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 ~~June 28,~~December 27, 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) 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 ☑
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 ~~July 31, 2020,~~January 29, 2021, was ~~8,712,771.~~8,828,066.

Table of Contents

TESSCO Technologies Incorporated

Index to Form 10-Q

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

TESSCO Technologies Incorporated

Unaudited Consolidated Balance Sheets

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


	December 27,		March 29,
	2020		2020

ASSETS
Current assets:
Cash and cash equivalents	$	234,200	$	50,000
Trade accounts receivable, net		77,856,500		82,868,400
Product inventory, net		52,461,700		50,298,100
Prepaid expenses and other current assets		15,054,800		11,707,500
Current portion of assets held for sale		2,684,200		18,849,900
Total current assets		148,291,400		163,773,900

Property and equipment, net		12,649,100		13,433,700
Intangible assets, net		16,412,000		11,157,400
Deferred tax assets		758,100		3,032,500
Lease asset - right of use		11,937,100		13,949,800
Other long-term assets		5,299,200		3,361,400
Total assets	$	195,346,900	$	208,708,700

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	65,907,000	$	75,512,600
Payroll, benefits and taxes		7,577,100		4,258,300
Income and sales tax liabilities		610,400		450,800
Accrued expenses and other current liabilities		3,040,800		4,244,400
Revolving line of credit		—		25,563,900
Lease liability, current		2,577,700		2,579,200
Total current liabilities		79,713,000		112,609,200

Revolving line of credit		26,001,400		—
Non-current lease liability		9,546,900		11,481,100
Other non-current liabilities		868,200		915,700
Total liabilities		116,129,500		125,006,000

Shareholders’ equity:
Preferred stock, $0.01 par value per share, 500,000 shares authorized and 0 shares issued and outstanding		—		—
Common stock, $0.01 par value per share, 15,000,000 shares authorized, 8,750,920 shares issued and 8,740,670 shares outstanding as of December 27, 2020, and 14,354,368 shares issued and 8,577,549 shares outstanding as of March 29, 2020		103,300		101,400
Additional paid-in capital		66,765,600		65,318,500
Treasury stock, at cost, 10,250 shares as of December 27, 2020 and 5,776,819 shares as of March 29, 2020		(62,800)		(58,496,200)
Retained earnings		12,411,300		76,779,000
Total shareholders’ equity		79,217,400		83,702,700
Total liabilities and shareholders’ equity	$	195,346,900	$	208,708,700

See accompanying notes to unaudited consolidated financial statements.

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TESSCO Technologies Incorporated

Unaudited Consolidated Statements of ~~Loss~~(Loss) Income

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


	Fiscal Quarters Ended				Nine Months Ended
	December 27, 2020		December 29, 2019		December 27, 2020		December 29, 2019

Revenues	$	99,237,600	$	100,844,000	$	284,607,600	$	303,174,700
Cost of goods sold		81,921,900		81,196,300		233,718,000		243,121,200
Gross profit		17,315,700		19,647,700		50,889,600		60,053,500
Selling, general and administrative expenses		23,606,800		21,994,800		65,927,100		68,457,600
Restructuring charge		—		—		—		488,000
Loss from operations		(6,291,100)		(2,347,100)		(15,037,500)		(8,892,100)
Interest expense, net		151,200		367,900		367,800		911,700
Loss from continuing operations before benefit from income taxes		(6,442,300)		(2,715,000)		(15,405,300)		(9,803,800)
Benefit from income taxes		(740,400)		(641,000)		(1,886,600)		(2,177,600)
Net loss from continuing operations		(5,701,900)		(2,074,000)		(13,518,700)		(7,626,200)
Income (loss) from discontinued operations, net of taxes		4,787,500		(2,947,400)		7,706,000		134,000
Net loss	$	(914,400)	$	(5,021,400)	$	(5,812,700)	$	(7,492,200)
Basic and diluted (loss) income per share
Continuing operations	$	(0.66)	$	(0.24)	$	(1.56)	$	(0.90)
Discontinued operations	$	0.55	$	(0.35)	$	0.89	$	0.02
Consolidated operations	$	(0.11)	$	(0.59)	$	(0.67)	$	(0.88)
Basic weighted-average common shares outstanding		8,699,937		8,541,020		8,658,205		8,517,838
Effect of dilutive options and other equity instruments		—		—		—		—
Diluted weighted-average common shares outstanding		8,699,937		8,541,020		8,658,205		8,517,838
Cash dividends declared per common share	$	—	$	0.20	$	—	$	0.60

See accompanying notes to unaudited consolidated financial statements.

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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 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


	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
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
Proceeds from issuance of stock	47,792		400		224,500		—		—		224,900
Treasury stock purchases	(2,250)		—		—		(14,100)		—		(14,100)
Non-cash stock compensation expense	7,500		100		316,600		—		—		316,700
Retirement of treasury stock	—		—		—		58,555,000		(58,555,000)		—
Net loss	—		—		—		—		(266,900)		(266,900)
Balance at September 27, 2020	8,690,171		102,700		66,303,400		(14,100)		13,325,700		79,717,700
Proceeds from issuance of stock	23,081		200		131,600		—		—		131,800
Treasury stock purchases	(8,000)		—		—		(48,700)		—		(48,700)
Non-cash stock compensation expense	35,418		400		330,600		—		—		331,000
Net loss	—				—		—		(914,400)		(914,400)
Balance at December 27, 2020	8,740,670	$	103,300	$	66,765,600	$	(62,800)	$	12,411,300	$	79,217,400

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 income	—		—		—		—		(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 loss	—		—		—		—		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

See accompanying notes to unaudited consolidated financial statements.

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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


	Nine Months Ended
	December 27, 2020		December 29, 2019

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(5,812,700)	$	(7,492,200)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		3,135,100		2,870,200
Goodwill impairment		—		2,569,100
Gain on sale of discontinued operations		(3,020,800)		—
Non-cash stock-based compensation expense		959,600		943,400
Deferred income taxes and other		2,274,400		(2,250,500)
Change in trade accounts receivable		4,865,200		11,421,100
Change in product inventory		8,390,900		1,072,300
Change in prepaid expenses and other current assets		(3,347,300)		(1,317,900)
Change in other assets and other liabilities		(2,649,400)		20,200
Change in trade accounts payable		(7,916,100)		(11,496,300)
Change in payroll, benefits and taxes		3,318,800		(544,200)
Change in income and sales tax liabilities		159,600		(476,400)
Change in accrued expenses and other current liabilities		(745,300)		887,000
Net cash used in operating activities		(388,000)		(3,794,200)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(489,900)		(1,094,300)
Capital expenditures for internal use software		(8,563,400)		(4,942,000)
Proceeds from sale of discontinued operations		9,201,500		—
Net cash provided by (used in) investing activities		148,200		(6,036,300)

CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings from revolving line of credit		437,500		14,978,700
Payments on debt		—		(2,300)
Proceeds from issuance of common stock		108,100		142,400
Cash dividends paid		—		(5,116,300)
Proceeds from exercise of stock options		—		680,600
Purchases of treasury stock and repurchases of stock from employees		(121,600)		(882,100)
Net cash provided by financing activities		424,000		9,801,000

Net increase (decrease) in cash and cash equivalents		184,200		(29,500)

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

CASH AND CASH EQUIVALENTS, end of period	$	234,200	$	800

See accompanying notes to unaudited consolidated financial statements.

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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 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 29, 2020, filed with SEC on June 5, 2020.

On October 28, 2020, the Company entered into a definitive Inventory Purchase Agreement (the “Agreement”) which, at a closing held on December 2, 2020, resulted in the Company’s exit from its retail business through the sale to Voice Comm, LLC, a Delaware limited liability company (“Voice Comm”), of most of the Company’s retail inventory, the Ventev brand as it relates to mobile device accessory products, and certain other retail-related assets. The accompanying Consolidated Financial Statements for all periods presented reflect the results of the Retail segment as a discontinued operation. As a result, certain amounts have been reclassified on the balance and statement of (loss) income to conform with current period presentation. See Note 12, “Discontinued Operations”, for further information.

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.

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

Note 3. Intangible Assets

~~Intangibles,~~Intangible assets, net on our Consolidated Balance Sheet as of ~~June 28,~~December 27, 2020, consists of capitalized internally development computer software and an indefinite lived intangible ~~assets.~~asset. Capitalized internally developed computer software, net of accumulated amortization, was ~~$13,174,200~~$15,616,600 and $10,362,000 as of ~~June 28, 2020.~~December 27, 2020 and March 29, 2020, respectively. Amortization

~~Table of Contents~~

expense of capitalized internally developed computer software was ~~$648,500 as~~$364,900 and $448,400 for the fiscal quarter ended December 27, 2020 and December 29, 2019, respectively. Amortization expense of ~~June 28, 2020.~~capitalized internally developed computer software was $1,515,700 and $1,362,400 for the nine months ended December 27, 2020 and December 29, 2019, respectively. Indefinite lived intangible assets were $795,400 as of ~~June 28,~~December 27, 2020 and March 29, 2020.

Note 4. Stock-Based Compensation

The Company’s selling, general and administrative expenses for the fiscal quarter and nine months ended ~~June 28,~~December 27, 2020 includes ~~$311,900~~$331,000 and $959,600, respectively, of non-cash stock-based compensation expense. The Company’s selling, general and administrative expenses for the fiscal quarter and nine months ended ~~June 30,~~December 29, 2019 includes ~~$338,900~~$212,700 and $943,400, respectively, 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”), the latter of 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 ~~three~~nine months of fiscal 2021:


	Three Months	Weighted		Nine Months	Weighted
	Ended	Average Fair		Ended	Average Fair
	June 28,	Value at Grant		December 27,	Value at Grant
	2020	Date (per unit)		2020	Date (per unit)
Unvested shares available for issue under outstanding PSUs, beginning of period	68,355	$	15.00	68,355	$	15.00
PSUs Vested	(19,191)		14.17	(21,690)		14.21
PSUs Forfeited/Cancelled	(33,116)		15.69	(33,116)		15.69
Unvested shares available for issue under outstanding PSUs, end of period	16,048	$	14.57	13,549	$	14.57

The PSUs cancelled during ~~the first quarter of~~ fiscal 2021 related primarily ~~related~~ to the fiscal 2020 grant of PSUs, which had a one-year measurement period (fiscal 2020). ~~The~~These PSUs were cancelled because the applicable fiscal 2020 performance targets were not attained. Per the provisions of the 2019 Plan, the shares related to these forfeited and cancelled PSUs were added back to the 2019 Plan and became available for future issuance under the 2019 Plan.

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If all unvested PSUs earned ~~thus far~~and outstanding as of December 27, 2020 are assumed to ~~vest~~have then vested (and the underlying shares issued) in accordance with terms of the applicable award agreement, total unrecognized compensation costs on these PSUs would be less than $0.1 million as of ~~June 28,~~December 27, 2020, and would be expensed through fiscal 2022.

Restricted Stock Units: On May 15, 2020, July 24, 2020 and November 12, 2020, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of ~~21,000~~30,000 RSUs under the 2019 Plan to non-employee directors of the Company. These awards provide for the issuance of shares of the Company’s common stock in accordance with a vesting schedule that generally provides for the vesting of 25% of the award on or about each of May 15 of 2021, 2022, 2023 and 2024, provided that the participant remains associated with the Company (or meets other criteria as prescribed in the applicable agreement) on each such date.

Changes in the composition of our Board during the third quarter of fiscal 2021, in connection with or occurring during the term of a consent solicitation initiated by certain of our stockholders towards the end of 2021 second fiscal quarter resulted in the accelerated vesting of 30,000 current and prior year RSUs and the issuance of a corresponding number of shares of Common Stock to departing directors, during the third quarter.

Restricted Stock: On May 15, 2020 and July 24, 2020, the Compensation Committee, with the concurrence of the full Board of Directors, awarded an aggregate of 65,821 shares of the Company’s common stock as restricted stock under the 2019 Plan to certain non-employee directors of the Company in lieu of their annual cash retainer for 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 only in respect of those shares for which the risk of forfeiture has then lapsed.

As of ~~June 28,~~December 27, 2020, there was approximately ~~$0.7~~$0.2 million of total unrecognized compensation cost related to all outstanding RSUs and restricted stock, 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.

Stock Options: On April 30, 2020 and May 15, 2020, stock options for an aggregate of 160,000 shares of common stock were granted under the 2019 Plan. These stock options have exercise prices equal to the market price of the Company’s common stock on the grant date, and 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.

~~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

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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

stock were granted under the 2019 Plan to certain officers of the Company. These stock options also had 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 imposed 2 shorter term performance-based milestones, with the satisfaction of each milestone imposed as an additional condition to vesting of one-half of each option award. The performance metrics associated with these stock options were not met and therefore, 0 net expense is being recognized in fiscal 2021. Half of the 65,000 options were cancelled as of October 1, 2020, and the underlying shares were returned to the 2019 Plan and became available for future issuance under the 2019 Plan. The other half of the options will be cancelled as of December 31, 2020, and the underlying shares will then be returned to the 2019 Plan, and become available for future issuance under the 2019 Plan.

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

The following tables summarize the pertinent information for outstanding options.


	Nine Months	Weighted
	Ended	Average Fair
	December 27,	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	(95,125)		3.52
Options Vested	(165,188)		3.28
Unvested options, end of period	430,061		1.58


				December 27, 2020
Grant Fiscal Year	Options Granted		Option Exercise Price	Options Outstanding	Options Exercisable
2021	225,000	$	4.52	182,500	-
2020	405,000	$	13.54	341,000	117,084
2019	66,500	$	16.31	35,000	21,561
2018	230,000	$	15.12	80,000	69,791
2017	410,000	$	12.57	263,958	263,961
2016	100,000	$	22.42	40,000	40,000
Total				942,458	512,397


Grant Fiscal Year	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	35.88	%	2.00	%	5.82	%	4.0	$	2.53
2019	35.59	%	3.11	%	4.99	%	4.0	$	3.38

The above tables do not reflect the cancellation as of December 31, 2020 of the remaining one half of the 65,000 performance-based options, as discussed above. As of ~~June 28,~~December 27, 2020, there was approximately ~~$1.3~~$0.8 million of total unrecognized compensation costs related to these options, assuming all shares are earned. These unrecognized compensation costs are expected to be recognized ratably over a period of approximately three years.

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Note 5. Retirement of Treasury Stock

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 $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. There has been 0 change to the total stockholders’ equity as a result of such resolutions.

Note 5.6. 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~~four 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~~have limited 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~~provided 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 iswas obligated to increase its commitment. Availability iswas determined in accordance with a Borrowing Base, which ~~has been expanded to include~~included not only Eligible Receivables but also Eligible Inventory and iswas 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~~accrued interest from the applicable borrowing date at an Applicable Rate equal to the Eurodollar Rate plus the Applicable Margin. The Eurodollar Rate iswas defined as 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 iswas the Eurodollar Rate plus the Applicable Margin, the Applicable Margin iswas 1.50% if Average Availability iswas greater than or equal to $15 million, and 1.75% otherwise. ~~On June 28, 2020, the interest rate applicable to borrowings under the secured Revolving Credit Facility was 1.68%.~~ Under certain circumstances, the Applicable Rate iswas 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~~could at their option set the Applicable Margin at 0.50% if the Base Rate ~~applies~~applied or 1.75% if the Eurodollar Rate ~~applies,~~applied, and increase the Applicable Rate by an additional 200 basis points. The Applicable Rate ~~adjusts~~adjusted on the first Business Day of each calendar month. The Company iswas required to pay

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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~~their 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~~a previously existing guaranty by ~~the Loan Parties~~those of them not otherwise Borrowers and ~~the~~a previously existing grant by the Company and the ~~other Loan Parties~~guarantors 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~~could 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. The line of credit had a lockbox arrangement associated with it and therefore the outstanding balance was classified as a current liability on our balance sheet.

On October 29, 2020, the Company entered into a Credit Agreement (the “Credit Agreement”) among the Company, the Company’s primary operating subsidiaries as co-borrowers, the Lenders party thereto, and Wells Fargo Bank, National Association (“Wells”), as Administrative Agent, swingline lender and an issuing bank, and terminated the secured Revolving Credit Facility discussed above. Terms used, but not defined, in this and the following nine (9) paragraphs have the meanings set forth in the Credit Agreement or the related Guaranty and Security Agreement.

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

Borrowings initially accrue interest from the applicable borrowing date: (A) if a LIBOR Rate Loan, at a per annum rate equal to the LIBOR Rate plus the LIBOR Rate Margin of 2.25% until the March 31, 2021 financial statements are delivered and thereafter (i) if the Fixed Charge Coverage Ratio is less than 1.10:1.00, then 2.25% or (ii) if the Fixed Charge Coverage Ratio is greater than or equal to 1.10:1.00, then 2.00%; (B) if a Base Rate Loan, at a per annum rate equal to the Base Rate plus the Base Rate Margin of 1.25% per annum until the March 31, 2021 financial statements are delivered and thereafter (i) if the Fixed Charge Coverage Ratio is less than 1.10:1.00, then 1.25% or (ii) if the Fixed Charge Coverage Ratio is greater than or equal to 1.10:1.00, then 1.00%. The Credit Agreement contains a LIBOR floor of 0.25% so that if the LIBOR Rate is below 0.25%, then the LIBOR Rate will be deemed to be equal to 0.25% for purposes of the Credit Agreement. On December

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27, 2020, the interest rate applicable to borrowings under the secured 2020 Revolving Credit Facility was 4.50%.

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

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

The Credit Agreement contains 1 financial covenant, a Fixed Charge Coverage Ratio, which is tested only if Excess Availability (generally, borrowing availability less the aggregate of trade payables and book overdrafts, each in excess of historical amounts) is less than the greater of (a) 16.7% of the maximum amount of the Credit Facility (at closing, $12,525,000) and (b) $12,500,000. In addition, the Credit Agreement contains provisions that could limit our ability to engage in specified transactions or activities, including (but not limited to) investments and acquisitions, sales of assets, payment of dividends, issuance of additional debt and other matters.

Borrowings under the 2020 Revolving Credit Facility were initially used to pay all indebtedness outstanding under the existing credit facility among the Company and certain subsidiaries, the lenders party thereto and Truist Bank (successor by merger to SunTrust Bank), as administrative agent, and may be used for working capital and other general corporate purposes, and as further provided in, and subject to the applicable terms of, the Credit Agreement. As of ~~June 28,~~December 27, 2020, borrowings under the secured 2020 Revolving Credit Facility totaled ~~$25.3~~$26.0 million and, therefore, the Company had ~~$49.7~~$49.0 million available for borrowing as of ~~June 28,~~December 27, 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~~Company is ~~classified as a current liability on our balance sheet. As of March 29,2020, borrowings~~required to make certain prepayments under the ~~secured~~2020 Revolving Credit Facility ~~totaled $25.6 million and, therefore, the Company had $49.4 million available on its revolving line~~under certain circumstances, including from net cash proceeds from certain asset dispositions in excess of credit facility as of March 29, 2020, again 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.certain thresholds.

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

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

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Note 6.7. 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 ~~June 28,~~and nine months ended December 27, 2020

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because the Company operated at a loss. The number of diluted weighted-average common shares would have been ~~8,686,214~~8,782,254 for the fiscal quarter ended ~~June 28,~~December 27, 2020, and 8,746,532 for nine months ended December 27, 2020, respectively, if the Company was atin a positive earning position. At ~~June 28,~~December 27, 2020, stock options with respect to ~~1,060,958~~942,458 shares of common stock were outstanding, of which ~~855,958~~779,958 were anti-dilutive. There were 0 anti-dilutive PSUs or RSUs outstanding as of ~~June 28,~~December 27, 2020.

Note 7.8. Business ~~Segments~~Segment

After exiting our Retail business, the Company operates as one business segment. The Company ~~evaluates its business within 2 segments: commercial~~will continue to present revenue and ~~retail. The commercial segment consists of~~gross profit by the following customer markets: (1) public carriers, ~~that~~which are generally responsible for building and maintaining the infrastructure system and provide airtime service to individual subscribers; and (2) value-added resellers and integrators, which includes value-added resellers, the government channel and private system operator markets. Due to the exit of the Retail business, certain corporate costs have been reclassified to our continuing operations.

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


	Three Months Ended
	June 28, 2020						June 30, 2019
	Commercial		Retail				Commercial		Retail				Three Months Ended				Nine Months Ended
	Segment		Segment		Total		Segment		Segment		Total			December 27, 2020		December 29, 2019		December 27, 2020		December 29, 2019
Revenues
Public carrier	$	39,255	$	—	$	39,255	$	33,486	$	—	$	33,486	$	42,923	$	37,793	$	114,810	$	110,448
Value-added resellers and integrators		57,223		—		57,223		65,194		—		65,194		56,315		63,051		169,798		192,727
Retail		—		23,336		23,336		—		32,049		32,049
Total revenues	$	96,478	$	23,336	$	119,814	$	98,680	$	32,049	$	130,729	$	99,238	$	100,844	$	284,608	$	303,175

Gross Profit
Public carrier	$	3,728	$	—	$	3,728	$	4,253	$	—	$	4,253	$	4,780	$	4,508	$	12,078	$	13,621
Value-added resellers and integrators		12,725		—		12,725		15,969		—		15,969		12,536		15,139		38,812		46,432
Retail		—		2,373		2,373		—		5,042		5,042
Total gross profit	$	16,453	$	2,373	$	18,826	$	20,222	$	5,042	$	25,264	$	17,316	$	19,647	$	50,890	$	60,053

Directly allocable expenses		7,462		1,832		9,294		9,570		3,015		12,585
Segment net profit contribution	$	8,991	$	541		9,532	$	10,652	$	2,027		12,679
Corporate support expenses						14,551						16,209
Income before provision for income taxes					$	(5,019)					$	(3,530)

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

Three Months Ended

June 28, 2020

June 30, 2019

Revenues

Base station infrastructure

$
68,855

$
69,069

Network systems

19,400

22,552

Installation, test and maintenance

5,462

6,025

Mobile device accessories

26,097

33,083

Total revenues

$
119,814

$
130,729

Gross Profit

Base station infrastructure

$
11,418

$
14,521

Network systems

2,133

3,927

Installation, test and maintenance

766

1,084

Mobile device accessories

4,509

5,732

Total gross profit

$
18,826

$
25,264

Note 8.9. 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.

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


		Three Months Ended		Nine Months Ended
		June 28, 2020		December 27, 2020
Operating lease expense	$	871,900	$	2,565,300

		As of June 28, 2020		As of December 27, 2020
Maturities of lease liabilities by fiscal year are as follow:
2021	$	2,364,100	$	809,200
2022		3,164,000		3,164,000
2023		3,018,300		3,018,300
2024		2,725,700		2,725,700
2025		2,609,900		2,609,900
Thereafter		1,987,600		1,987,600
Total		15,869,600		14,314,700
Less: present value discount		(2,437,700)		(2,190,100)
Present value of lease liabilities	$	13,431,900	$	12,124,600

Weighted-average discount rate:		3.8%		3.9%
Weighted-average remaining lease term		5.1 years		4.7 years

Note 9.10. 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 ~~three~~nine months ended ~~June 28,~~December 27, 2020 and ~~June 30,~~December 29, 2019, the aggregate value of the shares withheld totaled ~~$58,800~~$121,600 and ~~$189,100,~~$882,100, respectively.

Note ~~10.~~11. 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 ~~June 28,~~December 27, 2020 and December 29, 2019, revenue from the Company’s largest customer accounted for ~~10.4%~~15.3% and 16.2% of ~~consolidated revenue.~~ revenue from continuing operations, respectively.

For the ~~fiscal quarter~~nine months ended ~~June 30,~~December 27, 2020 and December 29, 2019, norevenue from the Company’s largest customer accounted for ~~more than 10%~~12.3% and 13.7% of ~~total consolidated revenues.~~revenue from continuing operations, respectively.

For the fiscal quarter ended ~~June 28,~~December 27, 2020, sales of products purchased from the Company’s largest supplier accounted for ~~21.6%~~30.2% of ~~consolidated revenue.~~revenue from continuing operations. For the fiscal quarter ended ~~June 30,~~December 29, 2019, sales of products purchased from the Company’s largest supplier accounted for ~~21.5%~~30.3% of ~~consolidated revenue.~~revenue from continuing operations. No other suppliers accounted for more than 10% of consolidated revenue.

~~Note 11. Subsequent Event~~

~~On July 2,~~For the nine months ended December 27, 2020, ~~the Board~~sales of ~~Directors adopted resolutions providing for the retirement of~~products purchased from the Company’s ~~then accumulated treasury stock, and~~largest supplier accounted for ~~a corresponding reduction in capital. Immediately prior to~~27.9% of revenue from continuing operations. For the ~~retirement,~~nine months ended December 29, 2019, sales of products purchased from the ~~Company held 5,789,600 shares~~Company’s largest supplier accounted for 29.6% of ~~issued but not outstanding common stock as treasury stock, at a cost~~revenue from continuing operations. No other suppliers accounted for more than 10% of

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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.~~

revenue.

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Note 12. Discontinued Operations

At a closing on December 2, 2020, the Company sold most of its retail inventory, the Ventev brand as it relates to mobile device accessory products, and certain other retail-related assets to Voice Comm, LLC (Voice Comm). Cash proceeds of $9.5 million were received at closing, which occurred during the third quarter of fiscal 2021. As part of the sale agreement, the Company is entitled to royalty payments of up to $3.0 million in the aggregate on the sale of Ventev branded products by Voice Comm over a four-year period after the closing. Additionally, future customer returns to the Company may be resold to Voice Comm over a two-year period after the closing.

As a result of the disposal described above, the operating results of the former Retail segment has been included in Income (loss) from discontinued operations, net of taxes, in the Consolidated Statements of (Loss) Income for all periods presented. The pre-tax gain on the sale for the fiscal quarter ended December 27, 2020 of $3.0 million includes costs to sell the inventory and exit the Retail business.

The accompanying Consolidated Financial Statements for all periods presented reflect the results of the Retail segment as a discontinued operation. The following table presents the financial results of the Retail segment for the three and nine months ended December 27, 2020 and December 29, 2019:


	Fiscal Quarters Ended				Nine Months Ended
	December 27, 2020		December 29, 2019		December 27, 2020		December 29, 2019

Revenues	$	26,413,900	$	38,734,200	$	80,512,800	$	108,943,700
Cost of goods sold		21,529,700		35,307,600		67,704,600		94,340,100
Gross profit		4,884,200		3,426,600		12,808,200		14,603,600
Selling, general and administrative expenses		3,215,700		4,484,300		7,442,000		11,863,200
Goodwill impairment		—		2,569,100		—		2,569,100
Income (loss) from operations		1,668,500		(3,626,800)		5,366,200		171,300
Gain on disposal		3,020,800		—		3,020,800		—
Income (loss) before provision for (benefit from) income taxes		4,689,300		(3,626,800)		8,387,000		171,300
(Benefit from) provision for income taxes		(98,200)		(679,400)		681,000		37,300
Net income (loss) attributable to discontinued operations	$	4,787,500	$	(2,947,400)	$	7,706,000	$	134,000

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

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The following table summarizes the major classes of assets attributable to discontinued operations that are included in the Current portion of assets held for sale in the Company’s consolidated balance sheets as of December 27, 2020 and March 29, 2020:


	December 27,		March 29,
	2020		2020

ASSETS
Product inventory, net	$	2,684,200	$	18,849,900
Current portion of assets held for sale	$	2,684,200	$	18,849,900

The product inventory remaining at December 27, 2020 represents Retail inventory that was not sold to Voice Comm. Management intends to sell through this inventory in the near term in alignment with the plan to exit the Retail business.

In our Consolidated Statements of Cash Flows, the cash flows from discontinued operations are not separately classified. Cash provided by operating activities from discontinued operations for the nine months ended December 27, 2020 and December 29, 2019 was $10.6 million and $5.7 million, respectively. Cash provided by investing activities from discontinued operations for the nine months ended December 27, 2020 and December 29, 2019 was $9.2 million and $0 million, respectively.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of 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 29, 2020, filed with the SEC on June 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 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~~At a closing on December 2, 2020, we sold most of our retail inventory, the Ventev brand as it relates to mobile device accessory products, and certain other retail-related assets to Voice Comm, LLC (Voice Comm). Cash proceeds of $9.5 million were received at closing, which occurred during the third quarter of fiscal 2021. As part of the sale agreement, we are entitled to royalty payments, up to $3.0 million in the aggregate, on the sale of Ventev branded products by Voice Comm over a four-year period after closing. Additionally, some customer returns we receive may be resold to Voice Comm over a two-year period after closing. As a result of the disposal, the operating results of our former Retail segment have been included in Income (loss) from discontinued operations, net of taxes in the Consolidated Statements of (Loss) Income for all periods presented.

As a result of this sale and our exit from the Retail business during the third quarter of fiscal 2021, we now operate as one business segment.

We provide certain information within two ~~segments: commercial and retail. The commercial segment consists of the following customer~~key markets: (1) public carriers, ~~that~~which are generally responsible for building and maintaining the infrastructure system and provide airtime service to individual subscribers; and (2) value-added resellers and integrators, which includes value-added resellers, the government channel and private system operator 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~~can generally be sold to any customer. Customers typical purchase products that 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~~including computing and internet ~~networks. We have also been growing our offering of wireless broadband, distributed~~networks, such as radios, antennas, ~~systems (DAS),~~cable, network equipment and 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. products.

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 customers and 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.

The wireless communications distribution industry is competitive and fragmented and is comprised of several

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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 350 manufacturers, provide us with a significant competitive advantage over new entrants to the marketplace.

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Results of Continuing Operations

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

Total Revenues. Revenues for the ~~first~~third quarter of fiscal 2021 decreased ~~8.3%~~1.6% compared with the ~~first~~third quarter of fiscal 2020. ~~Revenue in the commercial segment decreased by 2.2%.~~ Revenues in our ~~public carrier~~value-added resellers and integrators market ~~increased by 17.2%~~decreased 10.7%, partially offset by a ~~12.2%~~13.6% increase in revenue in our public carrier market. This increase in the public carrier market was due to gaining additional market share and increased purchases from two of our largest customers this quarter. This decline in revenues in ~~the~~our value-added resellers and integrators ~~market. Revenues in our retail segment decreased by 27.2%. The decline in revenues in the retail segment and VAR and Integrators~~ market ~~were~~was largely driven by a combination of continued ~~overall softness in these markets,~~headwinds from the economic downturn, 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 to continue for the 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 .COVID-19.

Cost of Goods Sold. Cost of goods sold for the ~~first~~third quarter of fiscal 2021 ~~decreased 4.2%~~increased 0.9% compared with the ~~first~~third quarter of fiscal 2020. ~~In the commercial segment, cost of goods sold increased by 2.0%.~~ Cost of goods sold in our public carrier market increased by ~~21.5%~~14.6%, ~~partially offset by a 9.6% decrease in~~and cost of goods sold in our value-added resellers and integrators ~~market. Cost of goods sold in our retail segment~~market decreased by ~~22.4%.~~8.6%, in each case for the third quarter year over year. These changes in cost of goods sold in both ~~segments~~markets were largely driven by changes in revenue and 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 customers and 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~~third quarter of fiscal 2021 decreased by ~~25.5%~~11.9% compared to the ~~first~~third quarter of fiscal 2020. This decrease was primarily due to ~~lower sales volume and a change in~~ customer mix ~~favoring~~as the lower margin public carrier ~~market. Within our commercial segment, gross~~market made up a larger percentage of total revenue in this quarter as compared to the prior year quarter. Gross profit margin in our public carrier market decreased to 11.1% from ~~12.7% to 9.5%.~~11.9% in the same quarter last year. Gross profit margin in our value-added resellers and integrators market decreased to 22.3% in the third quarter of fiscal 2021 from ~~24.5% to 22.2%.~~24.0% in the same quarter last year. 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,~~As a result of these drivers on gross profit and change in the mix of overall revenues by market, gross profit margin decreased ~~from 15.7%~~ to ~~10.1%~~17.4% in the ~~first~~third quarter of fiscal 2021, compared to 19.5% in the third quarter of fiscal 2020.

Selling, General, Administrative and Goodwill Impairment Expenses. Total selling, general and administrative expenses increased by $1.6 million for the third quarter of fiscal 2021, compared to the third quarter of fiscal 2020. Selling, general and administrative expenses as a percentage of revenues increased from 21.8% for the third quarter of fiscal 2020, to 23.8% for the third quarter of fiscal 2021.

The increase in our selling, general and administrative expenses was primarily due to ~~customer mix~~an increase of $3.3 million in corporate support expense, partially offset by a $1.3 million decrease in compensation and benefit expense during the third quarter of fiscal 2021 as ~~smaller, higher margin customers~~compared to the third quarter of fiscal 2020. The increase in corporate support expense is primarily due to costs related to the Company’s response to a consent solicitation initiated by a shareholder group just prior to the end of the second quarter and completed during the third quarter of

1720

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~~experienced impacts~~fiscal 2021. The reduction in compensation and benefit expense was related to lower operations costs and reductions in health insurance costs.

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 expense of $7,500 and $446,800, for the three months ended December 27, 2020 and December 29, 2019, respectively.

Interest, Net. Net interest expense decreased from $367,900 for the third quarter of fiscal 2020 to $151,200 for the third quarter of fiscal 2021. A decrease in the average amount outstanding resulted in decreased interest expense under our secured Revolving Credit Facility and 2020 Revolving Credit Facility in the 2021 third fiscal quarter (discussed in Note 6 to our Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q). In addition, capitalized interest increased from $32,500 from the third quarter of fiscal 2020 to $145,300 for the third quarter of fiscal 2021.

Income Taxes, Net Income and Diluted Earnings per Share. The effective tax rate decreased from 23.6% for the third quarter of fiscal 2020 to 11.5% for the third quarter of fiscal 2021. The decrease in the effective tax rate resulted from changes in rates applicable to net operating loss carrybacks and valuation allowances. We expect the tax rate to be higher for the rest of the fiscal year. Net loss from continuing operations increased 174.9% and diluted loss per share from continuing operations increased from $(0.24) to ($0.66) for the third quarter of fiscal 2021, compared to the corresponding prior-year quarter.

Discontinued Operations. Net income from discontinued operations was $4.8 million for the third quarter of fiscal year 2021 compared to a loss of $2.9 million for the third quarter of fiscal year 2020. The increase in net income was due to a $3.0 million gain on the sale of inventory to Voice Comm as discussed above, as well as sales to higher margin customers and lower selling, general and administrative expenses due to the sale of Retail inventory and exit from the Retail business during the quarter. Additionally, the company recorded a goodwill impairment of $2.6 million related to the Retail business during the third quarter of fiscal year 2020. See footnote 12, “Discontinued Operations”, for further discussion.

First Nine Months of Fiscal Year 2021 Compared with First Nine Months of Fiscal Year 2020

Total Revenues. Revenues for the first nine months of fiscal 2021 decreased 6.1% compared with the first nine months of fiscal 2020. Revenues in our value-added resellers and integrators market decreased 11.9%, partially offset by an increase of 3.9% in revenue in our public carrier market. The increase in the public carrier market is primarily due to gaining additional market share. The decline in our value-added resellers and integrators market was largely driven by a combination of continued headwinds from the economic downturn, and the impact of COVID-19.

Cost of Goods Sold. Cost of goods sold for the first nine months of fiscal 2021 decreased 3.9% compared with the first nine months of fiscal 2020. Cost of goods sold in our value-added resellers and integrators market for the first nine months of fiscal 2021 decreased by 10.5%, partially offset by a 6.1% increase in cost of goods sold in our public carrier market for the first nine months of fiscal 2021, in each case compared to the first nine months of the prior fiscal year. These changes in cost of goods sold in both markets were largely driven by changes in revenue and customer mix, as discussed above.

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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 customers and 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 nine months of fiscal 2021 decreased by 15.3% compared to the first nine months of fiscal 2020. This decrease was largely due to lower sales volume. Gross profit margin in our public carrier market decreased to 10.5% in the first nine months of fiscal 2021 from 12.3% in the same period last year. Gross profit margin in our value-added resellers and integrators market decreased to 22.9% in the first nine months of fiscal 2021, from 24.1% in the first nine months of fiscal 2020. 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. As a result of these drivers on gross profit, ~~overall~~ gross profit margin decreased to ~~15.7%~~17.9% in the first ~~quarter~~nine months of fiscal 2021, compared to ~~19.3%~~19.8% in the first ~~quarter~~nine months of fiscal 2020.

Selling, General, Administrative and Restructuring Expenses. Total selling, general and administrative expenses decreased by ~~$4.4~~$2.5 million for the first ~~quarter~~nine months of fiscal 2021, compared to the first ~~quarter~~nine months of fiscal 2020. Selling, general and administrative expenses as a percentage of revenues ~~decreased~~increased from ~~21.4%~~22.6% for the first ~~quarter~~nine months of fiscal 2020, to ~~19.8%~~23.2% for the first ~~quarter~~nine months of fiscal 2021.

The decrease in our selling, general and administrative expenses was primarily due to a decrease of ~~$2.2~~$4.8 million in compensation and benefit expense, ~~$1.0~~partially offset by a $2.9 million increase in ~~sales promotion expense, and $0.7 million in freight~~corporate support expense during the first ~~quarter~~nine months of fiscal 2021 as compared to the first ~~quarter~~nine months of fiscal 2020. These ~~decreases were largely~~changes are primarily due to costs related to the ~~decline in overall revenues~~Consent Solicitation and ~~in cost reduction initiatives undertaken in the first quarter, primarily associated with the retail segment.~~lower operations costs.

~~The Company~~We also incurred a $0.5 million restructuring charge related to severance expense for the first ~~quarter~~nine months of fiscal 2020. No such charges were incurred during fiscal 2021.

We continually evaluate the credit worthiness of our existing customer receivable portfolio and provide an appropriate reserve based on this evaluation. We also evaluate the credit worthiness of prospective and current customers and make decisions regarding extension of credit terms to such customers based on this evaluation. We had bad debt recovery, net of expense of ~~$13,700~~$780,600 and bad debt expense of ~~$135,400~~$474,200 for the ~~three~~nine months ended ~~June 28,~~December 27, 2020 and ~~June 30,~~December 29, 2019, respectively.

Interest, Net. Net interest expense decreased from ~~$208,700~~$911,700 for the first ~~quarter~~nine months of fiscal 2020 to ~~$110,700~~$367,800 for the first ~~quarter~~nine months of fiscal 2021. ~~Decrease~~Decreases in interest rates have resulted in decreased interest expense under our secured Revolving Credit Facility (discussed in Note 46 to our Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q). In addition, capitalized interest increased from $37,500 for the first nine months of fiscal 2020 to $252,200 for the first nine months of fiscal 2021.

Income Taxes, Net Income and Diluted Earnings per Share. The effective tax rate decreased from ~~29.4%~~22.2% for the first ~~quarter~~nine months of fiscal 2020 to ~~7.7%~~12.2% for the first ~~quarter~~nine months of fiscal 2021. The decrease in the effective tax rate resulted from ~~several discrete items including~~ changes ~~associated with state adjustments related~~in rates applicable to ~~the CARES Act.~~net operating loss carrybacks and valuation allowances. We expect the tax rate to be higher for the rest of the fiscal year. Net ~~income decreased 85.8%~~loss from continuing operations increased 77.3% and diluted ~~earnings~~loss per share ~~decreased 86.2%~~from continuing operations increased from $(0.90) to ($1.56) for the first ~~quarter~~nine months of fiscal 2021, compared to the ~~corresponding prior-year quarter.~~first nine months of fiscal 2020.

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Discontinued Operations. Net income from discontinued operations was $7.7 million for the first nine months of fiscal year 2021 compared to $0.1 million for the first nine months of fiscal year 2020. The increase in net income was due to a gain of $3.0 million on the sale of inventory and other assets related to our Retail segment, lower selling costs due to lower revenue and shipments, as well as lower selling, general and administrative expenses due to the sale of these Retail assets and our exit from the Retail segment during the third quarter of fiscal year 2021. Additionally, the Company recorded a goodwill impairment of $2.6 million related to the Retail business during the third quarter of fiscal year 2020. See Note 12, “Discontinued Operations”, for further discussion.

Liquidity and Capital Resources

The following table summarizes our cash flows provided by or used in operating, investing and financing activities for the ~~three~~nine months ended ~~June 28,~~December 27, 2020 and ~~June 30,~~December 29, 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 27, 2020		December 29, 2019
Cash flow used in operating activities	$	(388,000)	$	(3,794,200)
Cash flow provided by (used in) investing activities		148,200		(6,036,300)
Cash flow provided by financing activities		424,000		9,801,000
Net increase (decrease) in cash and cash equivalents	$	184,200	$	(29,500)

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Net cash ~~provided by~~used in operating activities was ~~$1.4~~$0.4 million for the first ~~three~~nine months of fiscal 2021, compared with net cash used in operating activities of ~~$2.0~~$3.8 million for the first ~~three~~nine months of fiscal 2020. ~~This~~The fiscal ~~2020 inflow~~2021 outflow was due to the net loss, a decrease in accounts ~~receivable,~~payable, and a gain on the sale of retail assets, partially offset by the ~~net loss and a~~ decrease in ~~trade~~ accounts ~~payable.~~receivable and inventory.

Net cash ~~used in~~provided by investing activities was ~~$1.2~~$0.1 million for the first ~~three~~nine months of fiscal 2021, compared to ~~$1.9~~$6.0 million used in the first ~~three~~nine months of fiscal 2020. The fiscal 2021 inflow was due to the cash proceeds received from the sale of our Retail inventory, partially offset by capital expenditures, largely comprised of investments in information technology. Cash used in ~~both periods~~fiscal 2020 was due to capital expenditures, largely comprised of investments in information technology.

Net cash ~~used in~~provided by financing activities was ~~$0.3~~$0.4 million for the first ~~three~~nine months of fiscal 2021, compared to net cash provided by financing activities of ~~$3.8~~$9.8 million for the first ~~three~~nine months of fiscal 2020. We ~~repaid~~utilized our asset based secured Revolving Credit Facility during the first ~~three~~nine months of fiscal 2021, leading to a cash ~~outflow~~inflow of ~~$0.2~~$0.4 million during this period. During the first ~~three~~nine months of fiscal 2020, we utilized our asset based secured Revolving Credit Facility, leading to a cash inflow of ~~$5.7~~$15.0 million during this period. This inflow was partially offset by a cash outflow of ~~$1.7~~$5.1 million during the first ~~three~~nine months of fiscal 2020 due to cash dividends paid to shareholders. No cash dividend was paid during the first ~~three~~nine months of fiscal 2021.

On October ~~19, 2017,~~29, 2020, we entered into a Credit Agreement (the “Credit Agreement”) among the Company, ~~and its~~the Company’s primary operating subsidiaries as co-borrowers, ~~entered into an Amended and Restated Credit Agreement with SunTrust Bank, as Administrative Agent,~~the Lenders party thereto, and Wells Fargo Bank, National Association ~~as a lender (the “Amended and Restated Credit Agreement”~~(“Wells”), ~~which amended~~as Administrative Agent, swingline lender and ~~restated the terms of a previously established~~an issuing bank, and terminated our previous secured Revolving Credit ~~Facility and which resulted in, among other modifications, an increase in the Company’s borrowing limit to~~Facility. The Credit Agreement provides for a senior secured asset based revolving credit facility of 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~~(the “2020 Revolving Credit ~~Agreement extended the applicable maturity date to October 19, 2021.~~Facility”), which matures in forty-two months, on April 29, 2024. As of ~~June 28,~~December 27, 2020, borrowings under the secured 2020 Revolving Credit Facility totaled ~~$25.3~~$26.0 million; therefore, we then had ~~$49.7~~$49.0 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

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other covenants discussed in Note 46 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 46 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 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 believe that our existing cash, payments from customers and availability under ~~our~~the secured 2020 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~~years on business opportunities for sales to our public carrier customers led to the recent expansion of our borrowing limits, as now reflected in the 2020 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 current 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 ~~June 28,~~December 27, 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 29, 2020, filed with the SEC on June 5, 2020.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements.

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.

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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: the impact and results of any new or continued activism activities by Robert B. Barnhill, Jr. and/or other activist investors; 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 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.

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Item 4. Controls and 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

Item 1. Legal Proceedings.

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

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 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 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

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changes in any of the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended March 29, ~~2020.~~2020, except for the addition of the risk factors below.

~~However,~~Risks Related to our Exit from the ~~COVID-19 pandemic continues~~Retail Business

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

In addition to amounts already paid to us, there are a number of payment obligations between the ~~ongoing and changing risks that it presents, both known and unknown. As discussed~~parties under the terms of the Inventory Purchase Agreement with Voice Comm LLC. These include post-closing adjustments, potential payments to us in ~~our most recent Annual Report on Form 10-K, we face risks~~respect of certain future re-sales by Voice Comm of retail inventory purchased from us, potential royalty payments to us related to ~~health epidemics~~Voice Comm’s sale of Ventev-branded mobile accessory products, and warranty and indemnity obligations. We may not receive all of the payments due to us under the terms of the Inventory Purchase Agreement, or may be required to make payments to Voice Comm in the form of adjustments or otherwise, and accordingly, we may realize less overall net cash from the sale than we might otherwise anticipate. In addition, we have not transferred but have instead retained our receivables related to our historical Retail business, and those receivables will remain subject to risks typically associated with receivables, including collection risks.

The Inventory Purchase Agreement with Voice Comm exposes us to contingent liabilities and other ~~outbreaks and events beyond our control, and 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 whichthat could adversely affect our ~~personnel~~business or financial condition.

Pursuant to the Inventory Purchase Agreement, we have made customary representations and warranties and the parties have agreed to indemnify each other for breaches of representations, warranties and covenants contained in the Inventory Purchase Agreement. The Inventory Purchase Agreement also subjects us to other risks typical in business transactions of this type, including payment and performance risks. The terms of the Inventory Purchase Agreement are complex and address all aspects of our Retail business, including return of sold inventory, product warranty obligations, and customer and vendor relationships, among others. Should disputes arise or should we incur liability for breach of any of these representations, warranties or obligations, or should any of these other risks materialize, our business, financial condition or results of operations orcould be materially adversely affected.

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

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

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

Under the terms of the Inventory Purchase Agreement, the Company has agreed, on behalf of itself and its affiliates (including any owner of a majority of Tessco), not to compete with Voice Comm’s retail business as operated by the Company at closing, for a period of five years after the closing date. Tessco will, however, retain the ability to ~~fulfill orders, complete implementations,~~continue to supply retail products to its commercial customers; and ~~recognize revenue.~~other exceptions to the non-compete obligation allow Tessco to divest itself of Retail inventory not acquired by Voice Comm. The ~~COVID-19 pandemic also implicates workplace safety issues and concerns, and associated risks.~~overall non-compete obligation may, however, be terminated early by us upon the occurrence of certain change

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~~Thus far, we have not suffered a widespread outbreak~~in control events and the payment to Voice Comm of ~~COVID-19 among our employees or at our facilities, but~~certain agreed upon amounts (approximately $5,000,000, initially), which diminishes ratably over the ~~risk~~five year non-compete period. Disagreements may arise between the parties as to the scope and meaning of ~~future outbreaks persists,~~the non-compete obligations and ~~our ongoing business operations and our financial results~~the various exceptions, which could be ~~adversely affected should an outbreak occur among our personnel~~disruptive and subject us to claims for damages or ~~at one~~specific performance of ~~our facilities.~~the non-compete obligations.

~~In addition, we have previously including among our Risk Factors~~Risks Related to Future Stockholder Activism

Our business could be negatively impacted as a ~~discussion~~result of ~~the concentration of our stock ownership among a select group, including~~any future consent solicitation and other activism activities by Robert B. Barnhill, Jr. ~~who~~and certain other participants in his consent solicitation and/or other activist investors.

Mr. Robert B. Barnhill Jr. holds approximately 18% of our outstanding common stock. In ~~March~~September 2020, Mr. Barnhill ~~filed an amendment~~and persons acting together with Mr. Barnhill initiated a consent solicitation to ~~Schedule 13-D with~~seek the ~~SEC, indicating~~consent of our stockholders holding at least a majority of our outstanding shares of common stock to, among other things, his intention to consider and possibly pursue various actions with respect to his investment in the 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 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 Board and/orremove five members of our Board and replace them with four director candidates identified by Mr. Barnhill (the “Consent Solicitation”). Consents solicited during the Consent Solicitation were delivered to the Company on December 11, 2020.

The Consent Solicitation and the Company’s response to it has resulted in, significant distraction for management ~~team concerning, without limitation, potential business combinations~~ and ~~strategic alternatives,~~significant costs to the Company. Further, Consent Solicitations or other activities by Mr. Barnhill or by other activist shareholders could result in yet additional distractions and costs and could lead to a materially adverse impact on our business ~~operations, capital structure, governance, management, strategy and other matters.~~or operating results.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

(a)Exhibits:



10.2		Credit Agreement dated as of October 29, 2020, among TESSCO Technologies Incorporated, the additional borrowers party thereto, the Lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent for each member of the Lender Group and the Bank Product Providers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 4, 2020).
10.3		Guaranty and Security Agreement dated as of October 29, 2020, among TESSCO Technologies Incorporated and its subsidiaries and Wells Fargo Bank, National Association, as Administrative Agent for each member of the Lender Group and the Bank Product Providers (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 4, 2020).
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 ~~June 28,~~December 27, 2020 formatted in Inline XBRL: (i) Consolidated Statement of Income for the three and nine months ended ~~June 28,~~December 27, 2020 and ~~June 30,~~December 29, 2019; (ii) Consolidated Balance Sheet at ~~June 28~~December 27 and March 29, 2020; (iii) Consolidated Statement of Cash Flows for the three months ended ~~June 28,~~December 27, 2020 and ~~June 30,~~December 29, 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

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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


Date: ~~August 6, 2020~~February 5, 2021
	By:	/s/ Aric M. Spitulnik
		Aric Spitulnik
		Chief Financial Officer
		(principal financial and accounting officer)

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Part I	FINANCIAL INFORMATION		Page

	Item 1.	Financial Statements.	3

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	1618

	Item 4.	Controls and Procedures.	2126

Part II	OTHER INFORMATION

	Item 1.	Legal Proceedings.	2226

	Item 1A.	Risk Factors.	2226

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	2328

	Item 3.	Defaults Upon Senior Securities.	2328

	Item 4.	Mine Safety Disclosures.	2328

	Item 5.	Other Information.	2328

	Item 6.	Exhibits.	2429

	Signature		2530