UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~December 31, 2019~~June 30, 2020



¨	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 0-27266

Westell Technologies, Inc.

(Exact name of registrant as specified in its charter)



DELAWARE		36-3154957
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

750 North Commons Drive, Aurora, IL		60504
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (630) 898-2500

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Class A Common Stock, $.01 par value	WSTL	NASDAQ Capital Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 x No ¨

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



Large Accelerated Filer	¨	Accelerated Filer	¨

Non-Accelerated Filer	x	Smaller Reporting Company	x

		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 is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of ~~January~~July 24, 2020:

Class A Common Stock, $0.01 Par Value – ~~12,222,806~~12,331,407 shares Class B Common Stock, $0.01 Par Value – 3,484,287 shares

Table of Contents

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

FORM 10-Q INDEX

Cautionary Statement Regarding Forward-Looking Information

Certain statements contained herein that are not historical facts or that contain the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” “plan,” “should,” or derivatives thereof and other words of similar meaning are forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those expressed in or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the ability to complete the proposed reverse/forward split transaction and/or the ability to realize its expected benefits, product demand and market acceptance risks, customer spending patterns, need for financing and capital, economic weakness in the United States (“U.S.”) economy and telecommunications market, the effect of international economic conditions and trade, legal, social and economic risks (such as import, licensing and trade restrictions), the impact of competitive products or technologies, competitive pricing pressures, customer product selection decisions, product cost increases, component supply shortages, new product development, excess and obsolete inventory, commercialization and technological delays or difficulties (including delays or difficulties in developing, producing, testing and selling new products and technologies), the ability to successfully consolidate and rationalize operations, the ability to successfully identify, acquire and integrate acquisitions, effects of the Company’s accounting policies, retention of key personnel, the effects and consequences of the COVID-19 pandemic or other pandemics, and other risks more fully described in the Company's Form 10-K for the fiscal year ended March 31, ~~2019~~2020, under Item 1A - Risk Factors. The Company undertakes no obligation to publicly update these forward-looking statements to reflect current events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or otherwise.

Trademarks

The following terms used in this filing are ~~the Company's~~our trademarks: ClearLink®, EdgeLink^TM, Kentrox®, Optima Management System®, UDIT®, WESTELL TECHNOLOGIES®, and Westell®. All other trademarks appearing in this filing are the property of their holders.

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)


	(unaudited)						(unaudited)
	December 31, 2019			March 31, 2019			June 30, 2020			March 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	21,990		$	25,457		$	21,917		$	20,869
Accounts receivable (net of allowance of $100 at December 31, 2019, and March 31, 2019)	4,933			6,865
Accounts receivable (net of allowance of $100 at June 30, 2020, and March 31, 2020)							4,899			4,047
Inventories	7,622			9,801			7,354			6,807
Prepaid expenses and other current assets	1,703			1,706			916			1,298
Total current assets	36,248			43,829			35,086			33,021
Land, property and equipment, gross	8,146			8,109			8,010			7,987
Less accumulated depreciation and amortization	(7,073		)	(6,811		)	(6,982		)	(6,911		)
Land, property and equipment, net	1,073			1,298			1,028			1,076
Intangible assets, net	4,141			3,278			2,463			2,728
Right-of-use assets on operating leases, net	810			—			2,771			628
Other non-current assets	257			492			114			73
Total assets	$	42,529		$	48,897		$	41,462		$	37,526

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,821		$	2,313		$	2,247		$	1,065
Accrued expenses	3,422			3,567			3,028			3,136
Deferred revenue	1,314			1,217			955			1,099
Note Payable, SBA PPP loan - current							723			—
Total current liabilities	7,557			7,097			6,953			5,300
Note Payable, SBA PPP loan - non-current							917			—
Deferred revenue non-current	268			444			185			221
Lease liabilities non-current							2,226			250
Other non-current liabilities	379			176			225			94
Total liabilities	8,204			7,717			10,506			5,865
Commitments and contingencies (Note 11)
Stockholders’ equity:
Class A common stock, par $0.01, Authorized – 109,000,000 shares Outstanding – 12,222,806 and 11,909,979 shares at December 31, 2019, and March 31, 2019, respectively	122			119
Class B common stock, par $0.01, Authorized – 25,000,000 shares Issued and outstanding – 3,484,287 shares at December 31, 2019, and March 31, 2019	35			35
Class A common stock, par $0.01, Authorized – 109,000,000 shares Outstanding – 12,329,880 and 12,224,450 shares at June 30, 2020, and March 31, 2020, respectively							123			122
Class B common stock, par $0.01, Authorized – 25,000,000 shares Issued and outstanding – 3,484,287 shares at June 30 2020, and March 31, 2020							35			35
Preferred stock, par $0.01, Authorized – 1,000,000 shares Issued and outstanding – none	—			—			—			—
Additional paid-in capital	419,453			418,859			419,790			419,630
Treasury stock at cost – 5,214,597 and 5,122,414 shares at December 31, 2019, and March 31, 2019, respectively	(37,325		)	(37,135		)
Treasury stock at cost – 5,270,620 and 5,215,453 shares at June 30, 2020, and March 31, 2020, respectively							(37,367		)	(37,326		)
Accumulated deficit	(347,960		)	(340,698		)	(351,625		)	(350,800		)
Total stockholders’ equity	34,325			41,180			30,956			31,661
Total liabilities and stockholders’ equity	$	42,529		$	48,897		$	41,462		$	37,526

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)


	Three months ended December 31,						Nine months ended December 31,							Three months ended June 30,
	2019			2018			2019			2018				2020			2019
Revenue	$	7,159		$	10,722		$	23,730		$	33,865			$	7,350		$	9,002
Cost of revenue	4,379			6,132			16,125			19,147				4,508			5,756
Gross profit	2,780			4,590			7,605			14,718				2,842			3,246
Operating expenses
Research and development	1,222			1,736			4,227			5,011				945			1,556
Sales and marketing	1,556			1,999			6,147			6,012				1,376			2,332
General and administrative	1,093			1,738			3,706			4,672				1,210			1,364
Intangible amortization	308			830			924			2,652				226			308
Restructuring	234			—			234			—
Total operating expenses	4,413			6,303			15,238			18,347				3,757			5,560
Operating profit (loss)	(1,633		)	(1,713		)	(7,633		)	(3,629		)		(915		)	(2,314		)
Other income, net	109			158			398			442				30			164
Income (loss) before income taxes	(1,524		)	(1,555		)	(7,235		)	(3,187		)		(885		)	(2,150		)
Income tax benefit (expense)	(20		)	(1		)	(27		)	(11		)		60			(7		)
Net income (loss) from continuing operations	(1,544		)	(1,556		)	(7,262		)	(3,198		)
Discontinued Operations:
Income from discontinued operations, net of tax ⁽¹⁾	—			—			—			(138		)
Net income (loss) ⁽²⁾	$	(1,544	)	$	(1,556	)	$	(7,262	)	$	(3,336	)
Net income (loss) ⁽¹⁾														$	(825	)	$	(2,157	)
Net income (loss) per share:
Basic net income (loss) from continuing operations	$	(0.10	)	$	(0.10	)	$	(0.47	)	$	(0.21	)
Basic net income (loss) from discontinued operations	—			—			—			(0.01		)
Basic	$	(0.10	)	$	(0.10	)	$	(0.47	)	$	(0.21	)	⁽³⁾	$	(0.05	)	$	(0.14	)
Diluted net income (loss) per share:
Diluted net income (loss) from continuing operations	$	(0.10	)	$	(0.10	)	$	(0.47	)	$	(0.21	)
Diluted net income (loss) from discontinued operations	—			—			—			(0.01		)
Diluted	$	(0.10	)	$	(0.10	)	$	(0.47	)	$	(0.21	)	⁽³⁾	$	(0.05	)	$	(0.14	)
Weighted-average number of common shares outstanding:
Basic	15,575			15,524			15,514			15,576				15,665			15,455
Effect of dilutive securities: restricted stock, restricted stock units, performance stock units and stock options ⁽⁴⁾	—			—			—			—
Effect of dilutive securities: restricted stock, restricted stock units, performance stock units and stock options ⁽²⁾														—			—
Diluted	15,575			15,524			15,514			15,576				15,665			15,455

_______

⁽¹⁾~~See Note 1 for additional information regarding discontinued operations.~~

⁽²⁾ Net income (loss) and comprehensive income (loss) are the same for the periods reported.

⁽³⁾~~Per share amounts may not sum to totals due to rounding.~~

⁽⁴⁾(2) The Company had ~~1.0~~0.9 million and ~~0.9~~1.0 million shares represented by common stock equivalents for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2020 and June 30, 2019, ~~respectively, and 1.1 million and 1.0 million for the three and nine months ended December 31, 2018,~~ respectively, which were not included in the computation of average dilutive shares outstanding because they were anti-dilutive. In periods with a net loss from continuing operations, the basic loss per share equals the diluted loss per share as all common stock equivalents are excluded from the per share calculation.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


																		Common Stock Class A			Common Stock Class B		Additional Paid-in Capital			Treasury Stock			Accumulated Deficit			Total Stockholders’ Equity
Balance, March 31, 2020																		$	122		$	35	$	419,630		$	(37,326	)	$	(350,800	)	$	31,661
Net income (loss)																		—			—		—			—			(825		)	(825		)
Common stock issued																		2			—		(2		)	—			—			—
Purchase of treasury stock																		(1		)	—		—			(41		)	—			(42		)
Stock-based compensation																		—			—		162			—			—			162
Balance, June 30, 2020																		123			35		419,790			(37,367		)	(351,625		)	30,956

	Common Stock Class A			Common Stock Class B		Additional Paid-in Capital			Treasury Stock			Accumulated Deficit			Total Stockholders’ Equity			Common Stock Class A			Common Stock Class B		Additional Paid-in Capital			Treasury Stock			Accumulated Deficit			Total Stockholders’ Equity
Balance, March 31, 2019	$	119		$	35	$	418,859		$	(37,135	)	$	(340,698	)	$	41,180		$	119		$	35	$	418,859		$	(37,135	)	$	(340,698	)	$	41,180
Net income (loss)	—			—		—			—			(2,157		)	(2,157		)	—			—		—			—			(2,157		)	(2,157		)
Common stock issued	3			—		(3		)	—			—			—			3			—		(3		)	—			—			—
Purchase of treasury stock	(1		)	—		—			(172		)	—			(173		)	(1		)	—		—			(172		)	—			(173		)
Stock-based compensation	—			—		244			—			—			244			—			—		244			—			—			244
Balance, June 30, 2019	121			35		419,100			(37,307		)	(342,855		)	39,094			121			35		419,100			(37,307		)	(342,855		)	39,094
Net income (loss)	—			—		—			—			(3,561		)	(3,561		)
Common stock issued	1			—		—			—			—			1
Purchase of treasury stock	—			—		—			(16		)	—			(16		)
Stock-based compensation	—			—		201			—			—			201
Balance, September 30, 2019	122			35		419,301			(37,323		)	(346,416		)	35,719
Net income (loss)	—			—		—			—			(1,544		)	(1,544		)
Common stock issued	—			—		—			—			—			—
Purchase of treasury stock	—			—		—			(2		)	—			(2		)
Stock-based compensation	—			—		152			—			—			152
Balance, December 31, 2019	$	122		$	35	$	419,453		$	(37,325	)	$	(347,960	)	$	34,325

	Common Stock Class A			Common Stock Class B		Additional Paid-in Capital			Treasury Stock			Accumulated Deficit			Total Stockholders’ Equity
Balance, March 31, 2018	$	121		$	35	$	417,691		$	(35,907	)	$	(329,645	)	$	52,295
Cumulative effect adjustment ASC 606 adoption	—			—		—			—			329			329
Net income (loss)	—			—		—			—			(39		)	(39		)
Common stock issued	2			—		(2		)	—			—			—
Purchase of treasury stock	(1		)	—		—			(404		)	—			(405		)
Stock-based compensation	—			—		291			—			—			291
Balance, June 30, 2018	122			35		417,980			(36,311		)	(329,355		)	52,471
Net income (loss)	—			—		—			—			(1,741		)	(1,741		)
Common stock issued	1			—		(1		)	—			—			—
Purchase of treasury stock	(1		)	—		—			(199		)	—			(200		)
Stock-based compensation	—			—		295			—			—			295
Balance, September 30, 2018	122			35		418,274			(36,510		)	(331,096		)	50,825
Net income (loss)	—			—		—			—			(1,556		)	(1,556		)
Common stock issued	—			—		—			—			—			—
Purchase of treasury stock	(2		)	—		—			(431		)	—			(433		)
Stock-based compensation	—			—		303			—			—			303
Balance, December 31, 2018	$	120		$	35	$	418,577		$	(36,941	)	$	(332,652	)	$	49,139

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine months ended December 31,								Three months ended June 30,
	2019				2018				2020			2019
Cash flows from operating activities:
Net income (loss)	$	(7,262	)		$	(3,336	)		$	(825	)	$	(2,157	)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization	1,426				3,092				336			451
Stock-based compensation	597				889				162			244
Loss (gain) on sale of fixed assets	(11		)		1
Restructuring	234				—
Exchange rate loss (gain)	(2		)		3				(9		)	(3		)
Changes in assets and liabilities:
Accounts receivable	1,934				1,892				(843		)	1,059
Inventories	2,179				(941		)		(547		)	(142		)
Prepaid expenses and other current assets	3				(353		)		382			33
Other assets	(575		)		11				(2,184		)	(1,103		)
Deferred revenue	(79		)		(1,114		)	⁽¹⁾	(180		)	(318		)
Accounts payable and accrued expenses	332				494				3,184			740
Net cash provided by (used in) operating activities	(1,224		)		638				(524		)	(1,196		)
Cash flows from investing activities:
Maturities of other short-term investments	—				2,779
Proceeds from sale of fixed assets	11				—
Purchase of product licensing rights	(1,950		)	⁽²⁾	—
Purchases of property and equipment	(113		)		(273		)		(23		)	(14		)
Net cash provided by (used in) investing activities	(2,052		)		2,506				(23		)	(14		)
Cash flows from financing activities:
Proceeds from note payable to bank, SBA PPP loan									1,637			—
Purchases of treasury stock	(191		)		(1,038		)		(42		)	(173		)
Net cash provided by (used in) financing activities	(191		)		(1,038		)		1,595			(173		)
Gain (loss) of exchange rate changes on cash	—				(4		)		—			3
Net increase (decrease) in cash and cash equivalents	(3,467		)		2,102				1,048			(1,380		)
Cash and cash equivalents, beginning of period	25,457				24,963				20,869			25,457
Cash and cash equivalents, end of period	$	21,990			$	27,065			$	21,917		$	24,077

~~_______~~

⁽¹⁾ ~~Includes the cumulative effect adjustment of the ASC 606 adoption.~~

⁽²⁾ During the quarter ended September 30, 2019, the Company made a $950,000 payment for the purchase of product licensing rights. The remaining $1.0 million that is due is recorded in Accounts Payable as of December 31, 2019. The corresponding asset is recorded in intangible assets.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

Description of Business

Westell Technologies, Inc. (the Company) is a holding company. Its wholly owned subsidiary, Westell, Inc., designs and distributes telecommunications products, which are sold primarily to major telephone companies.

COVID-19 Impact

In March 2020, the World Health Organization declared the spread of a new strain of coronavirus (“COVID-19”) a pandemic. This outbreak continues to spread throughout the U.S. and around the world. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and work force participation while creating significant disruption and volatility of financial markets. The COVID-19 pandemic has impacted and may continue to impact the Company’s sales, supply chain availability and sourcing costs, our workforce and operations, as well as, that for our customers, contract manufacturers and other supply chain partners.

Basis of Presentation and Reporting

The accompanying Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. The Condensed Consolidated Financial Statements have been prepared using generally accepted accounting principles (GAAP) in the United States for interim financial reporting, and consistent with the instructions of Form 10-Q and Article 10 of Regulation S-X and, accordingly, they do not include all of the information and footnotes required in the annual consolidated financial statements and accompanying footnotes. The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, ~~2019~~2020. All intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, the unaudited interim financial statements included herein reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s condensed consolidated financial position and the results of operations, comprehensive income (loss) and cash flows at ~~December 31, 2019~~June 30, 2020, and for all periods presented. The results of operations for the periods presented are not necessarily indicative of the results that may be expected for fiscal year ~~2020.~~

~~Discontinued Operations~~

During the quarter ended September 30, 2018, the Company recorded indemnification expense related to probable loss contingencies associated with a major customer contract related to a business which was previously sold and therefore is presented as discontinued operations. On July 24, 2019, the Company signed a settlement agreement related to this matter. The $0.3 million settlement, which was fully covered by the accrual on March 31, 2019, was paid in the quarter ended December 31, 2019. The Condensed Consolidated Statements of Cash Flows include discontinued operations. See ~~Note 11~~ ~~and~~ ~~Note 15~~ ~~for additional information.~~2021.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and that affect revenue and expenses during the periods reported. Estimates are used when accounting for the allowance for uncollectible accounts receivable, net realizable value of inventory, product warranty accrued, relative selling prices, stock-based compensation, intangible assets fair value, depreciation, income taxes, right-of-use lease assets and related lease liabilities, and contingencies, among other things. Actual results could differ from those estimates.

Reclassifications

Certain amounts in the prior period Condensed Consolidated Financial Statements have been reclassified to conform to the current period presentation. The reclassifications had no impact on total assets, total liabilities, total stockholders’ equity or net income (loss) as previously reported.

Recently Adopted Accounting Pronouncements

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases~~ ~~(ASU 2016-02). In September 2017, the FASB issued ASU 2017-13,~~ ~~Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842)~~ (ASU 2017-13), which provides additional implementation guidance on ASU 2016-02. ASU 2016-02 requires lessees to recognize leases on the balance sheet as right-of-use assets, representing the right to use the underlying asset for the lease term, and a corresponding lease liability for leases with terms greater than one year. The liability is equal to the present value of lease payments while the right-of-use asset is based on the liability, subject to adjustment, such as prepaid lease payments.

~~In July 2018, the FASB issued ASU 2018-10,~~ ~~Codification Improvements to Topic 842 (Leases), which provides narrow amendments to clarify how to apply certain aspects of the new lease standard. In July 2018, the FASB also issued ASU 2018-11,~~ ~~Targeted Improvements~~. The amendments in this ASU provide for an additional transition method in which an entity applying the lease standard at adoption date recognizes a cumulative-effect adjustment to the opening balance of retained earnings (deficit) in the period of adoption.

The Company adopted the lease standard on April 1, 2019, using the modified retrospective method. Under this method, the new guidance applied to existing and new leases on the date of initial application while comparative prior periods are reported in accordance with the Topic 840 guidance effective prior to April 1, 2019, and requiring no retrospective adjustments. Upon adoption, total assets and liabilities increased due to recording the right-of-use assets of $1.3 million and lease liabilities of $1.2 million. Refer to Note 2 for additional disclosures around leases.

~~In July 2018, the FASB issued ASU 2018-09,~~ ~~Codification Improvements~~ (ASU 2018-09). ASU 2018-09 does not prescribe any new accounting guidance, but instead makes minor improvements and clarifications of several different FASB Accounting Standards Codification areas based on comments and suggestions made by various stakeholders. The Company adopted ASU 2018-09 effective April 1, 2019. The amendments had no impact to the Company's Condensed Consolidated Financial Statements.

~~Recently Issued Accounting Pronouncements Not Yet Adopted~~

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes

(“ASU ~~2019-12)~~2019-12”). The amendments in ASU 2019-12 seek to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application and simplify GAAP in other areas of Topic 740. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company ~~is currently evaluating the impact~~early adopted ASU 2019-12 ~~may have on~~effective April 1, 2020, with no immediate impact to the ~~Company's~~Company’s Condensed Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (“ASU ~~2018-13)~~2018-13”). This update modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. Certain disclosure requirements established in Topic 820 have been removed, some have been modified and new disclosure requirements were added. This new standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company ~~is currently evaluating the~~adopted 2018-13 effective April 1, 2020, with no immediate impact ~~that ASU 2018-13 may have on~~to the Company’s Condensed Consolidated Financial Statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (“ASU ~~2018-15)~~2018-15”). The main objective of ASU 2018-15 is to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this update require that a customer in a hosting arrangement that is a service contract follow the guidance in Subtopic 350-40 to determine which implementation costs should be capitalized as an asset and which costs should be expensed and states that any capitalized implementation costs should be expensed over the term of the hosting arrangement. This new standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company ~~is currently evaluating the impact that~~adopted ASU 2018-15 ~~may have on~~effective April 1, 2020, with no immediate impact to the Company’s Condensed Consolidated Financial Statements.

In November 2018, the FASB issued ASU 2018-18 Collaborative Arrangements (Topic 808) (“ASU ~~2018-18)~~2018-18”). The update provides guidance on the interaction between Revenue Recognition (Topic 606) and Collaborative Arrangements (Topic 808) by aligning the unit of account guidance between the two topics and clarifying whether certain transactions between collaborative participants should be accounted for as revenue under Topic 606. ASU 2018-18 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company ~~is currently evaluating the impact~~adopted ASU 2018-18 ~~may have on~~effective April 1, 2020, with no immediate impact to the Company's Condensed Consolidated Financial Statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments -Credit Losses (Topic 326) ~~(ASU 2016-13)~~(“ASU 2016-13”). ASU 2016-13 will replace the current incurred loss approach with a new expected credit loss impairment model for trade receivables, loans, and other financial instruments. Under the new model, the estimate of expected credit losses will be based on historical experience, current conditions and reasonable and supportable forecasts. For the Company, ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption permitted. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. The Company is currently evaluating the impact of ASU 2016-13 on the Company's Condensed Consolidated Financial Statements.

Note 2. Leases

The Company ~~adopted~~accounts for leases under ASC ~~842 effective April 1, 2019, which resulted in~~842. Leases with an ~~increase to total assets~~initial term of $1.3 million to record the right-of-use (ROU) assets for operating leases of facilities and an increase in total liabilities of $1.2 million to record the associated lease liabilities. The difference between operating lease liabilities and ROU assets recognized is primarily due to prepaid rent and deferred rent accruals12 months or less are not recorded ~~under prior lease accounting standards. ASC 842 requires such balances to be~~

~~reclassified against ROU assets at transition. The adoption did not have any impact~~ on ~~the Company's Condensed Consolidated Statements of Operations or~~ the Condensed Consolidated ~~Statements of Cash Flows.~~Balance Sheets. The Company also made the accounting policy election to account for each separate lease component and non-lease component associated with that lease component as a single lease component, thus causing all fixed payments to be capitalized. The Company determines lease terms based on whether or not it is reasonably certain to exercise the lease extensions. The Company determines at inception whether an arrangement is a lease.

~~ROU~~Right-of-use (“ROU”) assets represent the Company's right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the net present value of remaining fixed lease payments over the lease term. Lease terms used to calculate the present value of the lease payments include any options to extend, renew, or terminate the lease, when it is reasonably certain that these options will be exercised. ROU assets also include any advance lease payments made and exclude any lease incentives. As the implicit interest rate for our leases is not readily determinable, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease expense is recognized on a straight-line basis over the lease term. The Company has lease arrangements with non-lease components that are not in-substance fixed and considered variable, which were not included in the carrying balances of the ~~right-of-use~~ROU asset and lease liability. The Company does not have any finance leases.

The Company elected the package of practical expedients, which among other things, allows the Company to carry forward historical lease classifications. Leases with an initial term of 12 months or less are not recorded on the Condensed Consolidated Balance Sheets. The Company also made the accounting policy election to account for each separate lease component and non-lease component associated with that lease component as a single lease component, thus causing all fixed payments to be capitalized. The Company determines at inception whether an arrangement is a lease. No leases require residual value guarantees.

The Company reviews the impairment ROU assets consistent with the approach applied to other long-lived assets. ROU assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying amount over its fair value.

The Company's operating leases primarily include building leases for the corporate headquarters in Aurora, IL, an engineering and service center in Dublin, OH, and office space in Manchester, NH.

Future minimum lease payments as of ~~December 31, 2019,~~June 30, 2020, consisted of the following (in thousands):


Fiscal Year	Operating Leases			Operating Leases
2020 ⁽¹⁾	$	184
2021	420
2021 ⁽¹⁾				$	335
2022	67			577
2023	69			577
2024	70			582
2025				593
Thereafter	66			268
Total lease payments	876			2,932
Less: imputed interest	(46		)	(331		)
Total operating lease liabilities	$	830		$	2,601

_______

⁽¹⁾ Represents the future minimum operating lease payments expected to be made over the remaining balance of the fiscal year.

As of ~~December 31, 2019,~~June 30, 2020, the weighted-average remaining lease term was ~~2.5~~5.3 years and the weighted-average discount rate was ~~4.3%~~4.5%.

During the first quarter of fiscal year 2021, the Company executed a lease extension for the Manchester, New Hampshire facility with the lease term extended to August 31, 2022 with an option to further extend the lease for one additional term of two years (the “NH extension”). The Company ~~is currently evaluating renewal and replacement~~also executed a lease ~~options~~extension for the ~~corporate headquarters in~~ Aurora, IL facility in the quarter ended June 30, 2020 that extended the lease to November 30, 2025 with an option to extend the lease for one additional term of five years (the “IL extension”). The IL extension required a deposit, which ~~expires~~is expected to be applied to the final two lease payments and is included in the calculation of the total lease liability. Prior to the extension, additional rent payments covering the Company’s portion of operating expenses and taxes were fixed and included in the lease liability balance. The amendment to extend the lease changed these fixed additional rent payments to variable payments with adjustments made based on ~~September 30,~~actual operating expenses and taxes and, as such, would no longer be included in the lease liability balances beginning October 1, 2020.

During the second quarter of fiscal year ~~2019,~~2020, as a cost savings effort, the Company executed a new 63 month lease for the Dublin, OH design service center rather than executing the two year option to extend the existing lease as previously assumed. The new lease commenced on December 1, 2019 and has a reduced footprint which is more suitable to our current operation. The new lease includes a renewal option to extend the initial lease term for an additional three years. The lease also includes a termination option effective the last day of the 39th month of the lease term. The cost to terminate under this option would be

approximately $70,000. At this time, the Company does not expect to terminate the lease at the end of the 39^th month of the lease term and so the cost to terminate is not included in the ROU asset and lease liability balance.

Our building leases ~~in Dublin and Manchester~~ include variable lease payments that are not included in the lease liability balances as they are based on the expenses which can vary during the term of each lease. ~~All rent payments in~~At this time, the ~~Aurora~~Company is not reasonably certain to exercise any of the options for further lease extensions so they are ~~fixed and as such are~~not included in the ROU asset and lease liability balance.

Lease expenses are included in Cost of revenue, Sales and marketing, Research and development, and General and administrative in the Company's Condensed Consolidated Statements of Operations. The components of lease expense are as follows:


(in thousands)	Three months ended December 31, 2019		Nine months ended December 31, 2019		Three months ended June 30, 2020		Three months ended June 30, 2019
Operating lease expense	$	202	$	610	$	148	$	204
Variable lease expense ⁽¹⁾	25		88		22		40
Total lease expense ⁽²⁾	$	227	$	698	$	170	$	244

_______

⁽¹⁾ Variable lease expense is related to our leased real estate ~~in Ohio and New Hampshire~~ and primarily includes labor and operational costs as well as taxes and insurance.

⁽²⁾Short-term lease expense is immaterial.

For the ~~nine~~three months ended ~~December 31,~~June 30, 2020 and June 30, 2019, cash paid for operating leases included in the measurement of lease liabilities was ~~$0.5 million.~~$0.3 million and $0.1 million, respectively. The increase in the three months ended June 30, 2020 is primarily due to the deposit from the IL extension. All of these payments are presented in Operating activities cash flows on the Condensed Consolidated Statements of Cash Flows.

The following table summarizes the classification of ROU assets and lease liabilities as of ~~December~~June 30, 2020 and March 31, ~~2019:~~2020:


(in thousands)	December 31, 2019		Balance Sheet Classification	June 30, 2020		March 31, 2020		Balance Sheet Classification
Assets:
ROU assets	$	810	Right-of-use assets on operating leases, net	$	2,771	$	628	Right-of-use assets on operating leases, net
Liabilities:
Current operating lease liability	566		Accrued expenses	375		339		Accrued expenses
Non-current operating lease liabilities	264		Other non-current liabilities	2,226		250		Lease liabilities non-current
Total lease liabilities	$	830		$	2,601	$	589

Note 3. Revenue Recognition and Deferred Revenue

The Company records revenue based on a five-step model in accordance with ASC Topic 606, Revenue From Contracts With Customers ~~(ASC 606)~~(“ASC 606"). The Company's revenue is derived from the sale of products, software, and services identified in contracts. A contract exists when both parties have an approved agreement that creates enforceable rights and obligations, identifies performance obligations and payment terms and has commercial substance. The Company records revenue from these contracts when control of the products or services transfer to the customer. The amount of revenue to be recognized is based upon the consideration, including the impact of any variable consideration, that the Company expects to be entitled to receive in exchange for these products and services.

Disaggregation of revenue

The following table disaggregates our revenue by major source:


(In thousands)	Three months ended December 31,				Nine months ended December 31,
(in thousands)									Three months ended June 30,
	2019		2018		2019		2018		2020		2019
Revenue:
Products	$	5,842	$	9,400	$	19,974	$	30,230	$	6,198	$	7,815
Software	92		408		272		982		17		19
Services	1,225		914		3,484		2,653		1,135		1,168
Total revenue	$	7,159	$	10,722	$	23,730	$	33,865	$	7,350	$	9,002

The following is the expected future revenue recognition timing of deferred revenue as of ~~December 31, 2019:~~June 30, 2020:

< 1 year 1-2 years > 2 years
Deferred Revenue $ 1,314
$ 145
$ 123



(in thousands)	< 1 year		1-2 years		> 2 years
Deferred Revenue	$	955	$	109	$	76

During each of the ~~nine~~three months ended ~~December 31,~~June 30, 2020, and June 30, 2019, ~~and December 31, 2018,~~ the Company recognized ~~$1.1 million and $1.6~~$0.4 million of revenue ~~respectively,~~ related to contract liabilities at the beginning of the periods.

The Company allows certain customers to return unused product under specified terms and conditions. The Company estimates product returns based on historical sales and return trends and records a corresponding refund liability. The refund liability is included within Accrued expenses on the accompanying Condensed Consolidated Balance Sheets. Additionally, the Company records an asset based on historical experience for the amount of product we expect to return to inventory as a result of the return, which is recorded in Prepaid and other current assets in the Condensed Consolidated Balance Sheets. The gross product return asset was $0.1 million ~~and $0.2 million~~ at ~~December 31, 2019,~~both June 30, 2020, and March 31, ~~2019, respectively.~~2020.

Note 4. ~~Restructuring Charges~~Long-term Debt and Note Payable to Bank

The Company has a Paycheck Protection Program loan (“PPP Loan”) implemented by the ~~three and nine months ended December 31, 2019,~~United States Small Business Administration (“SBA”). On April 14, 2020, the Company ~~recorded~~obtained an unsecured PPP Loan through JPMorgan Chase Bank, N.A. in the amount of $1,637,522. The loan was made through the SBA as part of the Paycheck Protection Program under the 2020 Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The interest rate is fixed at 0.98% per year. Under the CARES Act, all or a ~~restructuring expense~~portion of ~~$0.2 million related to employee termination costs that spanned all three segments.~~this loan may be forgiven if certain requirements are met. The Company ~~did~~intends to adhere to the requirement and apply for loan forgiveness. If the loan is not ~~record~~forgiven, the Company will pay principal and interest payments of approximately $92,000 every month, beginning seven months from the effective date of the PPP Loan. The Company can repay the PPP Loan without any ~~restructuring expense in~~prepayment penalty. All remaining principal and accrued interest is due and payable 2 years from the ~~nine months ended December~~effective date of the PPP Loan. The current portion and non-current portions of the PPP Loan is $0.7 million and $0.9 million respectively. The Company had no other debt as of June 30, 2020 or March 31, ~~2018.~~

~~Total liability for restructuring charges and their utilization for the three and nine months ended December 31, 2019, are summarized as follows:~~

Three months ended December 31, 2019 Nine months ended December 31, 2019
(in thousands) Employee related Other costs Total Employee related Other costs Total
Liability at beginning of period $ —
$ —
$ —
$ —
$ —
$ —
Charged 234
—
234
234
—
234
Paid (227 ) —
(227 ) (227 ) —
(227 )
Liability at end of period $ 7
$ —
$ 7
$ 7
$ —
$ 7
2020.

Note 5. Interim Segment Information

Segment information is presented in accordance with a “management approach", which designates the internal reporting used by the chief operating decision-maker ~~(CODM)~~(“CODM") for making decisions and assessing performance as the source of the Company's reportable segments. Westell’s Chief Executive Officer is the CODM. The CODM continues to define segment profit as gross profit less research and development expenses. The accounting policies of the segments are the same as those for Westell Technologies, Inc. described in the summary of significant accounting policies included in the Company's Annual Report on Form 10-K for year ended March 31, ~~2019,~~2020, and as updated in this filing.

The Company’s three reportable segments are as follows:

In-Building Wireless ~~(IBW)~~(“IBW") Segment

The IBW segment solutions enable cellular and public safety coverage in stadiums, arenas, malls, buildings, and other indoor areas not served well or at all by the existing "macro" outdoor wireless network. For ~~commercial~~cellular service, solutions include distributed antenna ~~systems (DAS)~~system (“DAS") conditioners and digital repeaters. For the public safety market, solutions include ~~half-watt and two-watt~~Class A repeaters, Class B repeaters, ~~our Class A repeater product suite~~ and battery backup units. IBW also offers ancillary products that consist of passive system components and antennas for both the ~~commercial~~cellular service and public safety markets.

Intelligent Site Management ~~(ISM)~~(“ISM") Segment

ISM segment solutions include a suite of remote units, which ~~are network devices used for on-site processing. Remotes~~ provide ~~on-site~~ machine-to-machine ~~(M2M)~~(“M2M") communications that enable operators to remotely monitor, manage, and control physical site infrastructure and support systems. ~~Remotes~~Remote units can be and often are combined with ~~our~~the Company's Optima management software system. ISM also offers support services (i.e., maintenance agreements) and deployment services (i.e., installation).

Communications Network Solutions ~~(CNS)~~(“CNS") Segment

CNS segment solutions include a broad range of hardened network infrastructure offerings suitable for both indoor and outdoor use. The offerings consist of integrated cabinets, power distribution products, copper and fiber network connectivity panels, ~~fiber access products~~ and T1 network interface units ~~(NIUs)~~(“NIUs").

Segment information for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2020, and 2019, ~~and 2018,~~ is set forth below:

Three months ended December 31, 2019
(in thousands) IBW ISM CNS Total
Revenue $ 2,466
$ 2,456
$ 2,237
$ 7,159
Cost of revenue 1,657

991
1,731
4,379
Gross profit 809
1,465
506
2,780
Gross margin 32.8 % 59.6 % 22.6 % 38.8 %
Research and development 470
505
247
1,222
Segment profit $ 339
$ 960
$ 259
1,558
Operating expenses:
Sales and marketing 1,556
General and administrative 1,093
Intangible amortization 308
Restructuring 234
Operating profit (loss) (1,633 )
Other income, net 109
Income tax benefit (expense) (20 )
Net income (loss) from continuing operations $ (1,544 )

Three months ended December 31, 2018
(in thousands) IBW ISM CNS Total
Revenue $ 2,794
$ 5,116
$ 2,812
$ 10,722
Cost of revenue 1,725
2,217
2,190
6,132
Gross profit 1,069
2,899
622
4,590
Gross margin 38.3 % 56.7 % 22.1 % 42.8 %
Research and development 682
570
484
1,736
Segment profit $ 387
$ 2,329
$ 138
2,854
Operating expenses:
Sales and marketing 1,999
General and administrative 1,738
Intangible amortization 830
Operating profit (loss) (1,713 )
Other income, net 158
Income tax benefit (expense) (1 )
Net income (loss) from continuing operations $ (1,556 )


	Nine months ended December 31, 2019												Three months ended June 30, 2020
(in thousands)	IBW			ISM			CNS			Total			IBW			ISM			CNS			Total
Revenue	$	8,007		$	8,197		$	7,526		$	23,730		$	2,949		$	2,047		$	2,354		$	7,350
Cost of revenue	5,813			4,111			6,201			16,125			1,749			892			1,867			4,508
Gross profit	2,194			4,086			1,325			7,605			1,200			1,155			487			2,842
Gross margin	27.4		%	49.8		%	17.6		%	32.0		%	40.7		%	56.4		%	20.7		%	38.7		%
Research and development	1,272			1,825			1,130			4,227			349			382			214			945
Segment profit	$	922		$	2,261		$	195		3,378			$	851		$	773		$	273		1,897
Operating expenses:
Sales and marketing										6,147												1,376
General and administrative										3,706												1,210
Intangible amortization										924												226
Restructuring										234
Operating profit (loss)										(7,633		)										(915		)
Other income, net										398												30
Income tax benefit (expense)										(27		)										60
Net income (loss) from continuing operations										$	(7,262	)
Net income (loss)																						$	(825	)


	Nine months ended December 31, 2018												Three months ended June 30, 2019
(in thousands)	IBW			ISM			CNS			Total			IBW			ISM			CNS			Total
Revenue	$	9,997		$	13,506		$	10,362		$	33,865		$	2,923		$	3,095		$	2,984		$	9,002
Cost of revenue	5,574			6,237			7,336			19,147			1,951			1,516			2,289			5,756
Gross profit	4,423			7,269			3,026			14,718			972			1,579			695			3,246
Gross margin	44.2		%	53.8		%	29.2		%	43.5		%	33.3		%	51.0		%	23.3		%	36.1		%
Research and development	2,071			1,697			1,243			5,011			399			701			456			1,556
Segment profit (loss)	$	2,352		$	5,572		$	1,783		9,707
Segment profit													$	573		$	878		$	239		1,690
Operating expenses:
Sales and marketing										6,012												2,332
General and administrative										4,672												1,364
Intangible amortization										2,652												308
Operating profit (loss)										(3,629		)										(2,314		)
Other income, net										442												164
Income tax benefit (expense)										(11		)										(7		)
Net income (loss) from continuing operations										$	(3,198	)
Net income (loss)																						$	(2,157	)

Segment asset information is not reported to or used by the CODM.

Note 6. Inventories

Inventories are stated at the lower of cost, on a first-in, first-out basis, or net realizable value. The components of net inventories are as follows:


(in thousands)	December 31, 2019		March 31, 2019		June 30, 2020		March 31, 2020
Raw materials	$	2,263	$	3,445	$	2,369	$	2,188
Work-in-process					—		—
Finished goods	5,359		6,356		4,985		4,619
Total inventories	$	7,622	$	9,801	$	7,354	$	6,807

The Company records provisions against inventory for excess and obsolete inventory, which are determined based on the Company's best estimates of future demand, product lifecycle status and product development plans. These provisions reduce the inventory cost basis. The Company recorded provision for excess and obsolete inventory with a charge of ~~$2.0~~$0.6 million in

the ~~nine~~three months ended ~~December 31,~~June 30, 2019. The charges for the provision for excess and obsolete inventory for the three

months ended ~~December 31, 2019, and three and nine months ended December 31, 2018,~~June 30, 2020, were negligible. These costs are presented in Cost of revenue on the Condensed Consolidated Statements of Operations. The Company believes the estimates and assumptions underlying its provisions are reasonable. However, there is risk that additional charges may be necessary if future demand is less than current forecasts due to rapid technological changes, uncertain customer requirements, or other factors.

Note 7. Stock-Based Compensation

The Westell Technologies, Inc. 2019 Omnibus Incentive Compensation Plan (the ~~2019 Plan)~~“2019 Plan”) was approved at the annual meeting of stockholders on September 17, 2019. The 2019 Plan replaced the Westell Technologies, Inc. 2015 Omnibus Incentive Compensation Plan (the ~~2015 Plan)~~“2015 Plan”). The 2019 Plan includes a total of 1,000,000 shares of Class A Common Stock (Shares) plus the number of Shares reserved for issuance under the 2015 Plan that have not been granted or reserved for issuance under an outstanding award that may be issued under the 2019 Omnibus Plan. If any award granted under the 2019 Plan or the 2015 Plan is canceled, terminates, expires, or lapses for any reason, any Shares subject to such award shall again be available for the grant of an award under the 2019 Plan. Shares subject to an award shall not again be made available for issuance under the Plan if such Shares are: (a) ~~Shares~~ delivered to or withheld by the Company to pay the grant or purchase price of an award, or (b) ~~Shares~~ delivered to or withheld by the Company to pay the withholding taxes related to an award. Any awards or portions thereof that are settled in cash and not in Shares shall not be counted against the foregoing Share limit.

The stock options, restricted stock awards, and restricted stock units ~~(RSUs)~~(“RSUs”) awarded under ~~both~~ the 2019 ~~Plan and the 2015~~ Plan generally vest in equal annual installments over 3 years for employees and 1 year for non-employee directors. Performance stock units ~~(PSUs)~~(“PSUs”) earned vest over the performance period. Certain awards provide for accelerated vesting if there is a change in control (as defined in the 2019 ~~Plan and the 2015~~ Plan), or when provided within individual employment contracts. The Company accounts for forfeitures as they occur. The Company issues new shares for stock awards under the 2019 ~~Plan and the 2015~~ Plan.

The following table is a summary of total stock-based compensation expense resulting from stock options, restricted stock, RSUs and PSUs, during the three ~~and nine~~ months ended ~~December 31, 2019~~June 30, 2020, and ~~2018~~2019:


	Three months ended December 31,				Nine months ended December 31,				Three months ended June 30,
(in thousands)	2019		2018		2019		2018		2020		2019
Stock-based compensation expense	$	152	$	303	$	597	$	889	$	162	$	244
Income tax benefit	—		—		—		—		—		—
Total stock-based compensation expense, after taxes	$	152	$	303	$	597	$	889	$	162	$	244

Stock Options

Stock option activity for the ~~nine~~three months ended ~~December 31, 2019~~June 30, 2020, is as follows:


	Shares		Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value ⁽¹⁾ (in thousands)		Shares	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value ⁽¹⁾ (in thousands)
Outstanding on March 31, 2019	293,478		$	4.28	4.4	$	—
Outstanding on March 31, 2020								221,812	$	1.87	5.4	$	—
Granted	150,000		1.35					—	—
Exercised	—		—					—	—
Forfeited	(66,667	)	3.14					—	—
Expired	(145,624	)	5.39					—	—
Outstanding on December 31, 2019	231,187		$	2.01	5.4	$	—
Outstanding on June 30, 2020								221,812	$	1.87	5.1	$	—

_______


⁽¹⁾	The intrinsic value for the stock options is calculated based on the difference between the exercise price of the underlying awards and the Westell Technologies’ closing stock price as of the respective reporting date.

Restricted Stock

The following table sets forth restricted stock activity for the ~~nine~~three months ended ~~December 31, 2019~~June 30, 2020:


	Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2019	63,334		$	2.86
Non-vested as of March 31, 2020					128,584		$	1.39
Granted	128,584		1.39		—		—
Vested	(63,334	)	2.86		(2,500	)	1.72
Forfeited	—		—		—		—
Non-vested as of December 31, 2019	128,584		$	1.39
Non-vested as of June 30, 2020					126,084		$	1.38

RSUs

The following table sets forth the RSU activity for the ~~nine~~three months ended ~~December 31, 2019~~June 30, 2020:


	Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2019	665,127		$	3.03
Non-vested as of March 31, 2020					441,108		$	2.31
Granted	301,037		1.73		271,140		0.78
Vested	(271,426	)	3.10		(160,597	)	2.87
Forfeited	(239,879	)	2.69		—		—
Non-vested as of December 31, 2019	454,859		$	2.31
Non-vested as of June 30, 2020					551,651		$	1.39

PSUs

PSUs will be earned primarily based upon achievement of performance goals tied to growing revenue and to non-GAAP profitability targets for fiscal year ~~2020.~~2021. Upon vesting, the PSUs convert into shares of Class A Common Stock of the Company on a one-for-one basis.

The following table sets forth the PSU activity for the ~~nine~~three months ended ~~December 31, 2019~~June 30, 2020:


	Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2019 (at target)	5,000		$	3.14
Non-vested as of March 31, 2020 (at target)					5,000		$	1.38
Granted, at target	216,144		1.89		229,303		0.78
Vested	(5,000	)	3.14		—		—
Forfeited	(127,498	)	2.07		(5,000	)	1.38
Non-vested as of December 31, 2019 (at target)	88,646		$	1.63
Non-vested as of June 30, 2020 (at target)					229,303		$	0.78

Note 8. Product Warranties

The Company’s products carry a limited warranty ranging from one to five years for the products within the IBW segment, typically one year for products within the ISM segment, and one to seven years for products within the CNS segment. The specific terms and conditions of those warranties vary depending upon the customer and the products sold. Factors that affect the estimate of the Company’s warranty reserve include: the number of units shipped, anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the reserve as necessary. The current portions of the warranty reserve are $~~72,000~~88,000 and $~~74,000~~120,000 as of ~~December 31, 2019~~June 30, 2020, and March 31, ~~2019~~2020, respectively, and are presented on the Condensed Consolidated Balance Sheets in Accrued expenses. The non-current portions of the warranty reserves are $~~58,000~~42,000 and $~~56,000~~40,000 as of ~~December 31, 2019~~June 30, 2020, and March 31, ~~2019~~2020, respectively, and are presented on the Condensed Consolidated Balance Sheets in Other non-current liabilities.

The following table presents the changes in the Company’s product warranty reserve:


	Three months ended December 31,						Nine months ended December 31,						Three months ended June 30,
(in thousands)	2019			2018			2019			2018			2020			2019
Total product warranty reserve at the beginning of the period	$	130		$	285		$	130		$	300		$	160		$	130
Warranty expense to cost of revenue	17			12			51			44			32			12
Utilization	(17		)	(22		)	(51		)	(69		)	(62		)	(12		)
Total product warranty reserve at the end of the period	$	130		$	275		$	130		$	275		$	130		$	130

Note 9. Variable Interest Entity and Guarantee

The Company has a 50% equity ownership in AccessTel Kentrox Australia PTY LTD (AKA). AKA distributes network management solutions provided by the Company and the other 50% owner to one customer. The Company holds equal voting control with the other owner. All actions of AKA are decided at the board level by majority vote. The Company evaluated ASC 810, Consolidations, and concluded that AKA is a variable interest entity (VIE) and the Company has a variable interest in the VIE. The Company has concluded that it is not the primary beneficiary of AKA and, therefore, consolidation is not required. The carrying amount of the Company's investment in AKA was approximately $0.1 million as of ~~December 31, 2019,~~both June 30, 2020, and March 31, ~~2019,~~2020, which is presented on the Condensed Consolidated Balance Sheets within Other non-current assets.

The Company's revenue from sales to AKA for the three months ended ~~December 31,~~June 30, 2020, and 2019, ~~and 2018,~~ was $0.3 million and ~~$0.5 million, respectively. The Company's revenue from sales to AKA for the nine months ended December 31, 2019, and 2018, was $1.0 million and $1.6~~$0.4 million, respectively. Accounts receivable from AKA was $0.2 million ~~and $0.3 million~~ as of ~~December 31, 2019,~~both June 30, 2020, and March 31, ~~2019, respectively.~~2020. AKA deferred revenue, which primarily relates to maintenance contracts, was ~~$0.6~~$0.4 million and ~~$0.8~~$0.5 million as of ~~December 31, 2019,~~June 30, 2020, and March 31, ~~2019,~~2020, respectively. The Company also has provided an unlimited guarantee for the performance of the other 50% owner in AKA, which primarily provides support and engineering services to the customer. This guarantee was put in place at the request of the AKA customer. The guarantee, which is estimated to have a maximum potential future payment of $0.7 million, will stay in place as long as the contract between AKA and the customer is in place. The Company would have recourse against the other 50% owner in AKA in the event the guarantee is triggered. The Company determined that it could perform on the obligation it guaranteed at a positive rate of return and, therefore, did not assign value to the guarantee. The Company's exposure to loss as a result of its involvement with AKA, exclusive of lost profits, is limited to the items noted above.

Note 10. Income Taxes

At the end of each interim period, the Company makes its best estimate of the effective tax rate expected to be applicable for the full fiscal year and uses that rate to provide for income taxes on a current year-to-date basis before discrete items. If a reliable estimate cannot be made, the Company may make a reasonable estimate of the annual effective tax rate, including use of the actual effective rate for the year-to-date. The impact of discrete items is recorded in the quarter in which they occur. The Company utilizes the liability method of accounting for income taxes and deferred taxes, which are determined based on the differences between the financial statements and tax basis of assets and liabilities given the enacted tax laws. The Company evaluates the need for valuation allowances on the net deferred tax assets under the rules of ASC 740, Income Taxes. In assessing the realizability of the Company's deferred tax assets, the Company considers whether it is more likely than not that some or all of the deferred tax assets will be realized through the generation of future taxable income. In making this determination, the Company assessed all of the evidence available at the time, including recent earnings, forecasted income projections and historical performance. The Company determined that the negative evidence outweighed the objectively verifiable positive evidence and previously recorded a full valuation allowance against deferred tax assets. The Company will continue to reassess realizability going forward.

As of ~~December 31, 2019,~~June 30, 2020, the Company had net deferred tax assets of approximately ~~$39.0~~$40.8 million before a valuation allowance of ~~$39.0~~$40.8 million. As of ~~December 31, 2019, and~~ March 31, ~~2019, respectively,~~2020, the Company ~~has~~had $348,000 ~~and $697,000~~of tax receivables associated with a prior AMT credit carryforward. The Company ~~expects to recover~~recovered the entire amount ~~by 2022 via tax refunds. The decrease~~of the receivable in the ~~tax receivable represents~~quarter ended June 30, 2020 via a tax ~~refund received during the third quarter.~~refund.

The Company recorded ~~$20,000 and $27,000~~$60,000 of income tax benefit in the three months ended June 30, 2020, using an effective income tax rate of (0.18)% plus discrete items. The Company recorded $7,000 of income tax expense in the three ~~and nine~~ months ended ~~December 31,~~June 30, 2019, ~~using an effective income tax rate of (0.10)% plus discrete items. The Company recorded $1,000 and $11,000 of income tax expense in the three and nine months ended December 31, 2018, respectively,~~ using an effective rate of ~~(0.32)~~(0.30)% plus discrete items. The effective income tax rate in both periods is impacted by the intraperiod allocation as a result of income or loss from continuing operations, and states which base tax on gross margin and not pretax income.

Note 11. Commitments and Contingencies

Litigation and Contingency Reserves

The Company and its subsidiaries are involved in various assertions, claims, proceedings and requests for indemnification concerning intellectual property, including patent infringement suits involving technologies that may be incorporated in the Company’s products, which are being handled and defended in the ordinary course of business. These matters are in various stages of investigation and litigation, and they are being vigorously defended. Although the Company does not expect that the outcome in any of these matters, individually or collectively, will have a material adverse effect on its financial condition or results of operations, litigation is inherently unpredictable. Therefore, judgments could be rendered, or settlements entered, that could adversely affect the Company’s operating results or cash flows in a particular period. The Company routinely assesses all of its litigation and threatened litigation as to the probability of ultimately incurring a liability, and it records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable. As of June 30, 2020, and March 31, 2020, the Company has not recorded any contingent liability attributable to existing litigation.

In the ordinary course of operations the Company receives claims where the Company believes an unfavorable outcome is possible and/or for which it is probable and no estimate of possible losses can currently be made. A significant customer was a defendant in two patent infringement claims and is asserting possible indemnity rights under contracts with the Company. The customer has settled one matter, and initially won summary judgment for all claims in the other, but on appeal the decision was reversed. The customer has informed the Company that the customer intends to seek to recover from the Company a share of the settlement and defense costs. For the summary judgment case, the customer provided an initial allocation of its defense costs. During the fourth quarter of fiscal 2019, the Company obtained additional information to evaluate the facts for both cases and has agreed in principle to a combined settlement in the amount of $0.3 million. The parties executed a settlement agreement in which some indemnity rights are reserved. The Company paid the settlement amount in the quarter ended December 31, 2019. As of March 31, 2019, the combined settlement was unpaid and accrued on the Condensed Consolidated Balance Sheets presented in Accrued expenses. Both of these claims relate to a business which was previously sold and therefore the related expense is presented as discontinued operations.

~~Leases~~Lease Obligations

The Company currently occupies office space under operating leases, with various expiration dates through ~~February~~November 2025. The ~~terms the~~ Company’s office leases provide for rental payments on a graduated scale. Lease expense is recognized on a straight-line basis over the lease term. For further details, refer to Note 2. Leases.

Note 12. Fair Value Measurements

Fair value is defined by ASC 820, Fair Value Measurements and Disclosures (“ASC ~~820)~~820”), as the price that would be received upon selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The Company’s money market funds are measured using Level 1 inputs.

The following table presents available-for-sale securities measured at fair value on a recurring basis as of ~~December 31, 2019~~June 30, 2020:


(in thousands)	Total Fair Value of Asset or Liability		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Balance Sheet Classification	Total Fair Value of Asset or Liability		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Balance Sheet Classification
Assets:
Money market funds	$	21,644	$	21,644	—	—	Cash and cash equivalents	$	21,891	$	21,891	—	—	Cash and cash equivalents

The following table presents available-for-sale securities measured at fair value on a recurring basis as of March 31, ~~2019~~2020:


(in thousands)	Total Fair Value of Asset or Liability		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Balance Sheet Classification	Total Fair Value of Asset or Liability		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Balance Sheet Classification
Assets:
Money market funds	$	25,645	$	25,645	—	—	Cash and cash equivalents	$	20,690	$	20,690	—	—	Cash and cash equivalents

The fair value of the money market funds approximates their carrying amounts due to the short-term nature of these financial ~~assets.~~instruments.

Note 13. Share Repurchases

In May 2017, the Board of Directors authorized a share repurchase program whereby the Company may repurchase up to an aggregate of $2.0 million of its outstanding Class A Common Stock (the ~~2017 authorization)~~“2017 authorization”). The 2017 authorization is in addition to the $0.1 million that was remaining from the August 2011 $20.0 million authorization (the ~~2011 authorization)~~“2011 authorization”). There were no shares repurchased under the 2017 authorization during the ~~nine~~three months ended ~~December 31,~~June 30, 2020 or June 30, 2019. ~~During the nine months ended December 31, 2018, 337,653 shares were repurchased under the 2017 authorization, at a weighted average purchase price of $2.51 per share.~~ As of ~~December 31, 2019,~~June 30, 2020, there was approximately $0.7 million remaining for additional share repurchases under the 2017 authorization.

Additionally, in the ~~nine~~three months ended ~~December 31,~~June 30, 2020 and June 30, 2019, ~~and December 31, 2018,~~ the Company repurchased ~~92,183~~55,167 and ~~59,053~~80,936 shares of Class A Common Stock, respectively, from certain employees that were surrendered to satisfy the minimum statutory tax withholding obligations on the vesting of restricted stock, RSUs and PSUs. These repurchases were not included in the authorized share repurchase programs and had a weighted-average purchase price of ~~$2.07~~$0.76 and $~~3.24~~2.15 per share, respectively.

Note 14. Intangible Assets

Intangible assets include customer relationships, trade names, developed technology, product licensing rights, and other intangibles. Intangible assets with determinable lives are amortized over their estimated useful lives. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying amount over its fair value.

There was no intangible asset impairment during the ~~nine~~three months ended ~~December 31, 2019,~~June 30, 2020, or ~~the nine months ended December 31, 2018.~~

~~Product Licensing Rights~~

On July 31, 2019, the Company entered into a five year License and Service Agreement with a public safety manufacturing company pursuant to which the Company obtained worldwide product licensing rights for existing products to be manufactured at our contract manufacturer for our IBW segment (the "Agreement"). Under the terms of the Agreement, the Company made an up-front payment of $1.0 million during the quarter ended September 30, 2019, in connection with the execution of the agreement. The Company will pay an additional $1.0 million, which is presented in Accounts Payable on the Condensed Consolidated Balance Sheet as of December 31, 2019, upon the achievement of a certain milestone, as well as royalties on future sales. In addition to the product licensing rights, the initial $1.0 million up-front payment includes training. The newly acquired product licensing rights will be amortized straight-line over the term of the Agreement. The amortization related to this intangible asset is presented in Cost of revenue on the Condensed Consolidated Statements of Operations during the three and nine months ended December 31, 2019.

The Agreement also contains possible future product licensing rights for a product that is still being developed. Once development is complete, and the licensed know-how is transferred to our contract manufacturer, a third payment of $250,000 would be payable. Westell had not recorded this liability and related product licensing rights on the Condensed Consolidated Balance Sheet as of December 31, 2019 as recognition is contingent upon the future development of the product.

~~Acquisition-related Intangible Assets~~

During the quarter ended September 30, 2019, the Company determined there were indications of impairment on the ISM intangible assets primarily due to a significant decline in revenue. The decrease in revenue in the three months ended ~~September~~June 30, 2019, primarily was due to decreased sales of remote units driven by a slowdown in demand from two existing customers. The Company performed the recoverability test described above and concluded the carrying amount was recoverable. The Company concluded it was not necessary to perform a recoverability test during the quarter ended December 31, 2019.

Note 15. Accrued Expenses

The components of accrued expenses are as follows:

(in thousands) December 31, 2019 March 31, 2019
Accrued compensation $ 499
$ 656

Accrued contractual obligation 1,445
1,445

Current operating lease liability 566
—

Other accrued expenses 912
1,466
⁽¹⁾
Total accrued expenses $ 3,422
$ 3,567
⁽¹⁾

~~_______~~

⁽¹⁾~~Includes a $0.3 million accrual for loss contingencies related to discontinued operations. See~~ ~~Note 11~~.



(in thousands)	June 30, 2020		March 31, 2020
Accrued compensation	$	586	$	596
Accrued contractual obligation	1,445		1,445
Current operating lease liability	375		339
Other accrued expenses	622		756
Total accrued expenses	$	3,028	$	3,136

Note 16. Land, Property, and Equipment

Long-lived assets consist of land, property and equipment. Long-lived assets that are held and used should be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived assets might not be recoverable. There was no long-lived asset impairment during the ~~nine~~three months ended ~~December 31, 2019,~~June 30, 2020, or ~~December 31, 2018.~~June 30, 2019.

The components of fixed assets are as follows:


(in thousands)	December 31, 2019			March 31, 2019			June 30, 2020			March 31, 2020
Land	$	672		$	672		$	672		$	672
Machinery and equipment	1,367			1,372			1,421			1,415
Office, computer and research equipment	5,319			5,267			5,129			5,112
Leasehold improvements	788			798			788			788
Land, property and equipment, gross	8,146			8,109			8,010			7,987
Less accumulated depreciation and amortization	(7,073		)	(6,811		)	(6,982		)	(6,911		)
Land, property and equipment, net	$	1,073		$	1,298		$	1,028		$	1,076

Note 17. Subsequent Event

On July 10, 2020, the Company announced that a Special Committee of independent directors has recommended, and its Board of Directors has approved, a plan for a proposed transaction whereby the Company would effect a reverse/forward stock split of the Company’s shares of Class A Common Stock and Class B Common Stock, in conjunction with terminating the Company’s public company reporting obligations and delisting the Company’s Class A Common Stock from the NASDAQ Capital Market. It is expected that this transaction would be effectuated late in the third quarter or early in the fourth quarter of calendar year 2020, subject to stockholders approving the proposed transaction at the Annual Meeting of Stockholders.

The Company is taking these steps to avoid the substantial cost and expense of being a public reporting company and to focus the Company’s resources on enhancing long-term stockholder value.

Information concerning the proposed transaction is set forth in the definitive proxy statement for the Company's 2020 Annual Meeting of Stockholders, which was filed with the SEC on Schedule 14A on August 11, 2020. Stockholders are urged to read the definitive proxy statement carefully.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The following discussion should be read together with the Condensed Consolidated Financial Statements and the related Notes thereto and other financial information appearing elsewhere in this Form 10-Q. All references herein to the term “fiscal year” shall mean a year ended March 31 of the year specified.

Westell Technologies, Inc., (the ~~Company)~~“Company”) is a leading provider of high-performance network infrastructure solutions focused on innovation and differentiation at the edge of communication networks where end users connect. The Company’s portfolio of products and solutions enable service providers and network operators to improve performance and reduce operating expenses. With millions of products successfully deployed worldwide, Westell is a trusted partner for transforming networks into high performance, reliable systems.

COVID-19 Impact

In March 2020, the World Health Organization declared the spread of COVID-19 a pandemic. During the first quarter of fiscal year 2021, this outbreak grew and continues to spread throughout the U.S. and around the world. As a result, authorities continue to implement numerous measures to try to contain the virus, including restrictions on travel, quarantines, shelter-in-place orders, business restrictions and shut-downs. The Company is considered an “essential business” due to the industries and customers we serve, including critical telecommunications infrastructure. Accordingly, we have followed CDC recommendations and have continued operations with enhanced safety precautions throughout the pandemic.

To support the health and well-being of our workforce, customers, partners and communities, all of our employees who do not have critical in-person functions have been working remotely to lower the number of people working on-site at any given time. For those employees working in our facilities, we have instituted mediation measures including increased distancing of workstations, more frequent cleanings, face mask requirements, restricting access to our premises, and other safety precautions. We expect to continue our mediation efforts for the foreseeable future.

The impact of COVID-19 continues to evolve. There is significant uncertainty around the U.S. and global economy, future customer demand, supply chain availability, increased airfreight costs, cash collections, costs related to our mediation efforts and costs and timing related to anticipated easing of shelter-in-place and shut-down orders going forward into the remainder of the fiscal year. These uncertainties include the duration and severity of the pandemic and containment measures and how our compliance with these measures will impact our day-to-day operations as well as that of our customers, contract manufacturers and other supply chain partners.

We are continuing to monitor developments related to the pandemic on our own operations as well as on our suppliers, contract manufacturers and customers. We intend to adapt to the evolving environment while acting to ensure the health and safety of our employees.

On April 14, 2020, the Company received $1.6 million pursuant to a loan under the Paycheck Protection Program (the “PPP”) of the 2020 Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) administered by the Small Business Association. The Company intends to use the funds from this loan only for the purposes included in the PPP, including payroll, employee benefits, rent and utilities (See Liquidity and Capital Resources).

Segments

The Company’s three reportable segments are as follows:

In-Building Wireless ~~(IBW)~~(“IBW") Segment

Intelligent Site Management ~~(ISM)~~(“ISM") Segment

Communications Network Solutions ~~(CNS)~~(“CNS") Segment

Customers

The Company’s customer base includes communications service providers, systems integrators, neutral-host operators, and distributors. Service providers include wireless and wireline carriers, cable or multiple systems operators (MSOs), and Internet service providers (“ISPs”). Due to stringent customer quality specifications and regulated environments in which many customers operate, the Company must undergo lengthy approval and procurement processes prior to selling most of its products. Accordingly, the Company must make significant up-front investments in product and market development prior to actual commencement of sales of new products. The prices for the Company's products vary based upon volume, customer specifications, and other criteria, and are subject to change for a variety of reasons, including cost and competitive factors.

To remain competitive, the Company must continue to invest in new product development and/or in targeted sales and marketing efforts to launch new product lines and features. Failure to increase revenues from new products, whether due to lack of market acceptance, competition, technological change, purchasing decisions, meeting technical specifications or otherwise, could have a material adverse effect on the Company's business and results of operations. The Company expects to continue to evaluate new product opportunities and invest in research and development activities.

In view of the Company’s reliance on the communications infrastructure market for revenues, the project nature of the business, the unpredictability of orders, and pricing pressures, the Company believes that period-to-period comparisons of its financial results should not be relied upon as an indication of future performance. The Company has experienced quarterly fluctuations in customer ordering and purchasing activity due primarily to the project-based nature of the business and to budgeting and procurement patterns toward the end of the calendar year or the beginning of a new calendar year. While these factors can result in the greatest fluctuations in the Company's third and fourth fiscal quarters, this is not always consistent and may not always correlate to financial results.

Other Matters

~~The Westell Technologies, Inc. 2019 Omnibus Incentive Compensation Plan (the "2019 Plan") was~~On July 10, 2020, the Company announced that a Special Committee of independent directors has recommended, and its Board of Directors has approved, ata plan for a proposed transaction whereby the ~~annual meeting~~Company would effect a reverse/forward stock split of ~~stockholders on September 17, 2019. The 2019 Plan replaced~~ the ~~Westell Technologies, Inc. 2015 Omnibus Incentive Compensation Plan (the "2015 Plan"). The 2019 Plan includes a total of 1,000,000~~Company’s shares of Class A Common Stock ~~("Shares") plus~~and Class B Common Stock, in conjunction with terminating the Company’s public company reporting obligations and delisting the Company’s Class A Common Stock from the NASDAQ Capital Market. It is expected that this transaction would be effectuated late in the third quarter or early in the fourth quarter of calendar year 2020, subject to stockholders approving the proposed transaction at the Annual Meeting of Stockholders.

The Company is taking these steps to avoid the substantial cost and expense of being a public reporting company and to focus the Company’s resources on enhancing long-term stockholder value.

We believe that the total cash requirement of the proposed reverse/forward split transaction to the Company will be approximately $8.1 million. This amount includes approximately $300,000 of legal, accounting and financial advisory fees and other costs to effect the Transaction. The actual amounts paid for costs and the cash out of fractional shares will likely vary. The total amount could be larger or smaller depending on, among other things, the number of ~~Shares reserved for issuance under~~fractional shares that will be outstanding after the 2015 Plan that have not been granted or reserved for issuance under an outstanding award that may be issued under the 2019 Omnibus Plan. If any award granted under the 2019 Plan or the 2015 Plan is canceled, terminates, expires, or lapses for any reason, any Shares subject to such award shall again be available for the grant of an award under the 2019 Plan. Shares subject to an award shall not again be made available for issuance under the Plan if such Shares are: (a) Shares delivered to or withheld by the Company to pay the grant or purchase price of an award, or (b) Shares delivered to or withheld by the Company to pay the withholding taxes related to an award. Any awards or portions thereof that are settled in cash and not in Shares shall not be counted against the foregoing Share limit.

On October 18, 2019, the Company approved a plan to restructure its business, including a reduction of headcount that spanned locations, functions, and segments. The restructuring was substantially completed on October 18, 2019. The restructuring is part of a plan to reduce ongoing expenses and focus the business on three areas for new product growth: in-building wireless, fiber deployment, and remote monitoring. The Company incurred charges totaling $0.2 million for the estimated cash payments related to employee separation benefits. Substantially all of the cash payments related to this matter were completed by December 31,

~~2019. The Company is still on track for expected efficiencies and annual cost savings in excess of $1.7 million~~Transaction as a result of purchases, sales and other transfers of our Class A Common Stock and Class B Common Stock of the ~~restructuring.~~Company by our stockholders.

Results of Operations

Below is a table that compares revenue for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2020, and 2019, ~~and 2018,~~ by segment.

Revenue


	Three months ended December 31,							Nine months ended December 31,							Three months ended June 30,
(in thousands)	2019		2018		Change			2019		2018		Change			2020		2019		Change
IBW	$	2,466	$	2,794	$	(328	)	$	8,007	$	9,997	$	(1,990	)	$	2,949	$	2,923	$	26
ISM	2,456		5,116		(2,660		)	8,197		13,506		(5,309		)	2,047		3,095		(1,048		)
CNS	2,237		2,812		(575		)	7,526		10,362		(2,836		)	2,354		2,984		(630		)
Consolidated revenue	$	7,159	$	10,722	$	(3,563	)	$	23,730	$	33,865	$	(10,135	)	$	7,350	$	9,002	$	(1,652	)

IBW

IBW revenue was ~~$2.5~~relatively flat at $2.9 million in both the three months ended June 30, 2020 and ~~$8.0 million~~June 30, 2019.

The following is a more detailed analysis of the IBW product revenue in the three ~~and nine~~ months ended ~~December 31, 2019, respectively,~~June 30, 2020, compared to ~~$2.8 million and $10.0 million in~~ the same respective ~~periods~~period in the prior ~~year.~~ year and anticipated trends:

The ~~decrease in~~Company recognized its first revenue ~~in both periods ended December 31, 2019, was primarily due~~of approximately $0.2 million from the new Crossfire Cellular DAS product line. The Crossfire system is a digital transport system extending cellular signals throughout buildings where existing cellular coverage is poor. Due to ~~lower sales of repeaters and DAS conditioners, partly offset by increased ancillary and public safety~~the project-based nature for this revenue, it is difficult to make a determination on future trends, but we anticipate the new Crossfire product ~~revenues.~~ line is a growth opportunity.

Sales of DAS conditioners, ~~have~~which includes our Universal DAS Interface Tray (“UDIT”) active conditioner, were up over the prior year quarter due to expansion of previously installed systems. During fiscal year 2020, sales of DAS conditioners decreased due to network architecture shifts to alternative, non-DAS solutions in large venues such as stadiums and arenas, as well as integration of RF signal power attenuation (the primary function of conditioners) into larger network elements. Going forward, we do not anticipate sales of conditioners to rebound to previous levels, but we do expect on-going demand where customers may add capacity to the existing embedded base of large-venue DAS networks, as well as in smaller in-building DAS deployments that require a stand-alone conditioner.

Sales of cellular repeaters were down approximately $0.2 million. While still a reliable and proven solution for amplifying cellular coverage inside a building, lower sales of cellular repeaters are reflective of the continuing downward-demand trend as our larger customers have had a stronger preference for small cells to provide in-building cellular coverage. We expect the ~~commercial~~cellular repeater market to decline ~~further~~ as customers continue to shift to other forms of commercial in-building coverage, such as small cells.

Despite the slowdown in installations due to COVID-19 during the quarter, sales increased modestly for our public safety products, which include Class A Repeaters, Class B Repeaters and battery backup units, compared to the same period in the prior year. These public safety repeaters perform similarly to cellular repeaters and extend public safety radio signals inside buildings where existing radio coverage does not reach. The products are dedicated only to public safety frequency bands and meet the strict National Fire Protection Association (“NFPA”) regulatory requirements. We ~~also~~ expect the market for public safety ~~repeaters~~products to continue to grow as more local municipalities pass and enforce ordinances that require in-building wireless communication coverage for first responders and emergency personnel.

Ancillary products (passive RF system components and antennas) sales showed a modest decrease. Future ancillary product revenue could potentially increase with the increase in public safety revenue, but may follow the same flat-to-down trend as DAS conditioners and cellular repeaters.

Many IBW products are installed during new construction projects and major renovations. Restricted travel to customer worksites or government regulations and economic impacts due to COVID-19 may reduce or delay construction projects impacting the amount and timing of revenue.

ISM

ISM revenue was ~~$2.5 million and $8.2~~$2.0 million in the three ~~and nine~~ months ended ~~December 31, 2019, respectively,~~June 30, 2020, compared to ~~$5.1 million and $13.5~~$3.1 million in the same respective ~~periods~~period in the prior year. The decrease in revenue in the three ~~and nine~~ months ended ~~December 31, 2019,~~June 30, 2020, primarily was due to decreased sales of remote ~~units and lower software revenue.~~units. The decreased sales of remote units was driven by a slowdown in demand from two existing customers for

additional remote site monitoring. ~~The lower software revenue was due to large orders for Optima licenses from two existing customers in the quarter ended June 30, 2018.~~ Due to the project-based nature of our ISM business, it is difficult to make a determination on future trends.

COVID-19 related travel restrictions are expected to impact timing of new installations while government and customer restrictions remain in place. Although it is uncertain, we may see an increased demand for our ISM remote monitoring equipment and software given the current market conditions, as they may prevent the need for or improve the efficiency of truck rolls to customer sites.

CNS

CNS revenue was ~~$2.2 million and $7.5~~$2.4 million in the three ~~and nine~~ months ended ~~December 31, 2019, respectively,~~June 30, 2020, compared to ~~$2.8 million and $10.4~~$3.0 million in the same respective ~~periods~~period in the prior year. The decrease in revenue in ~~both periods~~the period ended ~~December 31, 2019,~~June 30, 2020, was due to lower sales across each of the ~~legacy~~ product lines offset by a small increase in sales from ~~our new fiber access product line which was introduced during last fiscal year. We expect fiber access revenue to grow as we develop a wider range of product offerings in the market. We expect sales~~integrated cabinets.

Sales of integrated cabinets, which are heavily project-based, are likely to remain uneven, ~~while~~but we expect them to increase near term. We expect sales of power distribution products and copper/fiber connectivity panels ~~are expected~~ to remain ~~steady. We~~steady, while we expect revenue from T1 NIUs and ~~TMA revenue~~TMAs, which are older technology with declining use, to continue to decrease over ~~time as these products are old technology~~time.

COVID-19 restrictions on travel, quarantines and shelter-in-place orders by local authorities could increase demand for our CNS integrated cabinets used in ~~declining use.~~rural broadband, which is expected to expand to support a larger number of people working remotely. However, customers could feel pressure to delay capital spending to preserve cash.

Gross Margin


	Three months ended December 31,						Nine months ended December 31,						Three months ended June 30,
	2019		2018		Change		2019		2018		Change		2020		2019		Change
IBW	32.8	%	38.3	%	(5.5	)%	27.4	%	44.2	%	(16.8	)%	40.7	%	33.3	%	7.4	%
ISM	59.6	%	56.7	%	2.9	%	49.8	%	53.8	%	(4.0	)%	56.4	%	51.0	%	5.4	%
CNS	22.6	%	22.1	%	0.5	%	17.6	%	29.2	%	(11.6	)%	20.7	%	23.3	%	(2.6	)%
Consolidated gross margin	38.8	%	42.8	%	(4.0	)%	32.0	%	43.5	%	(11.5	)%	38.7	%	36.1	%	2.6	%

The consolidated gross margin ~~decreased~~increased by 2.6% in the three ~~and nine~~ months ended ~~December 31, 2019,~~June 30, 2020, compared to the same ~~periods~~period in the prior year. The ~~decrease in the three month period~~increase was primarily due to ~~product mix, as sales came from~~ lower ~~margin products along with lower revenue against fixed costs. The decrease in the nine month period was primarily due to higher~~ costs associated with excess and obsolete ~~inventory and the lower revenue against fixed costs.~~inventory. The Company recorded

provision for excess and obsolete inventory with a charge of ~~$2.0~~$0.6 million in the ~~nine~~three months ended ~~December 31,~~June 30, 2019. The charges for the provision for excess and obsolete inventory for the three months ended ~~December 31, 2019, and three and nine months ended December 31, 2018,~~June 30, 2020, were negligible.

The ~~increase in inventory charges in fiscal year 2020 was a result of technology shifts and changing customer plans which lowered~~primary factors that caused the ~~sales outlook for certain legacy products. Going forward, we do not expect~~period-over-period changes within each segment are as follows:

IBW segment gross margin increased, by 7.4%, due primarily to lower excess and obsolete inventory ~~charges~~costs along with a more favorable product mix.

ISM segment gross margin increased, by 5.4%, due primarily to ~~continue at the recent levels. However, there is risk that additional charges may be necessary if future demand is less than current forecasts~~lower excess and obsolete inventory costs along with a more favorable mix.

CNS segment gross margin decreased, by 2.6%, due primarily to increased product costs due to ~~rapid technological changes, uncertain~~alternative source suppliers to meet customer ~~requirements, or other factors~~.demands given the COVID-19 supply chain disruptions and lower revenue against fixed costs, partially offset by lower excess and obsolete inventory costs.

Research and Development


	Three months ended December 31,							Nine months ended December 31,							Three months ended June 30,
(in thousands)	2019		2018		Change			2019		2018		Change			2020		2019		Change
IBW	$	470	$	682	$	(212	)	$	1,272	$	2,071	$	(799	)	$	349	$	399	$	(50	)
ISM	505		570		(65		)	1,825		1,697		128			382		701		(319		)
CNS	247		484		(237		)	1,130		1,243		(113		)	214		456		(242		)
Consolidated research and development expense	$	1,222	$	1,736	$	(514	)	$	4,227	$	5,011	$	(784	)	$	945	$	1,556	$	(611	)

Research and development expenses decreased by ~~$0.5 million and $0.8~~$0.6 million in the three ~~and nine~~ months ended ~~December 31, 2019, respectively,~~June 30, 2020, compared to the same ~~periods~~period in the prior year. The ~~decreases were due~~decrease was primarily attributable to ~~additional expenses for new product developments in fiscal year 2019 within~~a lower expense structure resulting from the ~~IBW segment that were not repeated in fiscal year 2020. The decreases can also be attributed to decreased salary and compensation expenses~~Company's overall cost reduction efforts, including the restructuring in the ~~fiscal 2020 periods.~~quarter ended December 31, 2019 and by lower R&D expense due to a temporary salary reduction during the quarter in response to COVID-19.

Sales and Marketing


	Three months ended December 31,							Nine months ended December 31,						Three months ended June 30,
(in thousands)	2019		2018		Change			2019		2018		Change		2020		2019		Change
Consolidated sales and marketing expense	$	1,556	$	1,999	$	(443	)	$	6,147	$	6,012	$	135	$	1,376	$	2,332	$	(956	)

Sales and marketing expense decreased ~~$0.4 million and increased $0.1~~$1.0 million in the three ~~and nine~~ months ended ~~December 31, 2019, respectively,~~June 30, 2020, compared to same ~~periods~~period in the prior fiscal year. The decrease ~~in the three month period~~ was ~~due primarily to a decrease in salary and compensation expenses. The increase in the nine month period was due to increased consulting and professional services that occurred earlier in fiscal 2020.~~

~~General and Administrative~~

Three months ended December 31, Nine months ended December 31,
(in thousands) 2019 2018 Change 2019 2018 Change
Consolidated general and
administrative expense
$ 1,093
$ 1,738
$ (645 ) $ 3,706
$ 4,672
$ (966 )

Consolidated general and administrative expense decreased $0.6 million and $1.0 million in the three and nine months ended December 31, 2019, respectively, compared to the same periods in the prior fiscal year. These decreases were largely attributable to a lower expense structure from the restructuring in the quarter ended December 31, 2019 and the Company's overall cost reduction ~~efforts.~~efforts, including a temporary salary reduction during the quarter in response to COVID-19.

General and Administrative



	Three months ended June 30,
(in thousands)	2020		2019		Change
Consolidated general and administrative expense	$	1,210	$	1,364	$	(154	)

Consolidated general and administrative expense decreased $0.2 million in the three months ended June 30, 2020, compared to the same period in the prior fiscal year. The decrease was largely attributable to a lower expense structure from the restructuring in the quarter ended December 31, 2019 and the Company's overall cost reduction efforts, including a temporary salary reduction during the quarter in response to COVID-19.

Intangible amortization

Acquisition-related amortization


	Three months ended December 31,							Nine months ended December 31,							Three months ended June 30,
(in thousands)	2019		2018		Change			2019		2018		Change			2020		2019		Change
Consolidated intangible amortization	$	308	$	830	$	(522	)	$	924	$	2,652	$	(1,728	)	$	226	$	308	$	(82	)

Amortization in the three ~~and nine~~ months ended ~~December 31,~~June 30, 2020, and June 30, 2019, ~~and December 31, 2018,~~ were non-cash expenses related to ISM intangible assets established through a prior ~~acquisitions.~~acquisition. These intangible assets consist of product technology, customer relationships, and trade names derived from the acquisitions. The decrease of ~~$0.5 million and $1.7~~$0.1 million in three ~~and nine~~ months ended ~~December 31, 2019,~~June 30, 2020, compared to the same ~~periods~~period in the prior fiscal year, resulted primarily from ~~product and~~

~~customer-related~~trademark intangibles ~~from the IBW segment~~ becoming fully ~~impaired~~amortized during the fourth quarter of fiscal ~~2019. All fiscal year 2020 amortization in the table above relates to the ISM segment.~~

2020.

Product Licensing Rights

On July 31, 2019, the Company entered into a five year License and Service Agreement with a public safety manufacturing company pursuant to which the Company obtained worldwide product licensing rights for existing products to be manufactured at our contract manufacturer for our IBW segment (the "Agreement"). ~~Under the terms of the Agreement, the Company agreed to pay an up-front payment of $1.0 million during the quarter ended September 30, 2019, in connection with the execution of the agreement.~~ The ~~Company will pay an additional $1.0 million upon the achievement of a certain milestone, as well as royalties on future sales. The newly~~ acquired product licensing rights will be amortized straight-line over the term of the Agreement. The amortization related to this intangible asset is presented in Cost of revenue on the Condensed Consolidated Statements of Operations and during the three ~~and nine~~ months ended ~~December 31, 2019.~~

June 30, 2020 was approximately $39,000.

Other income, net


	Three months ended December 31,							Nine months ended December 31,							Three months ended June 30,
(in thousands)	2019		2018		Change			2019		2018		Change			2020		2019		Change
Consolidated other income (expense)	$	109	$	158	$	(49	)	$	398	$	442	$	(44	)	$	30	$	164	$	(134	)

Other income, net contains (a) interest income earned on cash and cash equivalents and (b) foreign currency gains/losses related primarily to receivables and cash denominated in Australian and Canadian currencies. The decrease during the three ~~and nine~~ months ended ~~December 31, 2019,~~June 30, 2020, compared to the prior fiscal year, was primarily due to decreased cash balances ~~offset in part by increased~~and lower interest rates on investments.

Income tax expense

As of ~~December 31, 2019, and~~ March 31, ~~2019, respectively,~~2020, the Company ~~has~~had $348,000 ~~and $697,000~~ of federal alternative minimum tax ("AMT") credit carryforward. The Company ~~expects to recover~~recovered the entire amount ~~by 2022~~of the receivable in the quarter ended June 30, 2020 via a tax ~~refunds.~~refund.

The Company recorded ~~$20,000 and $27,000~~$60,000 of income tax benefit in the three months ended June 30, 2020, using an effective income tax rate of (0.18)% plus discrete items. The Company recorded $7,000 of income tax expense in the three ~~and nine~~ months ended ~~December 31,~~June 30, 2019, using an effective income tax rate of (0.10)% plus discrete items. The Company recorded $1,000 and $11,000 of income tax expense in the three and nine months ended December 31, 2018, respectively, using an effective income tax rate of (0.32)(0.30)% plus discrete items. The effective income tax rate in both periods is impacted by the intraperiod allocation as a result of income or loss from continuing operations, and states which base tax on gross margin and not pretax income.

Net income (loss)

Net loss was ~~$1.5~~$0.8 million and ~~$7.3~~$2.2 million in the three ~~and nine~~ months ended ~~December 31,~~June 30, 2020 and 2019, ~~respectively. Net loss was $1.6 million and $3.3 million in the three and nine months ended December 31, 2018,~~ respectively. The changes were a result of the cumulative effects of the variances identified above.

Liquidity and Capital Resources

Overview

Due to significant uncertainty around the U.S. and global economy, future customer demand, supply chain availability, increased airfreight costs, cash collections, costs related to our mediation efforts and costs and timing related to anticipated easing of shelter-in-place and shut-down orders, our ability to sustain our operations as the COVID-19 pandemic evolves, we are proactively managing costs and working capital in order to protect our financial position and maintain our workforce. Effective April 1, 2020, we reduced operating expenses through director fee reductions, elimination of non-essential travel, and reduced discretionary spending. At ~~December 31, 2019~~June 30, 2020, the Company had $~~22.0~~21.9 million in cash and cash equivalents consisting of bank deposits ~~prime money market funds,~~ and ~~additional~~ money market funds that invest only in government securities.

To preserve cash and liquidity, we are delaying non-essential capital expenditures and will delay usage of funds authorized under our stock repurchase program. On April 14, 2020, the Company obtained an unsecured PPP Loan through JPMorgan Chase Bank, N.A. in the amount of $1,637,522. The loan was made through the SBA as part of the Paycheck Protection Program under the 2020 Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The interest rate is fixed at 0.98% per year. Under the CARES Act, all or a portion of this loan may be forgiven if certain requirements are met. If the loan is not forgiven, the Company will pay principal and interest payments of approximately $92,000 every month, beginning seven months from the April 8, 2020 effective date of the PPP Loan. The Company can repay the PPP Loan without any prepayment penalty. All remaining principal and accrued interest is due and payable two years from the effective date of the PPP Loan. The current portion and non-current portions of the PPP Loan is $0.7 million and $0.9 million respectively. The Company continues to monitor government economic stabilization efforts and is participating in the payroll tax deferral program. As discussed above, the total cash requirements of the proposed forward/reverse split transaction to the Company are expected to be approximately $8.1 million. We expect our existing cash balance and proceeds from the PPP loan will be sufficient to meet our liquidity needs for the next twelve months.

Cash Flows

The significant changes in cash flows were as follows:


	Nine months ended December 31,						Three months ended June 30,
(in thousands)	2019			2018			2020			2019
Net cash flow provided by (used in):
Operating activities	$	(1,224	)	$	638		$	(524	)	$	(1,196	)
Investing activities	(2,052		)	2,506			(23		)	(14		)
Financing activities	(191		)	(1,038		)	1,595			(173		)
Effect of exchange rate on changes on cash	—			(4		)	—			3
Net increase (decrease) in cash and cash equivalents	$	(3,467	)	$	2,102		$	1,048		$	(1,380	)

Net cash used by operating activities was ~~$1.2~~$0.5 million in the ~~nine~~three months ended ~~December 31, 2019,~~June 30, 2020, compared to ~~$0.6~~$1.2 million ~~provided~~used in the same period of the prior year. The change resulted primarily from the ~~increased~~decreased net loss in the current period adjusted for non-cash items ~~and~~offset in part by an increase in cash used by working capital when compared to the same period in the prior year.

Net cash used by investing activities ~~was $2.1 million~~ in the ~~nine~~three months ended ~~December 31,~~June 30, 2020 and 2019, ~~compared~~was to $2.5 million provided in the same period of the prior year. The change was primarily due to the conversion of all short-term investments into cash equivalents during fiscal year 2019. Also, during the quarter ended September 30, 2019, the Company invested in a new product licensing rights intangible asset, which is fully reflected in investing activities,purchase property and made a partial payment. The remaining $1.0 million payment that is due is recorded in Accounts Payable as of December 31, 2019. The license agreement also contains possible future product licensing rights for a product that is still being developed. Once development is complete, and the licensed know-how is transferred to our contract manufacturer, a third payment of $250,000 would be payable.equipment.

Net cash ~~used~~provided by financing activities was ~~$0.2~~$1.6 million in the ~~nine~~three months ended ~~December 31, 2019,~~June 30, 2020, compared to ~~$1.0~~$0.2 million used in the same period of the prior year. The ~~decreased use of cash was due~~change resulted primarily from ~~decreased purchases of treasury stock.~~the proceeds from the PPP loan when compared to the same period in the prior year.

As of ~~December 31, 2019,~~June 30, 2020, the Company had net deferred tax assets of approximately ~~$39.0~~$40.8 million before a valuation allowance of ~~$39.0~~$40.8 million. Also, as of ~~December 31, 2019,~~June 30, 2020, the Company had a ~~$2.2~~$1.8 million tax contingency reserve related to uncertain tax positions, which is offset against deferred tax assets. The federal net operating loss carryforward begins to expire in fiscal year 2022. Realization of deferred tax assets associated with the Company’s future deductible temporary differences, net operating loss carryforwards and tax credit carryforwards is dependent upon generating sufficient taxable income prior to their expiration, among other factors. The Company weighed positive and negative evidence to assess the need for a valuation allowance against deferred tax assets and whether a tax benefit should be recorded when taxable losses are incurred. The existence of a valuation allowance does not limit the availability of tax assets to reduce taxes payable when taxable income arises. Management periodically evaluates the recoverability of the deferred tax assets and may adjust the valuation allowance against deferred tax assets accordingly.

Off-Balance Sheet Arrangements

The Company has a 50% equity ownership in AccessTel Kentrox Australia PTY LTD (AKA). AKA distributes network management solutions provided by the Company and the other 50% owner to one customer. The Company holds equal voting control with the other owner. All actions of AKA are decided at the board level by majority vote. The Company also has provided an unlimited guarantee for the performance of the other 50% owner in AKA, which primarily provides support and engineering services to the customer. This guarantee was put in place at the request of the AKA customer. The guarantee, which is estimated to have a maximum potential future payment of $0.7 million, will stay in place as long as the contract between AKA and the customer is in place. The Company would have recourse against the other 50% owner in AKA in the event the guarantee is triggered. The Company determined that it could perform on the obligation it guaranteed at a positive rate of return and, therefore, did not assign value to the guarantee.

Critical Accounting Policies

A complete description of the Company’s significant accounting policies is discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, ~~2019~~2020. There have been no material changes in the Company's critical accounting policies from those disclosed in the Annual Report on Form 10-K for the year ended March 31, ~~2019.~~2020.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.

Not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s senior management, including the Company’s chief executive officer and chief financial officer, the Company conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this quarterly report (the Evaluation Date). Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded as of the Evaluation Date that the Company’s disclosure controls and procedures were effective such that the information relating to the Company, including consolidated subsidiaries, required to be disclosed in the Company’s Securities and Exchange Commission (SEC) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company’s management, including the Company’s chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

In connections with the adoption of ASC 842 effective April 1, 2019, the Company has made appropriate design and implementation updates to our business and internal controls to support the recognition and disclosure under the new standard.

There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended ~~December 31, 2019~~June 30, 2020, ~~other than as described above,~~ that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved in various legal proceedings incidental to the Company’s business and its previously owned operations. In the ordinary course of operations the Company is routinely audited and subject to inquiries by governmental and regulatory agencies or receives claims ~~where the Company believes~~that could have an unfavorable ~~outcome is possible and/or for which~~outcome. Although it is ~~probable and no estimate~~not possible to predict with certainty the outcome of these or other unresolved legal actions or the range of possible ~~losses can currently be made. A significant customer was~~loss, management believes that the

outcome of such proceedings will not have a defendant in two patent infringement claims and is asserting possible indemnity rights under contracts with the Company. The customer has settled one matter, and initially won summary judgment for all claims in the other, but on appeal the decision was reversed. The customer has informed the Company that the customer intends to seek to recover from the Company a share of the settlement and defense costs. For the summary judgment case, the customer provided an initial allocation of its defense costs. During the fourth quarter of fiscal 2019, the Company obtained additional information to evaluate the facts for both cases and has agreed in principle to a combined settlement in the amount of $0.3 million. The parties executed a settlement agreement in which some indemnity rights are reserved. The Company paid the settlement amount in the quarter ended December 31, 2019. As of March 31, 2019, the combined settlement was unpaid and accruedmaterial adverse effect on the Condensed Consolidated Balance Sheets presented in Accrued expenses. Both of these claims relate to a business which was previously sold and therefore the related expense is presented as discontinued operations.Company's consolidated operations or financial condition.

ITEM 1A. RISK FACTORS

See “Risk Factors” in Part 1 – Item 1A of the Company's Annual Report on Form 10-K for the year ended March 31, ~~2019~~2020, for information about risk factors. There have been no material changes in the Company's risk factors from those disclosed in the Company's Annual Report on Form 10-K for the year ended March 31, ~~2019~~2020, except as follow:

~~Our business~~Subject to stockholder approval, our board of directors has approved a plan to effectuate a reverse/forward stock split to reduce the number of record holders of our Class A Common Stock and terminate the registration of the Class A Common Stock under the Exchange Act.

On July 10, 2020, we announced a proposed reverse/forward stock split transaction. If the proposed reverse/forward stock split is effected, we intend to terminate the registration of our Class A Common Stock under the Exchange Act. Following deregistration, the Company will no longer file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. Accordingly, there will be significantly less information regarding the Company available to stockholders and potential investors. In addition, the Company will no longer be subject to the ~~risks~~provisions of ~~international operations.~~

~~We are dependent on~~the Sarbanes-Oxley Act and certain of the liability provisions of the Exchange Act, although the Company will still be subject to the antifraud provisions of the Exchange Act and any applicable state securities laws. Following deregistration, the Company’s executive officers, directors and 10% stockholders will no longer be required to file reports relating to their transactions in our ~~independent offshore manufacturing partners in Asia~~common stock with the SEC. In addition, our executive officers, directors and 10% stockholders will no longer be subject to ~~manufacture, assemble~~the recovery of short-swing profits provision of the Exchange Act, and test our products. Although there typically is no unique capability with these suppliers, any failure or business disruption by these suppliers to meet delivery commitments would cause us to delay shipments and potentially lose revenue and/or incur contractual penalties. Our reliance on third-party subcontractors for assemblypersons acquiring 5% of our ~~products involves several risks, including~~common stock will no longer be required to report their beneficial ownership under the ~~unavailability~~Exchange Act. In addition, following the effective time of the reverse/forward stock split, the Company plans to delist the Class A Common Stock from the Nasdaq Stock Market. Any trading in our Class A Common Stock after the deregistration and delisting would only occur in privately negotiated sales or ~~interruptions~~potentially on the OTC Pink Market, if one or more brokers chooses to make a market for our common stock there and complies with applicable regulatory requirements; however, there can be no assurances regarding any such trading. The lack of public information and increased illiquidity will make trading in ~~access to, certain process technologies and reduced control over product quality, delivery schedules, transportation, manufacturing yields, and costs. These risks~~our shares of common stock more difficult, which may ~~be exacerbated by economic or political uncertainties, terrorist actions, or by natural pandemics, such as~~cause the ~~coronavirus, or other disasters in countries in which our subcontractors or their~~

~~subcontractors are located. Contracts with our CMs are generally expressed in U.S. dollars, but volatility in foreign currency rates could increase our costs.We aim to derive an increased portion~~value of our ~~revenue from international operations. As a result, our financial condition and operating results could be significantly affected by risks associated~~common stock to decrease.

Information concerning the proposed transaction is set forth in the definitive proxy statement for the Company’s 2020 annual meeting of stockholders, which was filed with ~~international activities, such as economic, political, and other risks and uncertainties, including, but not limited~~the SEC on Schedule 14A on August 11, 2020. Stockholders are urged to regional or country specific economic downturns, changes in tariffs and tax laws, fluctuations in currency exchange rates, complications in complying with, or exposure to liability under, a variety of laws and regulations, including anti-corruption laws and regulations, political instability, significant natural disasters and other events or factors impacting local infrastructure. Requirements for international expansion may increase our operating expenses or working capital needs.read the definitive proxy statement carefully.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table provides information about the Company’s repurchase activity for its Class A Common Stock during the three months ended ~~December 31, 2019.~~June 30, 2020.

Period
Total Number
of Shares
Purchased (a)

Average Price
Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Programs (b) Maximum Number (or Approximate Dollar Value) that May Yet Be Purchased Under the Programs (b)
October 2019 —
$ —
—
$ 680,957
November 2019 —
—
—
680,957
December 2019 1,626
0.8750
—
680,957
Total 1,626
$ 0.8750
—
$ 680,957



Period	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs (b)	Maximum Number (or Approximate Dollar Value) that May Yet Be Purchased Under the Programs (b)
April 2020	52,606	$	0.7626	—	$	680,957
May 2020	—	—		—	680,957
June 2020	2,561	0.7798		—	680,957
Total	55,167	$	0.7634	—	$	680,957

(a)

In the three months ended ~~December 31, 2019,~~June 30, 2020, the Company repurchased ~~1,626~~55,167 shares from employees that were surrendered to satisfy the minimum statutory tax withholding obligations on the vesting of restricted stock ~~restricted stock units~~ and ~~performance-based~~ restricted stock units. These repurchases were not included in the authorized share repurchase program and had a weighted-average purchase price of ~~$0.88~~$0.76 per share.

(b)

In May 2017, the Board of Directors authorized a share repurchase program whereby the Company may repurchase up to an aggregate of $2.0 million of its outstanding Class A Common Stock in addition to the $0.1 million remaining from the August 2011 authorization. The August 2011 authorization was exhausted during the first quarter of fiscal year 2018 and there was approximately $0.7 million remaining under the May 2017 authorization as of ~~December 31, 2019.~~June 30, 2020.

Items 3, 4 and 5 are not applicable and have been omitted.

ITEM 6. EXHIBITS



	Exhibit Number		Description

	Exhibit 10.1		Form of Performance-Based Restricted Stock Unit Award Agreement for award granted to Timothy Duitsman on April 1, 2020.

	Exhibit 10.2		Form of Performance-Based Restricted Stock Unit Award Agreement for award granted to Jesse Swartwood on April 1, 2020.

	Exhibit 10.3		Form of Performance-Based Restricted Stock Unit Award Agreement for award granted to Jeniffer Jaynes on April 1, 2020.

	Exhibit 31.1		Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002~~2002.

	Exhibit 31.2		Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002~~2002.

	Exhibit 32.1		Certification by the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.

	Exhibit 101		The following financial information from the Quarterly Report on Form 10-Q for the period ended ~~December 31, 2019,~~June 30, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Stockholders' Equity (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to the Condensed Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		WESTELL TECHNOLOGIES, INC.
		(Registrant)

DATE:	~~February 7,~~August 14, 2020	By:	/s/ Timothy L. Duitsman
			Timothy L. Duitsman
			Chief Executive Officer

		By:	/s/ Jeniffer L. Jaynes
			Jeniffer L. Jaynes
			Interim Chief Financial Officer

2928



		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Operations (Unaudited)	4
	Condensed Consolidated Statements of Stockholders' Equity (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2018
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	2624
Item 4.	Controls and Procedures	2624
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	2624
Item 1A.	Risk Factors	2625
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2725
Item 6.	Exhibits	2827
SIGNATURES		2928