chief Executive Officer.

31.2.1*31.2.1

*

Rule 15d-14(a) Certification of Aric Spitulnik, Chief Financial Officer.

32.1.1*32.1.1

*

Section 1350 Certification of Robert B. Barnhill, Jr.,Sandip Mukerjee, Chief Executive Officer.

32.2.1*32.2.1

*

Section 1350 Certification of Aric Spitulnik, Chief Financial Officer.

101.1*101.1

*

The following financial information from TESSCO Technologies Incorporated’s Annual Report on Form 10-K for the year ended March 27, 201628, 2021 formatted in Inline XBRL: (i) Consolidated Statement of Income for the years ended March 27, 2016,28, 2021, March 29, 20152020 and March 30, 2014;31, 2019; (ii) Consolidated Balance Sheet at March 27, 201628, 2021 and March 29, 2015;2020; (iii) Consolidated Statement of Cash Flows for the years March 27, 201628, 2021 and March 29, 2015;2020; and (iv) Notes to Consolidated Financial Statements.

104.1

*

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.1)

*

Filed herewith

7172


Schedule II: Valuation and Qualifying Accounts

For the fiscal years ended:

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

    

2014

 

    

2021

    

2020

    

2019

 

Allowance for doubtful accounts:

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

661,900

 

$

1,080,300

 

$

1,274,700

 

$

3,288,800

$

2,137,900

$

1,094,900

Provision for bad debts

 

 

637,100

 

 

943,300

 

 

202,000

 

Write-offs and other adjustments

 

 

(457,600)

 

 

(1,361,700)

 

 

(396,400)

 

Provision for bad debts and other adjustments

 

(971,600)

 

2,100,400

 

1,721,200

Write-offs

 

(733,000)

 

(949,500)

 

(678,200)

Balance, end of period

 

$

841,400

 

$

661,900

 

$

1,080,300

 

$

1,584,200

$

3,288,800

$

2,137,900

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

    

2014

 

    

2021

    

2020

    

2019

 

Inventory Reserve:

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

5,780,600

 

$

4,086,100

 

$

3,336,700

 

$

9,666,100

$

5,870,600

$

5,739,700

Inventory reserve expense

 

 

3,412,000

 

 

4,303,000

 

 

2,917,200

 

 

146,600

 

11,801,500

 

4,863,100

Write-offs and other adjustments

 

 

(3,121,500)

 

 

(2,608,500)

 

 

(2,167,800)

 

 

(6,453,600)

 

(8,006,000)

 

(4,732,200)

Balance, end of period

 

$

6,071,100

 

$

5,780,600

 

$

4,086,100

 

$

3,359,100

$

9,666,100

$

5,870,600

    

2021

    

2020

    

2019

Allowance for deferred tax asset:

Balance, beginning of period

$

2,047,300

$

141,600

$

Income tax expense

819,500

1,905,700

141,600

Write-offs and other adjustments

Balance, end of period

$

2,866,800

$

2,047,300

$

141,600

7273


Signatures

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.

TESSCO Technologies Incorporated

By: 

/s/ Robert B. Barnhill, Jr.Sandip Mukerjee

Robert B. Barnhill, Jr.,Sandip Mukerjee, President and Chief Executive Officer

June 6, 201611, 2021

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.

/s/ Robert B. Barnhill, Jr.Sandip Mukerjee

    

Chairman of the Board, President and Chief Executive Officer (principal executive officer)

June 6, 201611, 2021

Robert B. Barnhill, Jr.Sandip Mukerjee

/s/ Aric Spitulnik

Senior Vice President, Chief Financial Officer, and Corporate Secretary (principal financial and accounting officer)

June 6, 201611, 2021

Aric Spitulnik

/s/ Paul J. Gaffney

Chairman of the Board

June 11, 2021

Paul J. Gaffney

/s/ Jay G. Baitler

Director

June 6, 201611, 2021

Jay G. Baitler

/s/ John D. BeleticRobert B. Barnhill, Jr.

Director

June 6, 201611, 2021

John D. BeleticRobert B. Barnhill, Jr.

/s/ Benn R. KonsynskiTim Bryan

Director

June 6, 201611, 2021

Benn R. KonsynskiTim Bryan

/s/ Dennis J. ShaughnessyStephanie Dismore

Director

June 6, 201611, 2021

Dennis J. ShaughnessyStephanie Dismore

/s/ Morton F. ZiffererKathleen McLean

Director

June 6, 201611, 2021

Morton F. ZiffererKathleen McLean

7374