UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

	For the quarterly period ended ~~December 29, 2019~~June 28, 2020 or

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

	For the transition period from to

Commission File Number: 001-33938

TESSCO Technologies Incorporated

(Exact name of registrant as specified in its charter)


Delaware	52-0729657
(State or other jurisdiction of incorporation or organization)	(I.R.S Employer Identification No.)


11126 McCormick Road, Hunt Valley, Maryland	21031
(Address of principal executive offices)	(Zip Code)

~~(410)~~ (410) 229-1000

(Registrant’s telephone number, including area code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	TESS	Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically 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 such files). Yes ☑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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☑
~~Large accelerated~~Non-accelerated filer ☐	~~Accelerated filer~~ ☑
~~Non-accelerated filer~~ ☐	Smaller reporting company ☑	Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

The number of shares of the registrant’s Common Stock, $0.01 par value per share, outstanding as of ~~January~~July 31, 2020, was ~~8,547,747.~~8,712,771.

PART I. FINANCIAL ~~INFORMATION~~INFORMATION

Item 1. Financial ~~Statements.~~Statements.

TESSCO Technologies Incorporated

Consolidated Balance Sheets

December 29,

March 31,

2019

2019

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$
800

$
30,300

Trade accounts receivable

82,545,100

93,966,200

Product inventory, net

70,773,100

71,845,400

Prepaid expenses and other current assets

6,880,700

5,562,800

Total current assets

160,199,700

171,404,700

Property and equipment, net

13,800,800

15,003,500

Goodwill

9,108,600

11,677,700

Intangible assets, net

9,145,000

5,097,800

Deferred tax assets

2,305,800

55,300

Lease asset - right of use

14,577,200

—

Other long-term assets

2,479,400

3,256,800

Total assets

$
211,616,500

$
206,495,800

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Trade accounts payable

$
60,618,500

$
73,059,700

Payroll, benefits and taxes

5,385,300

5,929,500

Income and sales tax liabilities

272,600

749,000

Accrued expenses and other current liabilities

3,042,200

2,652,400

Revolving line of credit

29,356,800

14,378,100

Lease liability, current

2,553,000

—

Total current liabilities

101,228,400

96,768,700

Lease liability

12,095,900

—

Long-term liabilities

806,000

939,900

Total liabilities

114,130,300

97,708,600

Shareholders’ equity:

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

—

—

Common stock, $0.01 par value per share, 15,000,000 shares authorized, 14,320,019 shares issued and 8,543,200 shares outstanding as of December 29, 2019, and 14,190,027 shares issued and 8,468,529 shares outstanding as of March 31, 2019

101,100

99,800

Additional paid-in capital

64,854,700

62,666,400

Treasury stock, at cost, 5,776,819 shares as of December 29, 2019 and 5,721,498 shares as of March 31, 2019

(58,496,200)

(57,614,100)

Retained earnings

91,026,600

103,635,100

Total shareholders’ equity

97,486,200

108,787,200

Total liabilities and shareholders’ equity

$
211,616,500

$
206,495,800


	June 28,		March 29,
	2020		2020
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	900	$	50,000
Trade accounts receivable, net		73,854,000		82,868,400
Product inventory, net		69,664,400		69,148,000
Prepaid expenses and other current assets		14,384,900		11,707,500
Total current assets		157,904,200		163,773,900

Property and equipment, net		13,252,300		13,433,700
Intangible assets, net		13,969,600		11,157,400
Deferred tax assets		2,274,400		3,032,500
Lease asset - right of use		13,282,600		13,949,800
Other long-term assets		4,271,600		3,361,400
Total assets	$	204,954,700	$	208,708,700

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	75,431,400	$	75,512,600
Payroll, benefits and taxes		5,832,900		4,258,300
Income and sales tax liabilities		446,900		450,800
Accrued expenses and other current liabilities		4,107,900		4,244,400
Revolving line of credit		25,346,700		25,563,900
Lease liability, current		2,600,200		2,579,200
Total current liabilities		113,766,000		112,609,200

Non-current lease liability		10,831,700		11,481,100
Other non-current liabilities		899,900		915,700
Total liabilities		125,497,600		125,006,000

Shareholders’ equity:
Preferred stock, $0.01 par value per share, 500,000 shares authorized and 0 shares issued and outstanding		—		—
Common stock, $0.01 par value per share, 15,000,000 shares authorized, 14,426,729 shares issued and 8,637,129 shares outstanding as of June 28, 2020, and 14,354,368 shares issued and 8,577,549 shares outstanding as of March 29, 2020		102,200		101,400
Additional paid-in capital		65,762,300		65,318,500
Treasury stock, at cost, 5,789,600 shares as of June 28, 2020 and 5,776,819 shares as of March 29, 2020		(58,555,000)		(58,496,200)
Retained earnings		72,147,600		76,779,000
Total shareholders’ equity		79,457,100		83,702,700
Total liabilities and shareholders’ equity	$	204,954,700	$	208,708,700

See accompanying notes to unaudited consolidated financial statements.

TESSCO Technologies Incorporated

Unaudited Consolidated Statements of ~~Income~~Loss

Fiscal Quarters Ended

Nine Months Ended


December 29, 2019

December 30, 2018

December 29, 2019

December 30, 2018


Revenues

$
139,578,200

$
152,294,500

$
412,118,400

$
461,850,000

Cost of goods sold

116,503,900

121,295,800

337,461,300

368,758,500

Gross profit

23,074,300

30,998,700

74,657,100

93,091,500

Selling, general and administrative expenses

26,479,100

27,494,800

80,320,800

85,933,400

Goodwill impairment

2,569,100

—

2,569,100

—

Restructuring charge

—

—

488,000

—

(Loss) income from operations

(5,973,900)

3,503,900

(8,720,800)

7,158,100

Interest expense, net

367,900

247,900

911,700

667,100

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

(6,341,800)

3,256,000

(9,632,500)

6,491,000

(Benefit from) provision for income taxes

(1,320,400)

551,400

(2,140,300)

1,437,200

Net (loss) income

$
(5,021,400)

$
2,704,600

$
(7,492,200)

$
5,053,800

Basic (loss) earnings per share

$
(0.59)

$
0.32

$
(0.88)

$
0.60

Diluted (loss) earnings per share

$
(0.59)

$
0.32

$
(0.88)

$
0.59

Basic weighted-average common shares outstanding

8,541,020

8,446,671

8,517,838

8,429,086

Effect of dilutive options and other equity instruments

—

32,583

—

130,982

Diluted weighted-average common shares outstanding

8,541,020

8,479,254

8,517,838

8,560,068

Cash dividends declared per common share

$
0.20

$
0.20

$
0.60

$
0.60


	Three Months Ended
	June 28, 2020		June 30, 2019

Revenues	$	119,813,500	$	130,729,300
Cost of goods sold		100,987,800		105,465,800
Gross profit		18,825,700		25,263,500
Selling, general and administrative expenses		23,734,400		28,096,500
Restructuring charge		—		488,000
Loss from operations		(4,908,700)		(3,321,000)
Interest expense, net		110,700		208,700
Loss before benefit from income taxes		(5,019,400)		(3,529,700)
Benefit from income taxes		(388,000)		(1,036,900)
Net loss	$	(4,631,400)	$	(2,492,800)
Basic loss per share	$	(0.54)	$	(0.29)
Diluted loss per share	$	(0.54)	$	(0.29)
Basic weighted-average common shares outstanding		8,617,803		8,494,168
Effect of dilutive options and other equity instruments		—		—
Diluted weighted-average common shares outstanding		8,617,803		8,494,168
Cash dividends declared per common share	$	—	$	0.20

See accompanying notes to unaudited consolidated financial statements.

TESSCO Technologies Incorporated

Unaudited Consolidated Statements of Changes in Shareholders’ Equity

Common Stock

Additional

Total

Paid-in

Treasury

Retained

Shareholders’

Shares

Amount

Capital

Stock

Earnings

Equity
Balance at March 31, 2019

8,468,529

99,800

62,666,400

(57,614,100)

103,635,100

108,787,200
Proceeds from issuance of stock

9,250

100

143,100

—

—

143,200
Treasury stock purchases

(10,488)

—

—

(189,100)

—

(189,100)
Non-cash stock compensation expense

41,256

400

338,500

—

—

338,900
Cash dividends paid

—

—

—

—

(1,702,600)

(1,702,600)
Net loss

—

—

—

—

(2,492,800)

(2,492,800)
Balance at June 30, 2019

8,508,547

100,300

63,148,000

(57,803,200)

99,439,700

104,884,800
Proceeds from issuance of stock

19,236

200

283,600

—

—

283,800
Treasury stock purchases

(44,009)

—

—

(681,100)

—

(681,100)
Non-cash stock compensation expense

—

—

391,800

—

—

391,800
Exercise of stock options

48,125

500

680,600

—

—

681,100
Cash dividends paid

—

—

—

—

(1,704,200)

(1,704,200)
Net income

—

—

—

—

22,000

22,000
Balance at September 29, 2019

8,531,899

101,000

64,504,000

(58,484,300)

97,757,500

103,878,200
Proceeds from issuance of stock

9,570

100

138,000

—

—

138,100
Treasury stock purchases

(824)

—

—

(11,900)

—

(11,900)
Non-cash stock compensation expense

2,530

—

212,700

—

—

212,700
Cash dividends paid

—

—

—

—

(1,709,500)

(1,709,500)
Net loss

—

—

—

—

(5,021,400)

(5,021,400)
Balance at December 29, 2019

8,543,175

$
101,100

$
64,854,700

$
(58,496,200)

$
91,026,600

$
97,486,200

Balance at April 1, 2018

8,396,537

99,000

60,611,900

(57,503,000)

104,843,700

108,051,600
Proceeds from issuance of stock

5,620

100

130,000

—

—

130,100
Treasury stock purchases

(6,332)

—

—

(111,100)

—

(111,100)
Non-cash stock compensation expense

26,257

200

320,300

—

—

320,500
Cash dividends paid

—

—

—

(1,684,200)

(1,684,200)
Net income

—

—

—

1,158,400

1,158,400
Balance at July 1, 2018

8,422,082

99,300

61,062,200

(57,614,100)

104,317,900

107,865,300
Proceeds from issuance of stock

17,446

200

282,400

—

—

282,600
Non-cash stock compensation expense

—

—

384,800

—

—

384,800
Cash dividends paid

—

—

—

—

(1,687,000)

(1,687,000)
Net income

—

—

—

—

1,190,800

1,190,800
Balance at September 30, 2018

8,439,528

99,500

61,729,400

(57,614,100)

103,821,700

108,036,500
Proceeds from issuance of stock

8,998

100

137,200

—

—

137,300
Non-cash stock compensation expense

—

—

274,100

—

—

274,100
Cash dividends paid

—

—

—

—

(1,690,600)

(1,690,600)
Net income

—

—

—

—

2,704,600

2,704,600
Balance at December 30, 2018

8,448,526

$
99,600

$
62,140,700

$
(57,614,100)

$
104,835,700

$
109,461,900


	Common Stock			Additional						Total
				Paid-in		Treasury		Retained		Shareholders’
	Shares	Amount		Capital		Stock		Earnings		Equity
Balance at March 29, 2020	8,577,549		101,400		65,318,500		(58,496,200)		76,779,000		83,702,700
Proceeds from issuance of stock	23,676		200		132,500		—		—		132,700
Treasury stock purchases	(12,781)		—		—		(58,800)		—		(58,800)
Non-cash stock compensation expense	48,685		600		311,300		—		—		311,900
Cash dividends paid	—		—		—		—		—		—
Net loss	—		—		—		—		(4,631,400)		(4,631,400)
Balance at June 28, 2020	8,637,129	$	102,200	$	65,762,300	$	(58,555,000)	$	72,147,600	$	79,457,100

Balance at March 31, 2019	8,468,529		99,800		62,666,400		(57,614,100)		103,635,100		108,787,200
Proceeds from issuance of stock	9,250		100		143,100		—		—		143,200
Treasury stock purchases	(10,488)		—		—		(189,100)		—		(189,100)
Non-cash stock compensation expense	41,256		400		338,500		—		—		338,900
Cash dividends paid	—		—		—		—		(1,702,600)		(1,702,600)
Net loss	—		—		—		—		(2,492,800)		(2,492,800)
Balance at June 30, 2019	8,508,547	$	100,300	$	63,148,000	$	(57,803,200)	$	99,439,700	$	104,884,800

~~See~~ ~~accompanying notes to unaudited consolidated financial statements.~~

~~TESSCO Technologies Incorporated~~

~~Unaudited Consolidated Statements of Cash Flows~~

Nine Months Ended

December 29, 2019

December 30, 2018


CASH FLOWS FROM OPERATING ACTIVITIES:







Net (loss) income

$
(7,492,200)

$
5,053,800

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

Depreciation and amortization

2,870,200

2,706,800

Goodwill impairment

2,569,100

—

Non-cash stock-based compensation expense

943,400

979,400

Deferred income taxes and other

(2,250,500)

—

Change in trade accounts receivable

11,421,100

(2,512,300)

Change in product inventory

1,072,300

(2,321,800)

Change in prepaid expenses and other current assets

(1,317,900)

(1,476,700)

Change in other assets and other liabilities

815,600

643,500

Change in trade accounts payable

(11,496,300)

524,600

Change in payroll, benefits and taxes

(544,200)

(1,296,400)

Change in income and sales tax liabilities

(476,400)

(1,038,100)

Change in accrued expenses and other current liabilities

887,000

1,991,600

Net cash (used in) provided by operating activities

(2,998,800)

3,254,400

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property and equipment

(1,094,300)

(2,643,900)

Purchases of internal use software

(5,737,400)

(1,642,400)

Net cash used in investing activities

(6,831,700)

(4,286,300)

CASH FLOWS FROM FINANCING ACTIVITIES

Net borrowings from revolving line of credit

14,978,700

6,070,100

Payments on debt

(2,300)

(20,400)

Proceeds from issuance of common stock

142,400

137,300

Cash dividends paid

(5,116,300)

(5,061,800)

Purchases of treasury stock and repurchases of stock from employees

(201,500)

(111,100)

Net cash provided by financing activities

9,801,000

1,014,100

Net decrease in cash and cash equivalents

(29,500)

(17,800)

CASH AND CASH EQUIVALENTS, beginning of period

30,300

19,400

CASH AND CASH EQUIVALENTS, end of period

$
800

$
1,600

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

TESSCO Technologies Incorporated

Unaudited Consolidated Statements of Cash Flows


	Three Months Ended
	June 28, 2020		June 30, 2019

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(4,631,400)	$	(2,492,800)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		1,228,000		960,800
Non-cash stock-based compensation expense		311,900		338,900
Deferred income taxes and other		758,100		1,087,100
Change in trade accounts receivable		9,014,400		12,711,800
Change in product inventory		(516,400)		(29,562,300)
Change in prepaid expenses and other current assets		(2,677,400)		(1,992,800)
Change in other assets and other liabilities		(949,400)		—
Change in trade accounts payable		(704,000)		17,709,600
Change in payroll, benefits and taxes		1,574,600		(543,200)
Change in income and sales tax liabilities		(3,900)		(497,400)
Change in accrued expenses and other current liabilities		34,600		294,400
Net cash provided by (used in) operating activities		3,439,100		(1,985,900)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(238,900)		(449,300)
Purchases of internal use software		(2,973,700)		(1,421,000)
Net cash used in investing activities		(3,212,600)		(1,870,300)

CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments) borrowings from revolving line of credit		(217,200)		5,737,100
Cash dividends paid		—		(1,702,600)
Purchases of treasury stock and repurchases of stock from employees		(58,800)		(189,100)
Other financing activities		400		(2,300)
Net cash (used in) provided by financing activities		(275,600)		3,843,100

Net decrease in cash and cash equivalents		(49,100)		(13,100)

CASH AND CASH EQUIVALENTS, beginning of period		50,000		30,300

CASH AND CASH EQUIVALENTS, end of period	$	900	$	17,200

See accompanying notes to unaudited consolidated financial statements.

TESSCO Technologies Incorporated

Notes to Unaudited Consolidated Financial Statements

Note 1. Description of Business and Basis of Presentation

TESSCO Technologies Incorporated, a Delaware corporation (TESSCO, we, or the Company), architects and delivers innovative product and value chain solutions to support wireless systems. The Company provides marketing and sales services, knowledge and supply chain management, product-solution delivery and control systems utilizing extensive internet and information technology. Approximately ~~97%~~96% of the Company’s sales are made to customers in the United States. The Company takes orders in several ways, including phone, fax, online and through electronic data interchange. Almost all of the Company’s sales are made in United States Dollars.

In management’s opinion, the accompanying interim Consolidated Financial Statements of the Company include all adjustments, consisting only of normal, recurring adjustments, necessary for a fair presentation of the Company’s financial position for the interim periods presented. These statements are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Certain information and footnote disclosures normally included in the Company’s annual financial statements have been omitted from these statements, as permitted under the applicable rules and regulations. The results of operations presented in the accompanying interim Consolidated Financial Statements are not necessarily representative of operations for an entire year. The information included in this Form 10-Q should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March ~~31, 2019,~~29, 2020, filed with SEC on June ~~11, 2019.~~5, 2020.

~~Certain amounts have been reclassified on the balance sheet to conform with current period presentation.~~

Note 2. Recently Issued Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted:

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. This ASU is effective for periods beginning after December 15, 2022. The Company is currently evaluating the impact the adoption of this new standard will have on its Consolidated Financial Statements and will adopt the standard on the first day of the Company’s 2024 fiscal year.

~~Recently issued accounting pronouncements adopted:~~

Note 3. Intangible Assets

~~Effective April 1, 2019, the Company adopted the FASB issued ASU No. 2016-02, Leases. This ASU requires lessees to recognize most leases~~

Intangibles, net on ~~their balance sheets related to the rights~~our Consolidated Balance Sheet as of June 28, 2020, consists of capitalized internally development computer software and ~~obligations created by those leases. The ASU also requires additional qualitative and quantitative disclosures related to the nature, timing and uncertainty~~an indefinite lived intangible assets. Capitalized internally developed computer software, net of ~~cash flows arising from leases. The Company adopted this standard on the first day~~accumulated amortization, was $13,174,200 as of the 2020 fiscal year, using a modified retrospective approach. This standard resulted in the Company recording a right-of-use asset and lease liability for all leases, but otherwise the standard did not have a material impact on the financial statements. Prior periods were not adjusted to reflect this change.

June 28, 2020. Amortization

~~Effective April 1, 2019, the Company adopted the FASB issued ASU No. 2016-15, Classification~~expense of ~~Certain Cash Receipts and Cash Payments. The new standard changes the classification~~capitalized internally developed computer software was $648,500 as of certain cash payments and receipts within the cash flow statement. Specifically, payments for debt prepayment or debt extinguishment costs, including third-party costs, premiums paid, and other fees paid to lenders that are directly related to the debt prepayment or debt extinguishment, excluding accrued interest, are now classifiedJune 28, 2020. Indefinite lived intangible assets were $795,400 as ~~financing activities. Previously, these payments were classified as operating expenses. Adoption~~ of ~~this standard did not have an impact on the Consolidated Financial Statements of the Company, included herein.~~June 28, 2020.

Effective September 30, 2019, the Company adopted the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns 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 early adoption of this standard resulted in the Company capitalizing certain implementation costs related to cloud computing arrangements that are service contracts, during the third quarter.

~~Note 3. Goodwill~~

During the third quarter of fiscal 2020, the Company recorded $2.6 million of non-cash goodwill impairment. Due to the lower than expected results through the first nine months of fiscal 2020, the Company performed an interim quantitative goodwill impairment assessment, which included an analysis of new information related to macroeconomic, industry and company specific events and trends. During this analysis, the Company determined that potential impairment indicators existed related to the retail segment based on the continued decline in sales and profitability in the retail segment, including the transition of the Company’s largest retail customer during the first quarter of fiscal 2020. The Company conducted a quantitative impairment analysis using various valuation techniques, with the primary technique being a discounted cash flow or income approach, under which the Company estimated the present value of the report unit’s future cash flows.

Note 4. Stock-Based Compensation

The Company’s selling, general and administrative expenses for the fiscal quarter ~~and nine months~~ ended ~~December 29, 2019~~June 28, 2020 includes ~~$212,700 and $943,400, respectively,~~$311,900 of non-cash stock-based compensation expense. The Company’s selling, general and administrative expenses for the fiscal quarter ~~and nine months~~ ended ~~December~~June 30, ~~2018~~2019 includes ~~$274,100 and $979,400, respectively,~~$338,900 of non-cash stock-based compensation expense. Non-cash stock-based compensation expense is primarily related to our Performance Stock Units (PSUs), Restricted Stock Units (RSUs), Restricted Stock, and Stock Options, granted or outstanding under the Company’s Third Amended and Restated Stock and Incentive Plan (the “1994 Plan”) and 2019 Stock and Incentive Plan (the “2019 Plan” and together with the 1994 Plan, the “Plans”), which was approved at the Annual Meeting of Shareholders held on July 25, 2019. No additional awards may be granted under the 1994 Plan, although awards outstanding under the 1994 Plan remain outstanding and governed by its terms.

Performance Stock Units: The following table summarizes the activity under the Company’s PSU program under the Plans, for the first ~~nine~~three months of fiscal ~~2020:~~2021:


	Nine Months	Weighted
	Ended	Average Fair
	December 29,	Value at Grant
	2019	Date (per unit)

				Three Months	Weighted
				Ended	Average Fair
				June 28,	Value at Grant
				2020	Date (per unit)
Unvested shares available for issue under outstanding PSUs, beginning of period	98,306	$	14.55	68,355	$	15.00
PSUs Granted	51,616		15.93
PSUs Vested	(29,036)		14.09	(19,191)		14.17
PSUs Forfeited/Cancelled	(40,719)		15.69	(33,116)		15.69
Unvested shares available for issue under outstanding PSUs, end of period	80,167	$	15.02	16,048	$	14.57

~~During~~The PSUs cancelled during the first quarter of fiscal 2020, the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) approved the grant of PSUs to select key employees, providing them with the opportunity to earn up to 45,500 shares of the Company’s common stock in the aggregate, depending upon whether certain earnings per share targets, and individual performance metrics, are satisfied, for fiscal year 2020. These not-yet-earned PSUs have only one measurement year (fiscal 2020), and assuming the performance metrics are met to a sufficient extent, the shares earned at the end of fiscal 2020 on the basis of that performance will vest in four equal installments beginning on or about May 15, 2020 and continuing on the same date in calendar 2021 2022 and 2023, provided that the respective employee remains employed by the Company on each such date. Pursuant to the typical PSU award agreement, however, performance metrics are deemed met upon the occurrence of a change in control, and shares earned are issued earlier upon the occurrence of a change in control, or death or disability of the employee, or upon termination of the employee’s employment without cause or by the employee for good reason, as those terms are defined in the applicable PSU award agreement. In connection with his hiring as President and Chief Executive Officer on August 20, 2019, the Compensation Committee, with concurrence of the full Board of Directors, granted an additional PSU to Mr. Mukerjee, providing him with the opportunity to earn up to 6,116 shares of the Company’s common stock. This PSU was granted on the same terms as the PSUs granted in May 2019, except that this PSU was granted under the 2019 Plan and any shares earned pursuant to it on the basis of fiscal 2020 performance will vest in four equal installments beginning on the first anniversary of the commencement of the employment of Mr. Mukerjee and continue in calendar 2021, 2022 and 2023 on the same date as the other PSUs vest, provided that Mr. Mukerjee remains employed by the Company on each such date.

~~The PSUs cancelled during fiscal 2020~~ primarily related to the fiscal ~~2019~~2020 grant of PSUs, which ~~also~~ had a one-year measurement period (fiscal ~~2019)~~2020). The PSUs were cancelled because the applicable fiscal ~~2019~~2020 performance targets were not ~~fully~~ attained. Per the provisions of the ~~1994~~2019 Plan, the shares related to these forfeited and cancelled PSUs were added back to the ~~1994~~2019 Plan and became available for future issuance under the ~~1994 Plan (or its successor~~ 2019 ~~plan).~~Plan.

If all unvested PSUs ~~granted~~earned thus far ~~in fiscal 2020~~ are assumed to ~~be earned on account of the applicable performance metrics being fully met, or otherwise~~vest in accordance with terms of the applicable award agreement, total unrecognized compensation costs on these PSUs ~~plus all earned but unvested PSUs~~ would be ~~approximately $0.8~~less than $0.1 million as of ~~December 29, 2019,~~June 28, 2020, and would be expensed through fiscal ~~2023. To the extent the maximum number of PSUs granted in fiscal 2020 are not earned, stock-based compensation related to these awards will differ from this amount.~~2022.

Restricted Stock Units: ~~The Company has made annual RSU awards under the 1994 Plan to its non-employee directors over recent years.~~ On May ~~10, 2019,~~15, 2020, the Compensation Committee, ~~approved~~with the ~~grant~~concurrence of the full Board of Directors, granted an aggregate of 21,000 RSUs ~~ratably~~under the 2019 Plan to ~~the six~~ non-employee directors ~~including the Chairman of the Board~~ of the Company. These ~~RSU~~ awards provide for the issuance of shares of the Company’s common stock in ~~four equal~~

~~installments beginning~~25% of the award on or about each of May ~~10, 2020 and continuing on the same date in~~15 of 2021, 2022, 2023 and ~~2023,~~2024, provided that the ~~director~~participant remains associated with the Company ~~on each such date~~ (or meets other criteria as prescribed in the applicable ~~award~~ agreement). on each such date.

Restricted Stock:On ~~August 8, 2017,~~May 15, 2020, the Compensation Committee, with the concurrence of the full Board of Directors, ~~approved the grant of~~awarded an aggregate of ~~up to 56,000 RSUs to several senior executives. The number of~~65,821 shares earned by a recipient is determined by multiplying the number of RSUs covered by the award by a fraction, the numerator of which is the cumulative amount of dividends (regular, ordinary and special) declared and paid, per share, on the Common Stock, over an earnings period of up to four years, and the denominator of which is $3.20. Subject to earlier issuance upon the occurrence of certain events (as described in the applicable award agreement), any earned shares are issued and distributed to the recipient upon the fourth anniversary of the award date. As of December 29, 2019, 15,000 of these 56,000 RSUs have been canceled due to employee departures, leaving 41,000 of the 56,000 RSUs outstanding. An additional 2,000 RSU’s with similar terms (but with a shorter earnings period) were awarded in fiscal 2019, and in connection with his hiringCompany’s common stock as ~~our new President and Chief Executive Officer, the Company issued an additional RSU grant to Mr. Mukerjee~~restricted stock under the 2019 Plan to non-employee directors of the Company in lieu of their annual cash retainer for ~~19,000~~fiscal 2021. The value of the restricted shares at the time of issue to each director was determined by the Compensation Committee to approximate the cash amount of the 2021 fiscal year board retainer per director. These shares of restricted stock were issued subject to a risk of forfeiture that will lapse in whole or in part on July 1, 2021,

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generally depending on the length of continued service of the recipient on the Board for fiscal 2021. Dividends accruing in respect of the shares of restricted stock, if any, will accrue but will not be paid until July 1, 2021 and ~~with similar terms (a four-year earning period and a denominator~~only in respect of ~~$3.20). As a result, an aggregate~~those shares for which the risk of ~~62,000 dividend-based RSUs currently remain outstanding.~~forfeiture has then lapsed.

As of ~~December 29, 2019,~~June 28, 2020, there was approximately ~~$0.9~~$0.7 million of total unrecognized compensation cost related to all outstanding RSUs, assuming all shares are earned. Unrecognized compensation costs are expected to be recognized ratably over a weighted average period of approximately three years.

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

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

StockOptions: ~~As summarized below, in the first nine months of fiscal~~ On April 30, 2020 and May 15, 2020, stock options for an aggregate of ~~385,000~~160,000 shares of common stock ~~including an option for 250,000 shares issued to the Company’s new President and Chief Executive Officer,~~ were granted under the ~~Plans.~~2019 Plan. These stock options have exercise prices equal to the market price of the Company’s common stock on the grant date, and except for the option granted to Mr. Mukerjee (which vests and becomes exercisable for 80,308 shares on November 30, 2020 and continues to vest on the last day of each consecutive month following, at a rate of approximately 5,142 shares monthly, until becoming fully exercisable on August 31, 2023), the terms thereof provide for 25% vesting after one year and then 1/36 per month over the following three years, subject, however, to acceleration or termination upon the occurrence of certain events, as described in the applicable award agreement. The grant date value of the Company’s stock options is determined using the Black-Scholes-Merton pricing model, based upon facts and assumptions existing at the date of grant.

In addition, on May 15, 2020, performance-based stock options for an aggregate of 65,000 shares of common stock were granted under the 2019 Plan to certain officers of the Company. These stock options also have exercise prices equal to the market price of the Company’s stock on the grant date, and the terms thereof also provide for 25% vesting after one year and then 1/36 per month over the following three years, but these stock options also impose 2 shorter term performance-based milestones, with the satisfaction of each milestone an additional condition to vesting of one-half of the options. The grant date value of the Company’s stock options is determined using the Black-Scholes-Merton pricing model, based upon facts and assumptions existing at the date of grant.

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

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The following tables summarize the pertinent information for outstanding options.


	Three Months	Weighted
	Ended	Average Fair
	June 28,	Value at Grant
	2020	Date (per unit)
Unvested options, beginning of period	465,374	$	2.38
Options Granted	225,000		2.00
Options Forfeited/Cancelled	(26,042)		1.85
Options Vested	(44,500)		3.28
Unvested options, end of period	619,833		2.20

Nine Months

Weighted

Ended

Average Fair

December 29,

Value at Grant

2019

Date (per unit)

Outstanding, beginning of period

591,500

$
2.30

Options Granted

385,000

2.50

Options Forfeited/Cancelled

(71,792)

3.10

Options Exercised

(48,125)

2.25

Outstanding, end of period

856,583

2.33

Vested and exercisable, end of period

366,458

$
2.21

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December 29, 2019
Grant Fiscal Year

Options Granted

Option Exercise Price

Options Outstanding

Options Exercisable
2020

385,000

$
13.80

358,000

-
2019

66,500

$
16.31

44,000

13,749
2018

230,000

$
15.12

114,583

70,001
2017

410,000

$
12.57

300,000

242,708
2016

100,000

$
22.42

40,000

40,000
Total

856,583

366,458


				June 28, 2020
Grant Fiscal Year	Options Granted		Option Exercise Price	Options Outstanding	Options Exercisable
2021	225,000	$	4.52	225,000	-
2020	405,000	$	13.54	368,000	26,542
2019	66,500	$	16.31	44,000	21,874
2018	230,000	$	15.12	110,000	82,916
2017	410,000	$	12.57	273,958	269,794
2016	100,000	$	22.42	40,000	40,000
Total				1,060,958	441,126



Grant Fiscal Year	Expected Stock Price Volatility		Risk-Free Interest Rate		Expected Dividend Yield		Average Expected Term	Resulting Black Scholes Value		Expected Stock Price Volatility		Risk-Free Interest Rate		Expected Dividend Yield		Average Expected Term	Resulting Black Scholes Value
2021										46.68	%	1.16	%	0.00	%	4.0	$	2.00
2020	35.76	%	2.02	%	6.07	%	4.0	$	2.50	35.88	%	2.00	%	5.82	%	4.0	$	2.53
2019	35.59	%	3.11	%	4.99	%	4.0	$	3.38	35.59	%	3.11	%	4.99	%	4.0	$	3.38
2018	32.63	%	1.96	%	5.34	%	4.0	$	2.57

As of ~~December 29, 2019,~~June 28, 2020, there was approximately ~~$1.0~~$1.3 million of total unrecognized compensation costs related to these ~~options.~~options, assuming all shares are earned. These unrecognized compensation costs are expected to be recognized ratably over a period of approximately three years.

Note 5. Borrowings Under Revolving Credit Facility

On October 19, 2017, the Company and its primary operating subsidiaries, as co-borrowers, and SunTrust Bank, as Administrative Agent and Lender, and Wells Fargo Bank, National Association, as a Lender, entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”), which amended and restated the terms of a previously established secured Revolving Credit Facility with the same lenders, and which resulted in, among other modifications, an increase in the Company’s borrowing limit to up to $75 million, from the previous borrowing limit of up to $35 million. Capitalized terms used but not otherwise defined in this and the following three paragraphs have the meanings ascribed to each in the Amended and Restated Credit Agreement.

In addition to increasing the Company’s borrowing limit, and among other modifications, the Amended and Restated Credit Agreement extended the maturity date of the secured Revolving Credit Facility to October 19, 2021. The Amended and Restated Credit Agreement also set forth financial covenants, including a fixed charge coverage ratio to be maintained at any time during which the borrowing availability, as determined in accordance with the Amended and Restated Credit Agreement, falls below $10 million, as well as terms that could limit our ability to engage in specified transactions or activities, including (but not limited to) investments and acquisitions, sales of assets, payment of dividends, issuance of additional debt and other matters. The

Amended and Restated Credit Agreement provides for a $5.0 million sublimit for the issuance of standby letters of credit, a $12.5 million sublimit for swingline loans and an accordion feature which, subject to certain conditions, could increase the aggregate amount of the commitments to up to $125 million, with the optional commitments being provided by existing Lenders or new lenders reasonably acceptable to the Administrative Agent. No Lender is obligated to increase its commitment. Availability is determined in accordance with a Borrowing Base, which has been expanded to include not only Eligible Receivables but also Eligible Inventory and is generally: (A) the sum of (i) 85% of Eligible Receivables; (ii) the Inventory Formula Amount for all Eligible Inventory which is aged less than 181 days; and (iii) the lesser of (x) $4 million and (y) the Inventory Formula Amount for all Eligible Inventory which is aged at least 181 days; minus (B) Reserves.

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Borrowings under the Amended and Restated Credit Agreement initially accrue interest from the applicable borrowing date at an Applicable Rate equal to the Eurodollar Rate plus the Applicable Margin. The Eurodollar Rate is the rate per annum obtained by dividing (i) LIBOR by (ii) a percentage equal to 1.00 minus the Eurodollar Reserve Percentage. When the Applicable Rate is the Eurodollar Rate plus the Applicable Margin, the Applicable Margin is 1.50% if Average Availability is greater than or equal to $15 million, and 1.75% otherwise. On ~~December 29, 2019,~~June 28, 2020, the interest rate applicable to borrowings under the secured Revolving Credit Facility was ~~3.20%~~1.68%. Under certain circumstances, the Applicable Rate is subject to change at the Lenders’ option from the Eurodollar Rate plus the Applicable Margin to the Base Rate plus the Applicable Margin. Following an Event of Default, in addition to changing the Applicable Rate to the Base Rate plus the Applicable Margin, the Lenders’ may at their option set the Applicable Margin at 0.50% if the Base Rate applies or 1.75% if the Eurodollar Rate applies, and increase the Applicable Rate by an additional 200 basis points. The Applicable Rate adjusts on the first Business Day of each calendar month. The Company is required to pay a monthly Commitment Fee on the average daily unused portion of the secured Revolving Credit Facility provided for pursuant to the Amended and Restated Credit Agreement, at a per annum rate equal to 0.25%.

In connection with the entering into of the Amended and Restated Credit Agreement, the Company, the other Company affiliate borrowers under the Amended and Restated Credit Agreement and other subsidiaries of the Company, referred to collectively as the Loan Parties, executed and delivered to SunTrust Bank, as Administrative Agent, a Reaffirmation Agreement, pursuant to which the obligations of the Loan Parties under a Guaranty and Security Agreement previously delivered by them in connection with the secured Revolving Credit Facility as previously existing (including the previously existing guaranty by the Loan Parties not otherwise Borrowers and the previously existing grant by the Company and the other Loan Parties of a continuing first priority security interest in inventory, accounts receivable and deposit accounts, and on all documents, instruments, general intangibles, letter of credit rights, and all proceeds) were ratified and confirmed as respects the Obligations arising from time to time under the secured Revolving Credit Facility provided for under the Amended and Restated Credit Agreement, and as respects certain other obligations of the Loan Parties to the Lenders and their affiliates arising from time to time, relating to swaps, hedges and cash management and other bank products.

Borrowings may be used for working capital and other general corporate purposes, as further provided in, and subject to the applicable terms of, the Amended and Restated Credit Agreement. As of ~~December 29, 2019,~~June 28, 2020, borrowings under the secured Revolving Credit Facility totaled ~~$29.4~~$25.3 million and, therefore, the Company had ~~$45.6~~$49.7 million available for borrowing as of ~~December 29, 2019,~~June 28, 2020, subject to the Borrowing Base limitation and compliance with the other applicable terms of the Amended and Restated Credit Agreement, including the covenants referenced above. The line of credit has a lockbox arrangement associated with it and therefore the outstanding balance is classified as a current liability on our balance sheet. As of March ~~31, 2019,~~29,2020, borrowings under the secured Revolving Credit Facility totaled ~~$14.4~~$25.6 million and, therefore, the Company had ~~$60.6~~$49.4 million available on its revolving line of credit facility as of March ~~31, 2019,~~29, 2020, again subject to the Borrowing

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Base limitation and compliance with the other applicable terms of the Amended and Restated Credit Agreement, including the covenants referenced above.

Note 6. Earnings Per Share

The Company presents the computation of earnings per share (“EPS”) on a basic and diluted basis. Basic EPS is computed by dividing net income by the weighted average number of shares outstanding during the reported period. Diluted EPS is computed similarly to basic EPS, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential additional common shares that were dilutive had been issued. Common shares are excluded from the calculation if they are determined to be anti-dilutive. Diluted EPS was equal to basic EPS for the fiscal quarter ended ~~and nine months ended December 29, 2019~~ June 28, 2020

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because the Company operated at a loss. The number of diluted weighted-average common shares would have been ~~8,595,521~~8,686,214 for the fiscal quarter ended ~~December 29, 2019, and 8,651,341 for nine months ended December 29, 2019, respectively,~~June 28, 2020, if the Company was at a positive earning position. At ~~December 30, 2018,~~June 28, 2020, stock options with respect to ~~591,500~~1,060,958 shares of common stock were outstanding, of which ~~541,500~~855,958 were anti-dilutive. There were no0 anti-dilutive PSUs or RSUs outstanding as of ~~December 29, 2019 or December 30, 2018, respectively.~~June 28, 2020.

Note 7. Business Segments

The Company evaluates its business within ~~two~~2 segments: commercial and retail. The commercial segment consists of the following customer markets: (1) public carriers, that are generally responsible for building and maintaining the infrastructure system and provide airtime service to individual subscribers; and (2) value-added resellers and integrators, which ~~results from the consolidation of our previously identified~~includes value-added resellers, the government ~~channels~~channel and private system operator markets, and reflects implementation over the 2019 fiscal year of an enhanced go-to-market strategy. This go-to-market strategy and the corresponding consolidation of these customer markets is designed to increase sales opportunities across the consolidated markets, as well as to provide better coverage to customers and to better align territories with supplier partners.markets.

The retail segment consists of the retail market which includes retailers, independent dealer agents and carriers.

To provide investors with better visibility, the Company also discloses revenue and gross profit by its ~~four~~4 product categories:

●

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

●

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

●

Installation, Test and Maintenance - Installation, test and maintenance products are used to install, tune, maintain and repair wireless communications equipment. Products include sophisticated analysis equipment and various frequency, voltage- and power-measuring devices, as well as an assortment of

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tools, hardware, GPS, safety and replacement and component parts and supplies required by service technicians.

●

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

The Company evaluates revenue, gross profit, and income before provision for income taxes at the segment level. Certain cost of sales and other applicable expenses have been allocated to each segment based on a percentage of revenues and/or gross profit, where appropriate.

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Segment activity for the ~~third~~first quarter ~~and first nine months~~ of fiscal years ~~2020~~2021 and ~~2019~~2020 are as follows (in thousands):


	Three Months Ended
	December 29, 2019						December 30, 2018
	Commercial		Retail				Commercial		Retail
	Segment		Segment		Total		Segment		Segment		Total

													Three Months Ended
													June 28, 2020						June 30, 2019
													Commercial		Retail				Commercial		Retail
													Segment		Segment		Total		Segment		Segment		Total
Revenues
Public carrier	$	37,793	$	—	$	37,793	$	33,593	$	—	$	33,593	$	39,255	$	—	$	39,255	$	33,486	$	—	$	33,486
Value-added resellers and integrators		63,051		—		63,051		65,373		—		65,373		57,223		—		57,223		65,194		—		65,194
Retail		—		38,734		38,734		—		53,329		53,329		—		23,336		23,336		—		32,049		32,049
Total revenues	$	100,844	$	38,734	$	139,578	$	98,966	$	53,329	$	152,295	$	96,478	$	23,336	$	119,814	$	98,680	$	32,049	$	130,729


Gross Profit
Public carrier	$	4,508	$	—	$	4,508	$	4,583	$	—	$	4,583	$	3,728	$	—	$	3,728	$	4,253	$	—	$	4,253
Value-added resellers and integrators		15,139		—		15,139		16,013		—		16,013		12,725		—		12,725		15,969		—		15,969
Retail		—		3,427		3,427		—		10,403		10,403		—		2,373		2,373		—		5,042		5,042
Total gross profit	$	19,647	$	3,427	$	23,074	$	20,596	$	10,403	$	30,999	$	16,453	$	2,373	$	18,826	$	20,222	$	5,042	$	25,264


Directly allocable expenses		7,620		3,273		10,893		8,079		4,038		12,117		7,462		1,832		9,294		9,570		3,015		12,585
Segment net profit contribution	$	12,027	$	154		12,181	$	12,517	$	6,365		18,882	$	8,991	$	541		9,532	$	10,652	$	2,027		12,679
Corporate support expenses						18,523						15,626						14,551						16,209
Income before provision for income taxes					$	(6,342)					$	3,256					$	(5,019)					$	(3,530)

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Nine Months Ended

December 29, 2019

December 30, 2018

Commercial

Retail

Commercial

Retail

Segment

Segment

Total

Segment

Segment

Total

Revenues








Public carrier

$
110,448

$
—

$
110,448

$
113,647

$
—

$
113,647

Value-added resellers and integrators

192,727

—

192,727

199,570

—

199,570

Retail

—

108,943

108,943

—

148,633

148,633

Total revenues

$
303,175

$
108,943

$
412,118

$
313,217

$
148,633

$
461,850

Gross Profit

Public carrier

$
13,621

$
—

$
13,621

$
14,989

$
—

$
14,989

Value-added resellers and integrators

46,432

—

46,432

48,842

—

48,842

Retail

—

14,604

14,604

—

29,261

29,261

Total gross profit

$
60,053

$
14,604

$
74,657

$
63,831

$
29,261

$
93,092

Directly allocable expenses

25,058

9,299

34,357

24,722

12,391

37,113

Segment net profit contribution

$
34,995

$
5,305

40,300

$
39,109

$
16,870

55,979

Corporate support expenses

49,933

49,488

Income before provision for income taxes

$
(9,633)

$
6,491

Supplemental revenue and gross profit information by product category for the ~~third~~first quarter ~~and first nine months~~ of fiscal years ~~2020~~2021 and ~~2019~~2020 are as follows (in thousands):


	Three Months Ended
	December 29, 2019		December 30, 2018

					Three Months Ended
					June 28, 2020		June 30, 2019
Revenues
Base station infrastructure	$	69,688	$	67,988	$	68,855	$	69,069
Network systems		21,564		21,477		19,400		22,552
Installation, test and maintenance		7,772		8,306		5,462		6,025
Mobile device accessories		40,554		54,524		26,097		33,083
Total revenues	$	139,578	$	152,295	$	119,814	$	130,729


Gross Profit
Base station infrastructure	$	14,808	$	14,822	$	11,418	$	14,521
Network systems		3,055		3,453		2,133		3,927
Installation, test and maintenance		1,410		1,623		766		1,084
Mobile device accessories		3,801		11,101		4,509		5,732
Total gross profit	$	23,074	$	30,999	$	18,826	$	25,264

Nine Months Ended

December 29, 2019

December 30, 2018

Revenues

Base station infrastructure

$
210,230

$
217,817

Network systems

66,971

66,818

Installation, test and maintenance

21,037

24,628

Mobile device accessories

113,880

152,587

Total revenues

$
412,118

$
461,850

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Gross Profit

Base station infrastructure

$
43,894

$
46,072

Network systems

10,445

10,677

Installation, test and maintenance

3,723

4,899

Mobile device accessories

16,595

31,444

Total gross profit

$
74,657

$
93,092

Note 8. Leases

The Company leases certain office spaces and equipment. Leases with an initial term of twelve months or less are not recorded on the balance sheet. The Company’s leases include rental payments adjusted for inflation. The right-of-use lease asset and lease liability are recorded on our Consolidated Balance Sheet.

The lease for the Company’s office space located at 375 West Padonia Road, Timonium, Maryland, 21093, and which includes approximately 102,164 rentable square feet, had been scheduled to end in December 2020. In July 2019, the Company entered into an amendment to the lease agreement to extend the lease term to December 15, 2025. Under the terms13

Table of ~~this amendment, the base rental rate during the extended lease term ranges from $200,071 to $220,841 per month.~~Contents

The lease for the Company’s office space located at 10999 McCormick Road, Hunt Valley, Maryland, had been scheduled to end in July 2020. In November 2019, the Company entered into an amendment to the lease agreement to extend the lease term to July 31, 2023. Under the terms of this amendment, the base rental rate during the extended lease term ranges from $40,498 to $42,971 per month.

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


		Three Months Ended
		December 29, 2019

				Three Months Ended
				June 28, 2020
Operating lease expense	$	736,500	$	871,900

		As of December 29, 2019
Maturities of discounted lease liabilities by fiscal year are as follow:
2020	$	759,900

				As of June 28, 2020
Maturities of lease liabilities by fiscal year are as follow:
2021		3,119,400	$	2,364,100
2022		3,157,800		3,164,000
2023		3,010,400		3,018,300
2024		2,715,400		2,725,700
2025				2,609,900
Thereafter		4,592,300		1,987,600
Total		17,355,200		15,869,600
Less: present value discount		(2,706,300)		(2,437,700)
Present value of lease liabilities	$	14,648,900	$	13,431,900


Weighted-average discount rate:				3.8%
Operating leases		4.0%
Weighted-average remaining lease term				5.1 years

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Note 9. Shares Withheld

The Company withholds shares of common stock from its employees and directors at their request, equal to the minimum federal and state tax withholdings or proceeds due to the Company related to vested PSUs, stock option exercises and vested RSUs. For the ~~nine~~three months ended ~~December 29,~~June 28, 2020 and June 30, 2019, ~~and December 30, 2018,~~ the aggregate value of the shares withheld totaled ~~$882,100~~$58,800 and ~~$111,100,~~$189,100, respectively.

Note 10. Concentration of Risk

The Company’s future results could be negatively impacted by the loss of certain customer and/or vendor relationships.

For the fiscal quarter ended ~~and nine months ended December 29, 2019,~~June 28, 2020, revenue from the Company’s largest customer accounted for ~~11.7% and 10.1%~~10.4% of consolidated ~~revenue, respectively.~~revenue. For the fiscal quarter ~~and nine months~~ ended ~~December~~June 30, ~~2018,~~2019, no customer accounted for more than 10% of total consolidated revenues.

For the fiscal quarter ended ~~December 29,~~June 28, 2020, sales of products purchased from the Company’s largest supplier accounted for 21.6% of consolidated revenue. For the fiscal quarter ended June 30, 2019, sales of products purchased from the Company’s largest supplier accounted for 21.9% of consolidated revenue. For the fiscal quarter ended December 30, 2018, sales of products purchased from the Company’s largest supplier accounted for 14.9% consolidated revenue. No other suppliers accounted for more than 10% of consolidated revenue.

For the nine months ended December 29, 2019, sales of products from the Company’s largest supplier accounted for 21.8% of consolidated revenue. For the nine months ended December 30, 2018, sales of products from the Company’s largest supplier accounted for 15.4%21.5% of consolidated revenue. No other suppliers accounted for more than 10% of consolidated revenue.

Note 11. Subsequent Event

On July 2, 2020, the Board of Directors adopted resolutions providing for the retirement of the Company’s then accumulated treasury stock, and for a corresponding reduction in capital. Immediately prior to the retirement, the Company held 5,789,600 shares of issued but not outstanding common stock as treasury stock, at a cost of

1714

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$58,555,000. Upon retirement, the cost of the treasury stock was netted against retained earnings, and the number of authorized and unissued shares of common stock correspondingly increased by 5,789,600 shares. The total number of authorized shares of common stock remains unchanged at 15,000,000. The impact of these resolutions will be reflected within the consolidated financial statements beginning with the second quarter of fiscal 2021. There has been 0 change to the total stockholders’ equity as a result of such resolutions.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~Operations. This commentary should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations from the Company’s Annual Report on Form 10-K for the fiscal year ended March ~~31, 2019,~~29, 2020, filed with the SEC on June ~~11, 2019.~~5, 2020.

Business Overview and Environment

TESSCO architects and delivers innovative product and value chain solutions to support wireless broadband systems. Although we sell products to customers in many countries, approximately ~~97%~~96% of our sales are made to customers in the United States. We have operations and office facilities in Hunt Valley, Maryland, Reno, Nevada and San Antonio, Texas.

The Company evaluates its business within two segments: commercial and retail. The commercial segment consists of the following customer markets: (1) public carriers, that are generally responsible for building and maintaining the infrastructure system and provide airtime service to individual subscribers; and (2) value-added resellers and integrators, which ~~results from the consolidation of our previously identified~~includes value-added resellers, the government ~~channels~~channel and private system operator markets, and reflects implementation over the 2019 fiscal year of an enhanced go-to-market strategy. This go-to-market strategy and the corresponding consolidation of these customer markets is designed to increase sales opportunities across the consolidated markets, as well as to provide better coverage to customers and to better align territories with supplier partners.markets. The retail segment consists of the retail market which includes retailers, independent dealer agents and carriers.

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

Our ongoing ability to earn revenues and gross profits from customers and suppliers looking to us for product and supply chain solutions depends upon a number of factors. The terms, and accordingly the factors, applicable to each relationship often differ. Among these factors are the strength of the customer’s or supplier’s business, the supply and demand for the product or service, including price stability, changing customer or supplier requirements, and our ability to support the customer or supplier and to continually demonstrate that we can improve the way they do business. In addition, the agreements or arrangements on which our customer and supplier relationships are based are typically of limited duration, typically do not include any obligation in respect of any specific product purchase or sale and are terminable by either party upon several months or otherwise relatively short notice. Because of the nature of our business, we have been affected from time to time in the past by the loss and changes in the business habits of significant ~~customer~~customers and ~~supplier relationships,~~suppliers, and expect that we will again be so affected from time to time in the future. Our customer and supplier relationships could also be affected by wireless carrier consolidation or the overall global economic ~~environment.~~environment, or other events beyond our control, including the COVID-19 pandemic.

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The wireless communications distribution industry is competitive and fragmented and is comprised of several national distributors. In addition, many manufacturers sell direct. Barriers to entry for distributors are relatively

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low, particularly in the mobile devices and accessories market, and the risk of new competitors entering the marketplace is high. Consolidation of larger wireless carriers has and will most likely continue to impact our current and potential customer base. Our ability to maintain customer and supplier relationships is subject to competitive pressures and challenges. We believe, however, that our strength in service, the breadth and depth of our product offering, our information technology system, industry experience and knowledge, and our large customer base and purchasing relationships with approximately ~~400~~350 manufacturers, provide us with a significant competitive advantage over new entrants to the marketplace.

Results of Operations

~~Third~~First quarter of Fiscal Year ~~2020~~2021 Compared with ~~Third~~First quarter of Fiscal Year ~~2019~~2020

Total Revenues. Revenues for the ~~third~~first quarter of fiscal ~~2020~~2021 decreased 8.3% compared with the ~~third~~first quarter of fiscal ~~2019.~~2020. Revenue in the commercial segment ~~increased~~decreased by ~~1.9%~~2.2%. Revenues in our public carrier market increased by ~~12.5%. Revenues~~17.2%, partially offset by a 12.2% decline in revenues in the value-added resellers and integrators ~~market declined 3.6%, in part because we are not yet realizing the full benefits of our sales strategy refinements.~~market. Revenues in our retail segment decreased by ~~27.4%~~27.2%. The decline in revenues in the retail segment ~~was~~and VAR and Integrators market were largely driven by a combination of continued overall softness in these markets, and the impact of COVID-19 in the first quarter of fiscal year 2021, which affected both of our business segments. We expect the challenges we have been facing in our retail segment ~~and significantly lower revenues from one of our more significant retail customers following its change in business model and subsequent transition of its business elsewhere.~~

~~Total Gross Profit.~~ ~~Gross profit~~to continue for the ~~third~~foreseeable future and are focused on measures to manage the decline of this segment. We also expect the challenges we have been facing in our commercial segment to continue, but to a much lesser extent, and we are focused on growth and expansion of this segment .

Cost of Goods Sold. Cost of goods sold for the first quarter of fiscal ~~2020~~2021 decreased ~~by 25.6%~~4.2% compared ~~to the third quarter of fiscal 2019. This decrease was primarily due to lower sales volume combined~~ with the ~~impact of inventory write-offs. Overall gross profit margin decreased from 20.4% in the third quarter of fiscal 2019 to 16.5% in the third~~first quarter of fiscal 2020. ~~Within our~~In the commercial segment, ~~gross profit margin~~cost of goods sold increased by 2.0%. Cost of goods sold in our public carrier market ~~decreased from 13.6% to 11.9% due to changes~~increased by 21.5%, partially offset by a 9.6% decrease in ~~customer mix. Gross profit margin~~cost of goods sold in our value-added resellers and integrators ~~market decreased from 24.5% to 24.0%. This decline was due to a change~~market. Cost of goods sold in ~~product mix. Within~~ our retail segment ~~gross profit margin~~ decreased ~~from 19.5% to 8.8%~~by 22.4%. These changes in ~~the third quarter~~cost of ~~fiscal 2020, compared to 2019, primarily due to the impact of inventory write-offs,~~goods sold in both segments were largely ~~associated with the market softness~~driven by changes in revenue and ~~the discontinuance of several OEM phone devices. Total inventory write-offs were $4.3 million and $1.1 million, respectively, for the third quarter of fiscal 2020 and 2019.~~customer mix, as discussed above.

As discussed above under the heading “Business Overview and Environment,” our ongoing ability to earn revenues and gross profits from customers and suppliers depends upon a number of factors that often differ for each relationship. Agreements or arrangements on which these relationships are based typically do not include any obligation in respect of any specific product purchase or sale, are of limited duration, and are terminable by either party upon relatively short notice. We have been affected from time to time in the past by the loss and changes in the business habits of significant ~~customer~~customers and ~~supplier relationships,~~suppliers, and expect that we will again be so affected from time to time in the future. Our customer and supplier relationships could also be affected by wireless carrier consolidation or the overall global economic environment, or other events beyond our control, including the COVID-19 pandemic.

Total Gross Profit. Gross profit for the first quarter of fiscal 2021 decreased by 25.5% compared to the first quarter of fiscal 2020. This decrease was primarily due to lower sales volume and a change in customer mix favoring the lower margin public carrier market. Within our commercial segment, gross profit margin in our public carrier market decreased from 12.7% to 9.5%. Gross profit margin in our value-added resellers and integrators market decreased from 24.5% to 22.2%. We experienced margin compression within our public carrier market primarily due to a change in customer mix, with increased sales going to larger customers with lower margins. Within our retail segment, gross profit margin decreased from 15.7% to 10.1% in the first quarter of fiscal 2021, compared to 2020, primarily due to customer mix as smaller, higher margin customers

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experienced impacts related to COVID-19. As a result of these drivers on gross profit, overall gross profit margin decreased to 15.7% in the first quarter of fiscal 2021, compared to 19.3% in the first quarter of fiscal 2020.

Selling, General, Administrative and Restructuring Expenses. Total selling, general and administrative expenses decreased by ~~$1.0~~$4.4 million for the ~~third~~first quarter of fiscal ~~2020,~~2021, compared to the ~~third~~first quarter of fiscal ~~2019.~~2020. Selling, general and administrative expenses as a percentage of revenues ~~increased~~decreased from ~~18.1%~~21.4% for the ~~third quarter of fiscal 2019, to 19.0% for the third~~first quarter of fiscal 2020, ~~due~~ to ~~lower revenues.~~19.8% for the first quarter of fiscal 2021.

The decrease in our selling, general and administrative expenses was primarily due to a decrease of ~~$1.1~~$2.2 million

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in compensation and benefit expense, $1.0 million in sales promotion expense, and ~~$0.6~~$0.7 million in ~~rewards~~freight expense during the ~~third~~first quarter of fiscal ~~2020~~2021 as compared to the ~~third~~first quarter of fiscal ~~2019.~~2020. These decreases were largely due to the decline in overall ~~revenues.~~revenues and in cost reduction initiatives undertaken in the first quarter, primarily associated with the retail segment.

~~During the third quarter of fiscal 2020, the~~The Company also incurred a ~~$2.6~~$0.5 million ~~non-cash goodwill impairment loss, as discussed in Note 3~~restructuring charge related to ~~our Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.~~severance expense for the first quarter of fiscal 2020.

We continually evaluate the credit worthiness of our existing customer receivable portfolio and provide an appropriate reserve based on this evaluation. We also evaluate the credit worthiness of prospective and current customers and make decisions regarding extension of credit terms to such customers based on this evaluation. We had bad debt recovery, net of expense of ~~$446,800~~$13,700 and ~~$478,400~~bad debt expense of $135,400 for the three months ended ~~December 29,~~June 28, 2020 and June 30, 2019, ~~and December 30, 2018,~~ respectively.

Interest, Net. Net interest expense ~~increased~~decreased from ~~$247,900~~$208,700 for the ~~third~~first quarter of fiscal ~~2019~~2020 to ~~$367,900~~$110,700 for the ~~third~~first quarter of fiscal ~~2020. Increase~~2021. Decrease in ~~capital expenditures has~~interest rates have resulted in ~~increased borrowings and~~decreased interest expense under our secured Revolving Credit Facility (discussed in Note 54 to our Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q). ~~We expect this higher level of interest expense to continue for at least the next several quarters.~~

Income Taxes, Net Income and Diluted Earnings per Share. The effective tax rate increased from 16.9% for the third quarter of fiscal 2019 to 20.8% for the third quarter of fiscal 2020. The increase in the effective tax rate is the result of third quarter of fiscal 2019 including non-recurring adjustments related to a change in tax law and a reduction in the gross balance of unrecognized tax benefits, including interest, due to a lapse in the related statute of limitations. Net income decreased 285.7% and diluted earnings per share decreased 284.4% for the third quarter of fiscal 2020, compared to the corresponding prior-year quarter.

~~First Nine Months of Fiscal Year 2020 Compared with First Nine Months of Fiscal Year 2019~~

~~Total Revenues.~~ Revenues for the first nine months of fiscal 2019 decreased 10.8% compared with the first nine months of fiscal 2019. Revenue in the commercial segment decreased by 3.2%. Revenues in our public carrier market and value-added resellers and integrators market decreased by 2.8% and 3.4%, respectively. The decline in the commercial segment was primarily due to the project-oriented nature of this business. Several large customers adjusted their forecasts or pushed out their product requirements to the fourth quarter of fiscal year 2020. Revenues in our retail segment decreased by 26.7%. The decline in the retail segment was largely driven by a combination of overall softness in our retail segment and significantly lower revenues from one of our more significant retail customers following its change in business model and subsequent transition of its business elsewhere.

~~Total Gross Profit.~~ Gross profit for the first nine months of fiscal 2020 decreased by 19.8% compared to the first nine months of fiscal 2019. This decrease was primarily due to lower sales volume combined with the impact of tariffs and inventory write-offs. Overall gross profit margin decreased from 20.2% in the first nine months of fiscal 2019 to 18.1% in the first nine months of fiscal 2020. Within our commercial segment, gross profit margin in our public carrier market and value-added resellers and integrators market decreased from 13.2% to 12.3%, and 24.5% to 24.1%, respectively, due to changes in customer mix. Within our retail segment, gross profit margin decreased from 19.7% to 13.4 % in the first nine months of fiscal 2020, compared to 2019, primarily due to the impact of tariffs and inventory write-offs.

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for each relationship. Agreements or arrangements on which these relationships are based typically do not include any obligation in respect of any specific product purchase or sale, are of limited duration, and are terminable by either party upon relatively short notice. We have been affected from time to time in the past by the loss and changes in the business habits of significant customer and supplier relationships, and expect that we will again be so affected from time to time in the future.

~~Selling, General, Administrative and Restructuring Expenses.~~ Total selling, general and administrative expenses decreased by $5.6 million for the first nine months of fiscal 2020, compared to the first nine months of fiscal 2019. Selling, general and administrative expenses as a percentage of revenues increased from 18.6% for the first nine months of fiscal 2019, to 19.5% for the first nine months of fiscal 2020.

The decrease in our selling, general and administrative expenses was largely due to the decline in overall revenues and were partially offset by the $1.6 million increase in information technology expense, during the first nine months of fiscal 2020 as compared to the first nine months of fiscal 2019. These decreases included a decrease of $2.6 million in compensation expense, $2.0 million in rewards expense, and $1.9 million in freight expense.

~~The Company also incurred a $0.5 million restructuring charge related to severance expense~~29.4% for the first quarter of fiscal 2020 ~~and a $2.6 million non-cash goodwill impairment loss in~~to 7.7% for the ~~third~~first quarter of fiscal ~~2020, as discussed~~2021. The decrease in ~~Note 3 to our Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.~~

~~We continually evaluate~~ the credit worthiness of our existing customer receivable portfolio and provide an appropriate reserve based on this evaluation. We also evaluate the credit worthiness of prospective and current customers and make decisions regarding extension of credit terms to such customers based on this evaluation. We incurred bad debt expense of $474,200 and $1,499,700 for the nine months ended December 29, 2019 and December 30, 2018, respectively.

~~Interest, Net.~~ Net interest expense increased from $667,100 for the first nine months of fiscal 2019 to $911,700 for the first nine months of fiscal 2020. Increase in capital expenditures has resulted in increased borrowings and interest expense under our secured Revolving Credit Facility (discussed in Note 5 to our Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q). We expect this higher level of interest expense to continue for at least the next several quarters.

~~Income Taxes, Net Income and Diluted Earnings per Share.~~ ~~The~~ effective tax rate ~~increased slightly~~resulted from ~~22.1%~~several discrete items including changes associated with state adjustments related to the CARES Act. We expect the tax rate to be higher for the ~~first nine months~~rest of the fiscal ~~2019 to 22.2% for the first nine months of fiscal 2020.~~year. Net income decreased ~~248.2%~~85.8% and diluted earnings per share decreased ~~249.2%~~86.2% for the first ~~nine months~~quarter of fiscal ~~2020,~~2021, compared to the ~~first nine months of fiscal 2019.~~corresponding prior-year quarter.

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Liquidity and Capital Resources

The following table summarizes our cash flows provided by or used in operating, investing and financing activities for the ~~nine~~three months ended ~~December 29, 2019~~June 28, 2020 and ~~December~~June 30, ~~2018.~~2019.


	Three Months Ended
	June 28, 2020		June 30, 2019
Cash flow provided by (used in) operating activities	$	1,444,600	$	(1,985,900)
Cash flow used in investing activities		(1,218,100)		(1,870,300)
Cash flow (used in) provided by financing activities		(275,600)		3,843,100
Net decrease in cash and cash equivalents	$	(49,100)	$	(13,100)

Nine Months Ended


December 29, 2019

December 30, 2018


Cash flow (used in) provided by operating activities

$
(2,998,800)

$
3,254,400

Cash flow used in investing activities

(6,831,700)

(4,286,300)

Cash flow provided by financing activities

9,801,000

1,014,100

Net decrease in cash and cash equivalents

$
(29,500)

$
(17,800)

~~We used $3.0 million~~Table of ~~net cash from operating activities for the first nine months of fiscal 2020, compared with net~~Contents

Net cash provided by operating activities ~~of $3.3~~was $1.4 million for the first ~~nine~~three months of fiscal ~~2019.~~2021, compared with net cash used in operating activities of $2.0 million for the first three months of fiscal 2020. This fiscal 2020 ~~outflow~~inflow was due to a ~~net loss, net of depreciation and goodwill impairment,~~decrease in accounts receivable, partially offset by the net loss and a decrease in ~~inventory and~~trade accounts ~~receivable.~~payable.

Net cash used in investing activities was ~~$6.8~~$1.2 million for the first ~~nine~~three months of fiscal ~~2020,~~2021, compared to ~~$4.3~~$1.9 million used in the first ~~nine~~three months of fiscal ~~2019.~~2020. Cash used in both periods was due to capital expenditures largely comprised of investments in information technology.

Net cash used in financing activities was $0.3 million for the first three months of fiscal 2021, compared to net cash provided by financing activities ~~was $9.8~~of $3.8 million for the first ~~nine~~three months of fiscal ~~2020, compared to $1.0 million provided in the first nine months of fiscal 2019.~~2020. We ~~utilized~~repaid our asset based secured Revolving Credit Facility during the first ~~nine~~three months of fiscal 2021, leading to a cash outflow of $0.2 million during this period. During the first three months of fiscal 2020, ~~and 2019,~~we utilized our asset based secured Revolving Credit Facility, leading to a cash inflow of ~~$15.0~~$5.7 million ~~and $6.1 million, respectively,~~ during ~~those periods. We had~~this period. This inflow was partially offset by a cash ~~outflows~~outflow of ~~$5.1~~$1.7 million during the first ~~nine~~three months of ~~both~~ fiscal 2020 ~~and fiscal 2019,~~ due to cash dividends paid to shareholders. No cash dividend was paid during the first three months of fiscal 2021.

On October 19, 2017, the Company and its primary operating subsidiaries, as co-borrowers, entered into an Amended and Restated Credit Agreement with SunTrust Bank, as Administrative Agent, and Wells Fargo Bank, National Association, as a lender (the “Amended and Restated Credit Agreement”), which amended and restated the terms of a previously established secured Revolving Credit Facility and which resulted in, among other modifications, an increase in the Company’s borrowing limit to up to $75 million, from the previous borrowing limit of up to $35 million. In addition to increasing the borrowing limit, and among other modifications, the Amended and Restated Credit Agreement extended the applicable maturity date to October 19, 2021. As of ~~December 29, 2019,~~June 28, 2020, borrowings under the secured Revolving Credit Facility totaled ~~$29.4~~$25.3 million; therefore, we then had ~~$45.6~~$49.7 million available, subject to the Borrowing Base limitations and compliance with the other applicable terms of the Amended and Restated Credit Agreement, including the financial and other covenants discussed in Note 4 to our Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. Borrowings under the Amended and Restated Credit Agreement accrue interest at the rates, and the Company is required to pay a monthly commitment fee, as also discussed in Note 4 to our Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

In connection with the entering into of the Amended and Restated Credit Agreement, the Company and the other Company affiliate borrowers under the Amended and Restated Credit Agreement, and other subsidiaries, referred to collectively as the Loan Parties, executed and delivered to SunTrust Bank, as Administrative Agent, a Reaffirmation Agreement, pursuant to which the obligations of the Loan Parties under the Guaranty and Security Agreement previously delivered by the Loan Parties in connection with the secured Revolving Credit Facility as previously existing (including the previously existing guaranty by the Loan Parties not otherwise Borrowers and the previously existing grant by the Company and the other Loan Parties of a continuing first

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priority security interest in inventory, accounts receivable and deposit accounts, and on all documents, instruments, general intangibles, letter of credit rights, and all proceeds) were ratified and confirmed as respects the Obligations arising from time to time under the secured Revolving Credit Facility provided for pursuant to the Amended and Restated Credit Agreement.

We have made quarterly dividend payments to holders of our common stock since the third quarter of fiscal 2010. A quarterly cash dividend of $0.20 per share was paid in November 2019. On January 21, 2020, our Board declared a quarterly cash dividend in the amount of $0.02 per share, payable on February 26, 2020 to shareholders of record as of February 12, 2020.

~~Any future declaration of dividends and the establishment of any corresponding record and payment dates remains subject to further determination from time to time by the Board of Directors.~~

We believe that our existing cash, payments from customers and availability under our secured Revolving Credit Facility will be sufficient to support our operations for at least the next twelve months. To minimize interest expense, our policy is to apply excess available cash to reduce the balance outstanding from time to time on our secured Revolving Credit Facility. Our increased focus over the past several quarters on business opportunities for sales to our public carrier customers led to the recent expansion of our secured Revolving

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Credit Facility, and has at times resulted in increased borrowings and dependence on that facility. We expect this trend to continue, although at present we have no plans for any further expansion of the facility. If we were to undertake an acquisition or other major capital purchases that require funds in excess of existing sources of liquidity, we would look to sources of funding from additional credit facilities, debt and/or equity issuances. As of ~~December 29, 2019,~~June 28, 2020, we do not have any material capital expenditure commitments.

In addition, our liquidity could be negatively impacted by decreasing revenues and profits resulting from a decrease in demand for our products or a reduction in capital expenditures by our customers, or by the weakened financial conditions of our customers or suppliers, in each case as a result of a downturn in the global economy, among other factors.

Recent Accounting Pronouncements

A description of recently issued and adopted accounting pronouncements is contained in Note 2 to our Consolidated Financial Statements.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our unaudited Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

For a detailed discussion on our critical accounting policies, please refer to our Annual Report on Form 10-K for the fiscal year ended March ~~31, 2019,~~29, 2020, filed with the SEC on June ~~11, 2019.~~5, 2020.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements.

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Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain forward-looking statements. These forward-looking statements may generally be identified by the use of the words “may,” “will,” “expects,” “anticipates,” “believes,” “estimates,” “intends,” “projects,” “plans,” “should,” “would,” “could,” and similar expressions, but the absence of these words or phrases does not necessarily mean that a statement is not forward looking. Forward looking statements involve a number of known and unknown risks and uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Our actual results may differ materially from those described in or contemplated by any such forward-looking statement for a variety of reasons, including those risks identified in our most recent Annual Report on Form 10-K, this Quarterly Report on Form 10-Q, and other periodic reports filed with the SEC, under the heading “Risk Factors” and otherwise. Consequently, the reader is cautioned to consider all forward-looking statements in light of the risks to which they are subject.

We are not able to identify or control all circumstances that could occur in the future that may adversely affect our business and operating results. Without limiting the risks that we describe in our periodic reports and

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elsewhere, among the risks that could lead to a materially adverse impact on our business or operating results are the following: termination or non-renewal of limited duration agreements or arrangements with our vendors and affinity partners that are typically terminable by either party upon several months or otherwise relatively short notice; loss of significant customers or relationships, including affinity relationships; loss of customers either directly or indirectly as a result of consolidation among large wireless service carriers and others within the wireless communications industry; the strength of our customers', vendors' and affinity partners' business; increasingly negative or prolonged adverse economic conditions, including those adversely affecting consumer confidence or consumer or business spending, or otherwise adversely affecting our vendors or customers, including their access to capital or liquidity or our customers’ demand for, or ability to fund or pay for, our products and services; our dependence on a relatively small number of suppliers and vendors, which could hamper our ability to maintain appropriate inventory levels and meet customer demand; changes in customer and product mix that affects gross margin; effect of “conflict minerals” regulations on the supply and cost of certain of our products; failure of our information technology system or distribution system; system security or data protection breaches; technology changes in the wireless communications industry, or technological failures, which could lead to significant inventory obsolescence and/or our inability to offer key products that our customers demand; third-party freight carrier interruption; increased competition, including from manufacturers or national and regional distributors of the products we sell and the absence of significant barriers to entry which could result in pricing and other pressures on profitability and market share; our relative bargaining power and inability to negotiate favorable terms with our vendors and customers; our inability to access capital and obtain financing as and when needed; claims against us for breach of the intellectual property rights of third parties; product liability claims; our inability to protect certain intellectual property, including systems and technologies on which we rely; our inability to hire or retain our key professionals, management and staff; health epidemics or pandemics or other outbreaks or events, or national or world events or disasters beyond our control, which includes continuing restrictions resulting from the COVID-19 pandemic, actions taken in response to the COVID-19 pandemic, and any localized impact of the COVID-19 pandemic, which adversely affect our personnel or operations or our ability to fulfill orders, complete implementations, or recognize revenue; and the possibility that, for unforeseen reasons, we may be delayed in entering into or performing, or may fail to enter into or perform, anticipated contracts or may otherwise be delayed in realizing or fail to realize anticipated revenues or anticipated savings.

Available Information

Our internet website address is: www.tessco.com. We make available free of charge through our website, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Exchange Act as soon as reasonably

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practicable after such documents are electronically filed with, or furnished to, the Securities and Exchange Commission. Also available on our Website is our Code of Business Conduct and Ethics.

Item 4. Controls and ~~Procedures.~~Procedures.

The Company’s management, with the participation of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of the end of the period covered by this quarterly report. Controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of these controls and procedures required by Rules 13a-15(b) or 15d-15(b) of the Exchange Act, the Company’s management, including the CEO and CFO, have concluded that, as of the end of the period covered by this quarterly report,

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the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. During the period covered by this quarterly report, there have been no changes to the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER ~~INFORMATION~~INFORMATION

Item 1. Legal ~~Proceedings.~~Proceedings.

Lawsuits and claims are filed against us from time to time in the ordinary course of business. We do not believe that any lawsuits or claims currently pending against the Company, individually or in the aggregate, are material, or will have a material adverse effect on our financial condition or results of operations. In addition, from time to time, we are also subject to review from federal and state taxing authorities in order to validate the amounts of income, sales and/or use taxes which have been claimed and remitted. Currently, our ~~California~~Florida sales tax returns for the period ~~January 1, 2016 through December 31, 2018 and Illinois sales tax returns for the period March~~February 1, 2018 through July 31, 2018 are under examination by applicable taxing authorities.

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

Item 1A. Risk ~~Factors.~~Factors.

Our business involves a high degree of risk. In addition to the other information included in this Quarterly Report on Form 10-Q, you should consider the risk factors previously disclosed in Part I “Item 1.A Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March ~~31, 2019.~~29, 2020. Information that we have disclosed or will disclose from time to time in our public filings (including this Quarterly Report on Form 10-Q and other periodic reports filed under the Exchange Act) may provide additional data or information relative to our previously disclosed risk factors. We are not able to identify or control all circumstances that could occur in the future that may adversely affect our business and operating results. Additional risks and

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uncertainties that management is not aware of or focused on, or that management currently deems immaterial may also adversely affect our business, financial position and results of operations. There have been no material changes in any of the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended March ~~31, 2019 except as noted below.~~29, 2020.

WeHowever, the COVID-19 pandemic continues to evolve internationally, nationally and locally, and we remain sensitive to the ongoing and changing risks that it presents, both known and unknown. As discussed in our most recent Annual Report on Form 10-K, we face risks related to health epidemics and other outbreaks orand events ~~which could significantly disrupt~~beyond our ~~business.~~

~~Our business could be adversely affected by health epidemics or other outbreaks or events. A significant portion of~~control, and our product offerings, including a majority of our private label Ventev products and products we acquire from our suppliers, are manufactured in foreign countries, including China and Vietnam, and many of the component parts of our products manufactured in Vietnam are sourced from China. Our ability to meet our customers' demands depends, in part, on our ability to obtain timely and adequate delivery of inventory from our suppliers. In addition, many of the products produced for others, and which our products are intended to complement, are produced throughout the world, including China. In late December 2019, a strain of coronavirus was reported to have surfaced in Wuhan, China. On January 30, 2020, the World Health Organization reportedly declared this coronavirus outbreak a health emergency of international concern. Our business and results of operations have been, and may continue to be, adversely affected on account of the impact of the COVID-19 pandemic. These risks include continuing COVID-19 related restrictions on our activities, other actions taken or required to be taken by us in response to the COVID-19 pandemic, and any localized impact of the COVID-19 pandemic, any, some or all of which could adversely affect our personnel or operations or our ability to fulfill orders, complete implementations, and recognize revenue. The COVID-19 pandemic also implicates workplace safety issues and concerns, and associated risks.

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Thus far, we have not suffered a widespread outbreak of COVID-19 among our employees or at our facilities, but the risk of future outbreaks persists, and our ongoing business operations and our financial results could be adversely affected should an outbreak occur among our personnel or at one of our facilities.

In addition, we have previously including among our Risk Factors a discussion of the concentration of our stock ownership among a select group, including Robert B. Barnhill Jr. who holds approximately 18% of our outstanding common stock. In March 2020, Mr. Barnhill filed an amendment to Schedule 13-D with the ~~extent~~SEC, indicating among other things his intention to consider and possibly pursue various actions with respect to his investment in the ~~coronavirus harms~~Company, including a strategic transaction in which he alone or with others might acquire all of our outstanding common stock not already held by him. Subsequently, Mr. Barnhill filed another amendment to Schedule 13-D in which he announced his intention to vote against the ~~Chinese or world economy generally, or otherwise interferes~~re-election of four of our incumbent directors at our 2020 Annual Meeting of Stockholders, and then following the Annual Meeting another amendment to Schedule 13-D indicating an intention to pursue an agenda focused on board transition. In addition, another significant stockholder has filed a Schedule 13-D and amendments indicating, among other things, that it may engage in discussions with our ~~supply chain~~ Board and/or ~~the manufacture~~members of ~~products of others that~~ our ~~products are intended to complement. We may also experience negative effects from future health epidemics or outbreaks or~~management team concerning, without limitation, potential business combinations and strategic alternatives, our business, operations, capital structure, governance, management, strategy and other world events or disasters beyond our control. These events are impossible to forecast and difficult to mitigate. As a consequence, our operating results for a particular period may be more difficult to predict. Any of these events could have a material adverse effect on our results of operations and financial condition. matters.

Item 2. Unregistered Sales of Equity Securities and Use of ~~Proceeds.~~ Proceeds.

None.

Item 3. Defaults Upon Senior ~~Securities.~~Securities.

None.

Item 4. Mine Safety ~~Disclosures.~~Disclosures.

Not applicable.

Item 5. Other ~~Information.~~Information.

None.

2623

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Item 6. ~~Exhibits.~~ Exhibits.

(a)Exhibits:


	~~(a)~~		~~Exhibits:~~


31.1.1*
10.1*		Form of Stock Option granted to Sandip Mukerjee on November 15, 2019 (incorporated by reference to Exhibit 10.1 if the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 19, 2019).
31.1.1*		Certification of Chief Executive Officer required by Rule 13a–14(a) or 15d–14(a) of the Securities Exchange Act of 1934, as amended pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2.1*		Certification of Chief Financial Officer required by Rule 13a–14(a) or 15d–14(a) of the Securities Exchange Act of 1934, as amended pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1.1*		Certification of periodic report by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2.1*		Certification of periodic report by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.1*		The following financial information from TESSCO Technologies, Incorporated’s Quarterly Report on Form 10-Q for the quarter ended ~~December 29, 2019~~June 28, 2020 formatted in Inline XBRL: (i) Consolidated Statement of Income for the three ~~and nine~~ months ended ~~December 29, 2019~~June 28, 2020 and ~~December~~June 30, ~~2018;~~2019; (ii) Consolidated Balance Sheet at ~~December 29~~June 28 and March ~~31, 2019;~~29, 2020; (iii) Consolidated Statement of Cash Flows for the ~~nine~~three months ended ~~December 29, 2019~~June 28, 2020 and ~~December~~June 30, ~~2018;~~2019; and (iv) Notes to Consolidated Financial Statements.
104.1*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.1)

*Filed herewith

2724

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Signature

~~Signature~~

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


			TESSCO Technologies Incorporated
		~~TESSCO Technologies Incorporated~~

Date: August 6, 2020
~~Date: February 7, 2020~~	By:
	~~By:~~	/s/ Aric M. Spitulnik
		Aric Spitulnik
		Chief Financial Officer
		(principal financial and accounting officer)

2825


Part I	FINANCIAL INFORMATION			Page
~~Part I~~	~~FINANCIAL INFORMATION~~	~~Page~~
	Item 1.	Financial Statements.	3

	Item 1.2.	~~Financial Statements.~~	3

	~~Item 2.~~	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	1816

	Item 4.	Controls and Procedures.	2521

Part II	OTHER INFORMATION

	Item 1.	Legal Proceedings.	2522

	Item 1A.	Risk Factors.	2522

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	2623

	Item 3.	Defaults Upon Senior Securities.	2623

	Item 4.	Mine Safety Disclosures.	2623

	Item 5.	Other Information.	2623

	Item 6.	Exhibits.	2724

	Signature		2825


	December 29,		March 31,
	2019		2019
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	800	$	30,300
Trade accounts receivable		82,545,100		93,966,200
Product inventory, net		70,773,100		71,845,400
Prepaid expenses and other current assets		6,880,700		5,562,800
Total current assets		160,199,700		171,404,700

Property and equipment, net		13,800,800		15,003,500
Goodwill		9,108,600		11,677,700
Intangible assets, net		9,145,000		5,097,800
Deferred tax assets		2,305,800		55,300
Lease asset - right of use		14,577,200		—
Other long-term assets		2,479,400		3,256,800
Total assets	$	211,616,500	$	206,495,800

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	60,618,500	$	73,059,700
Payroll, benefits and taxes		5,385,300		5,929,500
Income and sales tax liabilities		272,600		749,000
Accrued expenses and other current liabilities		3,042,200		2,652,400
Revolving line of credit		29,356,800		14,378,100
Lease liability, current		2,553,000		—
Total current liabilities		101,228,400		96,768,700

Lease liability		12,095,900		—
Long-term liabilities		806,000		939,900
Total liabilities		114,130,300		97,708,600

Shareholders’ equity:
Preferred stock, $0.01 par value per share, 500,000 shares authorized and no shares issued and outstanding		—		—
Common stock, $0.01 par value per share, 15,000,000 shares authorized, 14,320,019 shares issued and 8,543,200 shares outstanding as of December 29, 2019, and 14,190,027 shares issued and 8,468,529 shares outstanding as of March 31, 2019		101,100		99,800
Additional paid-in capital		64,854,700		62,666,400
Treasury stock, at cost, 5,776,819 shares as of December 29, 2019 and 5,721,498 shares as of March 31, 2019		(58,496,200)		(57,614,100)
Retained earnings		91,026,600		103,635,100
Total shareholders’ equity		97,486,200		108,787,200
Total liabilities and shareholders’ equity	$	211,616,500	$	206,495,800


	Fiscal Quarters Ended				Nine Months Ended
	December 29, 2019		December 30, 2018		December 29, 2019		December 30, 2018

Revenues	$	139,578,200	$	152,294,500	$	412,118,400	$	461,850,000
Cost of goods sold		116,503,900		121,295,800		337,461,300		368,758,500
Gross profit		23,074,300		30,998,700		74,657,100		93,091,500
Selling, general and administrative expenses		26,479,100		27,494,800		80,320,800		85,933,400
Goodwill impairment		2,569,100		—		2,569,100		—
Restructuring charge		—		—		488,000		—
(Loss) income from operations		(5,973,900)		3,503,900		(8,720,800)		7,158,100
Interest expense, net		367,900		247,900		911,700		667,100
(Loss) income before provision for (benefit from) income taxes		(6,341,800)		3,256,000		(9,632,500)		6,491,000
(Benefit from) provision for income taxes		(1,320,400)		551,400		(2,140,300)		1,437,200
Net (loss) income	$	(5,021,400)	$	2,704,600	$	(7,492,200)	$	5,053,800
Basic (loss) earnings per share	$	(0.59)	$	0.32	$	(0.88)	$	0.60
Diluted (loss) earnings per share	$	(0.59)	$	0.32	$	(0.88)	$	0.59
Basic weighted-average common shares outstanding		8,541,020		8,446,671		8,517,838		8,429,086
Effect of dilutive options and other equity instruments		—		32,583		—		130,982
Diluted weighted-average common shares outstanding		8,541,020		8,479,254		8,517,838		8,560,068
Cash dividends declared per common share	$	0.20	$	0.20	$	0.60	$	0.60


	Common Stock			Additional						Total
				Paid-in		Treasury		Retained		Shareholders’
	Shares	Amount		Capital		Stock		Earnings		Equity
Balance at March 31, 2019	8,468,529		99,800		62,666,400		(57,614,100)		103,635,100		108,787,200
Proceeds from issuance of stock	9,250		100		143,100		—		—		143,200
Treasury stock purchases	(10,488)		—		—		(189,100)		—		(189,100)
Non-cash stock compensation expense	41,256		400		338,500		—		—		338,900
Cash dividends paid	—		—		—		—		(1,702,600)		(1,702,600)
Net loss	—		—		—		—		(2,492,800)		(2,492,800)
Balance at June 30, 2019	8,508,547		100,300		63,148,000		(57,803,200)		99,439,700		104,884,800
Proceeds from issuance of stock	19,236		200		283,600		—		—		283,800
Treasury stock purchases	(44,009)		—		—		(681,100)		—		(681,100)
Non-cash stock compensation expense	—		—		391,800		—		—		391,800
Exercise of stock options	48,125		500		680,600		—		—		681,100
Cash dividends paid	—		—		—		—		(1,704,200)		(1,704,200)
Net income	—		—		—		—		22,000		22,000
Balance at September 29, 2019	8,531,899		101,000		64,504,000		(58,484,300)		97,757,500		103,878,200
Proceeds from issuance of stock	9,570		100		138,000		—		—		138,100
Treasury stock purchases	(824)		—		—		(11,900)		—		(11,900)
Non-cash stock compensation expense	2,530		—		212,700		—		—		212,700
Cash dividends paid	—		—		—		—		(1,709,500)		(1,709,500)
Net loss	—		—		—		—		(5,021,400)		(5,021,400)
Balance at December 29, 2019	8,543,175	$	101,100	$	64,854,700	$	(58,496,200)	$	91,026,600	$	97,486,200

Balance at April 1, 2018	8,396,537		99,000		60,611,900		(57,503,000)		104,843,700		108,051,600
Proceeds from issuance of stock	5,620		100		130,000		—		—		130,100
Treasury stock purchases	(6,332)		—		—		(111,100)		—		(111,100)
Non-cash stock compensation expense	26,257		200		320,300		—		—		320,500
Cash dividends paid	—				—		—		(1,684,200)		(1,684,200)
Net income	—				—		—		1,158,400		1,158,400
Balance at July 1, 2018	8,422,082		99,300		61,062,200		(57,614,100)		104,317,900		107,865,300
Proceeds from issuance of stock	17,446		200		282,400		—		—		282,600
Non-cash stock compensation expense	—		—		384,800		—		—		384,800
Cash dividends paid	—		—		—		—		(1,687,000)		(1,687,000)
Net income	—		—		—		—		1,190,800		1,190,800
Balance at September 30, 2018	8,439,528		99,500		61,729,400		(57,614,100)		103,821,700		108,036,500
Proceeds from issuance of stock	8,998		100		137,200		—		—		137,300
Non-cash stock compensation expense	—		—		274,100		—		—		274,100
Cash dividends paid	—		—		—		—		(1,690,600)		(1,690,600)
Net income	—		—		—		—		2,704,600		2,704,600
Balance at December 30, 2018	8,448,526	$	99,600	$	62,140,700	$	(57,614,100)	$	104,835,700	$	109,461,900


Gross Profit
Base station infrastructure	$	43,894	$	46,072
Network systems		10,445		10,677
Installation, test and maintenance		3,723		4,899
Mobile device accessories		16,595		31,444
Total gross profit	$	74,657	$	93,092