UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 27, 2020 or |
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
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Commission File Number: 001-33938
TESSCO Technologies Incorporated
(Exact name of registrant as specified in its charter)
(410) 229-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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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.
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Large accelerated filer ☐ |
Accelerated filer ☑ |
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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, $0.01 par value per share, outstanding as of October 30, 2020, was 8,760,562.
TESSCO Technologies Incorporated
Index to Form 10-Q
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3 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
18 |
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25 |
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25 |
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26 |
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Unregistered Sales of Equity Securities and Use of Proceeds. |
27 |
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27 |
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27 |
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28 |
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29 |
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2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
TESSCO Technologies Incorporated
Consolidated Balance Sheets
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September 27, |
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March 29, |
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2020 |
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2020 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
19,400 |
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$ |
50,000 |
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Trade accounts receivable, net |
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74,688,900 |
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82,868,400 |
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Product inventory, net |
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62,364,300 |
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69,148,000 |
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Prepaid expenses and other current assets |
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14,382,200 |
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11,707,500 |
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Total current assets |
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151,454,800 |
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163,773,900 |
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Property and equipment, net |
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12,971,400 |
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13,433,700 |
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Intangible assets, net |
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15,827,500 |
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11,157,400 |
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Deferred tax assets |
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1,516,200 |
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3,032,500 |
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Lease asset - right of use |
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12,609,400 |
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13,949,800 |
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Other long-term assets |
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5,318,800 |
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3,361,400 |
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Total assets |
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$ |
199,698,100 |
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$ |
208,708,700 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Trade accounts payable |
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$ |
64,615,900 |
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$ |
75,512,600 |
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Payroll, benefits and taxes |
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6,063,600 |
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4,258,300 |
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Income and sales tax liabilities |
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585,700 |
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450,800 |
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Accrued expenses and other current liabilities |
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3,000,200 |
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4,244,400 |
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Revolving line of credit |
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32,052,000 |
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25,563,900 |
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Lease liability, current |
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2,605,000 |
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2,579,200 |
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Total current liabilities |
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108,922,400 |
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112,609,200 |
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Non-current lease liability |
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10,173,900 |
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11,481,100 |
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Other non-current liabilities |
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884,100 |
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915,700 |
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Total liabilities |
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119,980,400 |
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125,006,000 |
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Shareholders’ equity: |
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Preferred stock, $0.01 par value per share, 500,000 shares authorized and no shares issued and outstanding |
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— |
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— |
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Common stock, $0.01 par value per share, 15,000,000 shares authorized, 8,692,421 shares issued and 8,690,171 shares outstanding as of September 27, 2020, and 14,354,368 shares issued and 8,577,549 shares outstanding as of March 29, 2020 |
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102,700 |
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101,400 |
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Additional paid-in capital |
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66,303,400 |
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65,318,500 |
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Treasury stock, at cost, 2,250 shares as of September 27, 2020 and 5,776,819 shares as of March 29, 2020 |
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(14,100) |
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(58,496,200) |
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Retained earnings |
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13,325,700 |
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76,779,000 |
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Total shareholders’ equity |
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79,717,700 |
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83,702,700 |
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Total liabilities and shareholders’ equity |
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$ |
199,698,100 |
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$ |
208,708,700 |
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See accompanying notes to unaudited consolidated financial statements.
3
TESSCO Technologies Incorporated
Unaudited Consolidated Statements of (Loss) Income
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Fiscal Quarters Ended |
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Six Months Ended |
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September 27, 2020 |
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September 29, 2019 |
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September 27, 2020 |
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September 29, 2019 |
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Revenues |
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$ |
119,655,400 |
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$ |
141,810,900 |
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$ |
239,468,900 |
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$ |
272,540,200 |
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Cost of goods sold |
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96,983,200 |
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115,491,600 |
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197,971,000 |
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220,957,400 |
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Gross profit |
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22,672,200 |
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26,319,300 |
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41,497,900 |
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51,582,800 |
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Selling, general and administrative expenses |
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22,812,200 |
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25,745,200 |
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46,546,600 |
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53,841,700 |
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Restructuring charge |
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— |
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— |
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— |
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488,000 |
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(Loss) income from operations |
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(140,000) |
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574,100 |
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(5,048,700) |
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(2,746,900) |
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Interest expense, net |
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105,900 |
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335,100 |
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216,600 |
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543,800 |
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(Loss) income before provision for (benefit from) income taxes |
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(245,900) |
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239,000 |
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(5,265,300) |
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(3,290,700) |
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Provision for (benefit from) income taxes |
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21,000 |
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217,000 |
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(367,000) |
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(819,900) |
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Net (loss) income |
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$ |
(266,900) |
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$ |
22,000 |
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$ |
(4,898,300) |
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$ |
(2,470,800) |
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Basic loss per share |
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$ |
(0.03) |
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$ |
— |
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$ |
(0.57) |
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$ |
(0.29) |
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Diluted loss per share |
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$ |
(0.03) |
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$ |
— |
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$ |
(0.57) |
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$ |
(0.29) |
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Basic weighted-average common shares outstanding |
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8,656,877 |
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8,518,326 |
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8,637,340 |
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8,506,247 |
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Effect of dilutive options and other equity instruments |
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— |
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131,994 |
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— |
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— |
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Diluted weighted-average common shares outstanding |
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8,656,877 |
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8,650,320 |
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8,637,340 |
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8,506,247 |
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Cash dividends declared per common share |
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$ |
— |
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$ |
0.20 |
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$ |
— |
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$ |
0.40 |
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See accompanying notes to unaudited consolidated financial statements.
4
TESSCO Technologies Incorporated
Unaudited Consolidated Statements of Changes in Shareholders’ Equity
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Common Stock |
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Additional |
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Total |
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Paid-in |
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Treasury |
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Retained |
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Shareholders’ |
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Shares |
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Amount |
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Capital |
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Stock |
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Earnings |
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Equity |
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Balance at March 29, 2020 |
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8,577,549 |
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101,400 |
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65,318,500 |
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(58,496,200) |
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76,779,000 |
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83,702,700 |
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Proceeds from issuance of stock |
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23,676 |
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200 |
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132,500 |
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— |
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— |
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132,700 |
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Treasury stock purchases |
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(12,781) |
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— |
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— |
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(58,800) |
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— |
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(58,800) |
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Non-cash stock compensation expense |
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48,685 |
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600 |
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311,300 |
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— |
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— |
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311,900 |
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Net loss |
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— |
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— |
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— |
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— |
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(4,631,400) |
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(4,631,400) |
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Balance at June 28, 2020 |
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8,637,129 |
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102,200 |
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65,762,300 |
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(58,555,000) |
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72,147,600 |
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79,457,100 |
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Proceeds from issuance of stock |
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47,792 |
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400 |
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224,500 |
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— |
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— |
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224,900 |
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Treasury stock purchases |
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(2,250) |
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— |
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— |
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(14,100) |
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— |
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(14,100) |
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Non-cash stock compensation expense |
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7,500 |
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100 |
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316,600 |
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— |
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— |
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316,700 |
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Retirement of treasury stock |
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— |
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— |
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— |
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58,555,000 |
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(58,555,000) |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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(266,900) |
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(266,900) |
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Balance at September 27, 2020 |
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8,690,171 |
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$ |
102,700 |
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$ |
66,303,400 |
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$ |
(14,100) |
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$ |
13,325,700 |
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$ |
79,717,700 |
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Balance at March 31, 2019 |
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8,468,529 |
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|
99,800 |
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62,666,400 |
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(57,614,100) |
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103,635,100 |
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|
108,787,200 |
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Proceeds from issuance of stock |
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9,250 |
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100 |
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|
143,100 |
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— |
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— |
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|
143,200 |
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Treasury stock purchases |
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(10,488) |
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— |
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— |
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(189,100) |
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— |
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(189,100) |
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Non-cash stock compensation expense |
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41,256 |
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400 |
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338,500 |
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— |
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— |
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|
338,900 |
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Cash dividends paid |
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— |
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— |
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— |
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— |
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(1,702,600) |
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(1,702,600) |
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Net income |
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— |
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— |
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— |
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— |
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(2,492,800) |
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(2,492,800) |
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Balance at June 30, 2019 |
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8,508,547 |
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100,300 |
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63,148,000 |
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(57,803,200) |
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|
99,439,700 |
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|
104,884,800 |
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Proceeds from issuance of stock |
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19,236 |
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|
200 |
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|
283,600 |
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|
— |
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— |
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|
283,800 |
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Treasury stock purchases |
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(44,009) |
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|
— |
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— |
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|
(681,100) |
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— |
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|
(681,100) |
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Non-cash stock compensation expense |
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— |
|
|
— |
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|
391,800 |
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— |
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— |
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|
391,800 |
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Exercise of stock options |
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48,125 |
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|
500 |
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|
680,600 |
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|
— |
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— |
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|
681,100 |
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Cash dividends paid |
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— |
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— |
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— |
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— |
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(1,704,200) |
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|
(1,704,200) |
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Net loss |
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— |
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— |
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— |
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— |
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|
22,000 |
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|
22,000 |
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Balance at September 29, 2019 |
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8,531,899 |
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$ |
101,000 |
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$ |
64,504,000 |
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$ |
(58,484,300) |
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$ |
97,757,500 |
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$ |
103,878,200 |
See accompanying notes to unaudited consolidated financial statements.
5
TESSCO Technologies Incorporated
Unaudited Consolidated Statements of Cash Flows
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Six Months Ended |
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September 27, 2020 |
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September 29, 2019 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
(4,898,300) |
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$ |
(2,470,800) |
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Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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2,256,500 |
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2,074,600 |
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Non-cash stock-based compensation expense |
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|
628,600 |
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|
730,700 |
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Deferred income taxes and other |
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1,516,300 |
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|
— |
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Change in trade accounts receivable |
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|
8,179,500 |
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|
2,341,700 |
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Change in product inventory |
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|
6,783,700 |
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(12,298,800) |
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Change in prepaid expenses and other current assets |
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(2,674,700) |
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(3,518,800) |
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Change in other assets and other liabilities |
|
|
(1,799,500) |
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|
16,500 |
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Change in trade accounts payable |
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(10,550,700) |
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|
630,200 |
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Change in payroll, benefits and taxes |
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|
1,805,300 |
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(2,053,500) |
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Change in income and sales tax liabilities |
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|
134,900 |
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(487,300) |
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Change in accrued expenses and other current liabilities |
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|
(935,500) |
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|
1,001,900 |
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Net cash provided by (used in) operating activities |
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446,100 |
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(14,033,600) |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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|
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Acquisition of property and equipment |
|
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(379,700) |
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(739,600) |
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Purchases of internal use software |
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(6,620,100) |
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(2,593,900) |
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Net cash used in investing activities |
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(6,999,800) |
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(3,333,500) |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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|
|
|
|
|
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Net borrowings from revolving line of credit |
|
|
6,488,100 |
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|
20,901,400 |
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Proceeds from issuance of common stock |
|
|
107,900 |
|
|
142,300 |
|
|
Cash dividends paid |
|
|
— |
|
|
(3,406,800) |
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|
Proceeds from exercise of stock options |
|
|
— |
|
|
680,600 |
|
|
Purchases of treasury stock and repurchases of stock from employees |
|
|
(72,900) |
|
|
(870,200) |
|
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Other financing activities |
|
|
— |
|
|
(2,300) |
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|
Net cash provided by financing activities |
|
|
6,523,100 |
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|
17,445,000 |
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|
|
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|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(30,600) |
|
|
77,900 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, beginning of period |
|
|
50,000 |
|
|
30,300 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period |
|
$ |
19,400 |
|
$ |
108,200 |
|
See accompanying notes to unaudited consolidated financial statements.
6
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.
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.
Note 3. Intangible Assets
Intangible assets, net on our Consolidated Balance Sheet as of September 27, 2020, consists of capitalized internally development computer software and an indefinite lived intangible asset. Capitalized internally developed computer software, net of accumulated amortization, was $15,032,100 and $10,362,000 as of September 27, 2020 and September 29, 2019, respectively. Amortization expense of capitalized internally developed computer software was $502,300 and $440,200 for the fiscal quarter ended September 27, 2020 and September 29, 2019, respectively. Amortization expense of capitalized internally developed computer software was $1,150,800 and $914,100 for the six months ended September 27, 2020 and September 29, 2019,
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respectively. Indefinite lived intangible assets were $795,400 as of September 27, 2020 and September 29, 2019.
Note 4. Stock-Based Compensation
The Company’s selling, general and administrative expenses for the fiscal quarter and six months ended September 27, 2020 includes $316,700 and $628,600, respectively of non-cash stock-based compensation expense. The Company’s selling, general and administrative expenses for the fiscal quarter and six months ended September 29, 2019 includes $391,800 and $730,700, 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”), 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 six months of fiscal 2021:
The PSUs cancelled during fiscal 2021 primarily related to the fiscal 2020 grant of PSUs, which had a one-year measurement period (fiscal 2020). The 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.
If all unvested PSUs earned thus far are assumed to vest 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 September 27, 2020, and would be expensed through fiscal 2022.
Restricted Stock Units: On May 15, 2020, the Compensation Committee, with the concurrence of the full Board of Directors, granted an aggregate of 21,000 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.
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 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
8
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, 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 September 27, 2020, there was approximately $0.6 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 two shorter term performance-based milestones, with the satisfaction of each milestone an additional condition to vesting of one-half of the options. The grant date value of the Company’s stock options is determined using the Black-Scholes-Merton pricing model, based upon facts and assumptions existing at the date of grant.
The value of each option at the date of grant is amortized as compensation expense over the service period. This occurs without regard to subsequent changes in stock price, volatility, or interest rates over time, provided the option remains outstanding.
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The following tables summarize the pertinent information for outstanding options.
As of September 27, 2020, there was approximately $1.0 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.
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 no change to the total stockholders’ equity as a result of such resolutions.
Note 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
10
defined in this and the following 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 our ability to engage in specified transactions or activities, including (but not limited to) investments and acquisitions, sales of assets, payment of dividends, issuance of additional debt and other matters. The Amended and Restated Credit Agreement provides for a $5.0 million sublimit for the issuance of standby letters of credit, a $12.5 million sublimit for swingline loans and an accordion feature which, subject to certain conditions, could increase the aggregate amount of the commitments to up to $125 million, with the optional commitments being provided by existing Lenders or new lenders reasonably acceptable to the Administrative Agent. No Lender is obligated to increase its commitment. Availability is determined in accordance with a Borrowing Base, which has been expanded to include not only Eligible Receivables but also Eligible Inventory and is generally: (A) the sum of (i) 85% of Eligible Receivables; (ii) the Inventory Formula Amount for all Eligible Inventory which is aged less than 181 days; and (iii) the lesser of (x) $4 million and (y) the Inventory Formula Amount for all Eligible Inventory which is aged at least 181 days; minus (B) Reserves.
Borrowings under the Amended and Restated Credit Agreement initially accrue interest from the applicable borrowing date at an Applicable Rate equal to the Eurodollar Rate plus the Applicable Margin. The Eurodollar Rate is the rate per annum obtained by dividing (i) LIBOR by (ii) a percentage equal to 1.00 minus the Eurodollar Reserve Percentage. When the Applicable Rate is the Eurodollar Rate plus the Applicable Margin, the Applicable Margin is 1.50% if Average Availability is greater than or equal to $15 million, and 1.75% otherwise. On September 27, 2020, the interest rate applicable to borrowings under the secured Revolving Credit Facility was 1.66%. Under certain circumstances, the Applicable Rate is subject to change at the Lenders’ option from the Eurodollar Rate plus the Applicable Margin to the Base Rate plus the Applicable Margin. Following an Event of Default, in addition to changing the Applicable Rate to the Base Rate plus the Applicable Margin, the Lenders’ may at their option set the Applicable Margin at 0.50% if the Base Rate applies or 1.75% if the Eurodollar Rate applies, and increase the Applicable Rate by an additional 200 basis points. The Applicable Rate adjusts on the first Business Day of each calendar month. The Company is required to pay a monthly Commitment Fee on the average daily unused portion of the secured Revolving Credit Facility provided for pursuant to the Amended and Restated Credit Agreement, at a per annum rate equal to 0.25%.
In connection with the entering into of the Amended and Restated Credit Agreement, the Company, the other Company affiliate borrowers under the Amended and Restated Credit Agreement and other subsidiaries of the Company, referred to collectively as the Loan Parties, executed and delivered to SunTrust Bank, as Administrative Agent, a Reaffirmation Agreement, pursuant to which the obligations of the Loan Parties under a Guaranty and Security Agreement previously delivered by them in connection with the secured Revolving Credit Facility as previously existing (including the previously existing guaranty by the Loan Parties not otherwise Borrowers and the previously existing grant by the Company and the other Loan Parties of a continuing first priority security interest in inventory, accounts receivable and deposit accounts, and on all documents, instruments, general intangibles, letter of credit rights, and all proceeds) were ratified and confirmed as respects the Obligations arising from time to time under the secured Revolving Credit Facility provided for under the Amended and Restated Credit Agreement, and as respects certain other obligations of the Loan Parties to the Lenders and their affiliates arising from time to time, relating to swaps, hedges and cash management and other bank products.
11
Borrowings may be used for working capital and other general corporate purposes, as further provided in, and subject to the applicable terms of, the Amended and Restated Credit Agreement. As of September 27, 2020, borrowings under the secured Revolving Credit Facility totaled $32.1 million and, therefore, the Company had $42.9 million available for borrowing as of September 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 is classified as a current liability on our balance sheet. As of March 29,2020, borrowings under the secured Revolving Credit Facility totaled $25.6 million and, therefore, the Company had $49.4 million available on its revolving line 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.
As discussed in Note 11, on October 29, 2020, the Company entered into a new credit agreement and terminated the secured Revolving Credit Facility discussed above.
Note 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 and six months ended September 27, 2020 because the Company operated at a loss. The number of diluted weighted-average common shares would have been 8,766,481 for the fiscal quarter ended September 27, 2020, and 8,728,671 for six months ended September 27, 2020, respectively, if the Company was at a positive earning position. At September 27, 2020, stock options with respect to 1,040,958 shares of common stock were outstanding, of which 815,958 were anti-dilutive. There were no anti-dilutive PSUs or RSUs outstanding as of September 27, 2020.
Note 8. Business Segments
The Company evaluates its business within two segments: commercial and retail. The commercial segment consists of the following customer markets: (1) public carriers, that are generally responsible for building and maintaining the infrastructure system and provide airtime service to individual subscribers; and (2) value-added resellers and integrators, which 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.
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.
12
Segment and market activity for the second quarter and first six months of fiscal years 2021 and 2020 are as follows (in thousands):
Note 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.
13
Quantitative information regarding the Company’s leases is as follows:
Note 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 six months ended September 27, 2020 and September 29, 2019, the aggregate value of the shares withheld totaled $72,900 and $870,200, respectively.
Note 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 September 27, 2020, no customer accounted for more than 10% of total consolidated revenue. For the fiscal quarter ended September 29, 2019, revenue from the Company’s largest customer accounted for 10.5% of consolidated revenue.
For the six months ended September 27, 2020 and September 29, 2019, no customer accounted for more than 10% of total consolidated revenue.
For the fiscal quarter ended September 27, 2020, sales of products purchased from the Company’s largest supplier accounted for 19.7% of consolidated revenue. For the fiscal quarter ended September 29, 2019, sales of products purchased from the Company’s largest supplier accounted for 21.9% of consolidated revenue. No other suppliers accounted for more than 10% of consolidated revenue.
For the six months ended September 27, 2020, sales of products purchased from the Company’s largest supplier accounted for 20.6% of consolidated revenue. For the six months ended September 29, 2019, sales of products purchased from the Company’s largest supplier accounted for 21.7% of consolidated revenue. No other suppliers accounted for more than 10% of consolidated revenue.
14
Note 12. Subsequent Events
Inventory Purchase Agreement: On October 28, 2020, the Company entered into a definitive Inventory Purchase Agreement (the “Agreement”) which, at closing, will result 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 Company will retain the Ventev brand as it relates to its commercial business products and operations, and will continue to fulfill orders and support the Company’s retail business customers until the business has been transitioned to Voice Comm.
The transaction consideration to be paid at closing includes a payment for retail inventory being sold to Voice Comm at an amount that will be determined at closing in accordance with an agreed-upon valuation process to be performed by the Company and Voice Comm. The Company estimates the total cash to be received at closing to be between $8 million and $12 million, in the aggregate. The consideration to be paid at closing is subject to customary post-closing adjustments. In addition, Voice Comm has agreed to conditional payments over the next two years for purchase price adjustments related to specified inventory sold, and future customer returns during the two year period after the closing, and royalty payments for sales of Ventev-branded mobile device and accessory products for a four year period after the closing. The Agreement also addresses operational matters regarding transition of the inventory and other assets sold to Voice Comm.
The transaction is expected to close in the third fiscal quarter of the current fiscal year, subject to closing conditions, including those customary for transactions of this kind. Accordingly, there are no assurances that the transaction will close in a timely manner, or ever. Voice Comm paid a $1 million deposit to the Company, which, in the event of termination of the Agreement before closing, will either be retained by the Company or returned to Voice Comm, depending on the reason for the termination. Tessco will be required to return the deposit and pay up to $1 million, including reimbursement of Voice Comm’s expenses, if Tessco does not proceed to closing under certain circumstances following a defined change in control of Tessco.
Pursuant to the terms of the Agreement, the Company has agreed that, for a multi-year period following the closing, neither it nor its affiliates (including any owner of a majority of Tessco) will compete with Voice Comm’s retail business as operated by the Company at closing, subject to certain exceptions set forth in the Agreement. Tessco retains the ability to continue to supply retail products to its commercial customers, and the overall non-compete obligation may be terminated early by Tessco upon the occurrence of certain change in control events and the payment of a termination fee in connection therewith (which termination fee is initially an amount equal to $5,000,000 and diminishes ratably over the non-compete period).
Credit Agreement: 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. 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 “Revolving Credit Facility”), which matures in forty-two months, on April 29, 2024. The Revolving Credit Facility includes a $5.0 million letter of credit sublimit and provides for the issuance of Swing Loans. The Credit Agreement also includes a provision permitting the Company, subject to certain conditions, to increase the aggregate amount of the commitments under the Revolving Credit Facility to an aggregate commitment
15
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.
Following an Event of Default, the Lenders’ may at their option increase the applicable per annum rate to a rate equal to two 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 Revolving Credit Facility, at a per annum rate equal to 0.25%.
The Credit Agreement contains one 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 Revolving Credit Facility will be 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 thereafter 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.
The Company is required to make certain prepayments under the Revolving Credit Facility under certain circumstances, including from net cash proceeds from certain asset dispositions in excess of 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
16
the Credit Agreement and the 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.
17
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 business within two segments: commercial and retail. The commercial segment consists of the following customer markets: (1) public carriers, that are generally responsible for building and maintaining the infrastructure system and provide airtime service to individual subscribers; and (2) value-added resellers and integrators, which 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 can generally be sold to any customer. However, Commercial customers typical purchase products that are used to build, repair and upgrade wireless telecommunication systems, including computing and internet networks, such as radios, antennas, cable, network equipment and security and surveillance products. Retail customers typically purchase mobile device accessories products including cases, screen protection and chargers for cellular phones.
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 national distributors. In addition, many manufacturers sell direct. Barriers to entry for distributors are relatively low, 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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On October 29, 2020, we announced that we had taken action to exit our retail business and focus on our more successful and higher-margin commercial segment. We signed a definitive agreement that provides for the sale of 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). The transaction is expected to close in the third fiscal quarter of the current fiscal year, subject to closing conditions, including those customary for transactions of this kind. Accordingly, there are no assurances that the transaction will close in a timely manner, or ever.
Under the terms of agreement, Tessco will continue to fulfill orders and support its current retail business customers through, and to a limited extent beyond, the closing of the transaction. We will work with our retail customer and supplier partners to ensure a smooth transition. Tessco will retain its Ventev brand for use in its commercial business products and operations.
Results of Operations
Second quarter of Fiscal Year 2021 Compared with Second quarter of Fiscal Year 2020
Total Revenues. Revenues for the second quarter of fiscal 2021 decreased 15.6% compared with the second quarter of fiscal 2020. Revenue in the commercial segment decreased by 14.2%. Revenues in our public carrier market, value-added resellers and integrators market and retail market decreased by 16.7%, 12.8% and 19.4%, respectively. The decline in revenues was largely driven by a combination of continued headwinds from the economic downturn, and the impact of COVID-19, which affected both of our business segments. We expect the challenges we have been facing in our commercial segment to continue, but to a lesser extent than we have experienced in our retail segment, and we are focused on growth and expansion of our commercial segment.
Cost of Goods Sold. Cost of goods sold for the second quarter of fiscal 2021 decreased 16.0% compared with the second quarter of fiscal 2020. In the commercial segment, cost of goods sold decreased by 14.0%. Cost of goods sold in our public carrier market, value-added resellers and integrators market and retail market decreased by 15.3%, 13.1% and 21.3%, respectively. These changes in cost of goods sold in both segments 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 second quarter of fiscal 2021 decreased by 13.9% compared to the second quarter of fiscal 2020. This decrease was primarily due to lower sales volume. Within our commercial segment, gross profit margin in our public carrier market decreased from 12.4% to 10.9%. Gross profit margin in our value-added resellers and integrators market increased from 23.8% to 24.1%. We experienced margin compression within our public carrier market primarily due to a change in customer mix, with increased sales going to larger customers with lower margins. Within our retail segment, gross profit margin increased from 16.1% to 18.0% in the second quarter of fiscal 2021, compared to the second quarter of fiscal 2020, primarily
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due to customer mix. As a result of these drivers on gross profit and change in the mix of overall revenues by market, overall gross profit margin increased to 18.9% in the second quarter of fiscal 2021, compared to 18.6% in the second quarter of fiscal 2020.
Selling, General, Administrative and Restructuring Expenses. Total selling, general and administrative expenses decreased by $2.9 million for the second quarter of fiscal 2021, compared to the second quarter of fiscal 2020. Selling, general and administrative expenses as a percentage of revenues increased from 18.2% for the second quarter of fiscal 2020, to 19.1% for the second quarter of fiscal 2021.
The decrease in our selling, general and administrative expenses was primarily due to a decrease of $1.8 million in compensation and benefit expense, and $0.9 million in corporate support expense during the second quarter of fiscal 2021 as compared to the second quarter of fiscal 2020. The decrease in compensation and benefits is primarily due to lower variable and operations compensation due to lower revenues and lower health insurance expense. The decrease in corporate expense is primarily due to a benefit from bad debt expense of $0.8 million as a result of strong collection efforts.
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 $774,400 and $108,000, respectively, for the three months ended September 27, 2020 and September 29, 2019, respectively.
Interest, Net. Net interest expense decreased from $335,100 for the second quarter of fiscal 2020 to $105,900 for the second quarter of fiscal 2021. Decreases in interest rates have resulted in decreased interest expense under our secured Revolving Credit Facility (discussed in Note 6 to our Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q).
Income Taxes, Net Income and Diluted Earnings per Share. The effective tax rate decreased from 90.8% for the second quarter of fiscal 2020 to (8.5%) for the second 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 income decreased 1313.2% and diluted earnings per share decreased from $0.00 to ($0.03) for the second quarter of fiscal 2021, compared to the corresponding prior-year quarter.
First Six Months of Fiscal Year 2021 Compared with First Six Months of Fiscal Year 2020
Total Revenues. Revenues for the first six months of fiscal 2021 decreased 12.1% compared with the first six months of fiscal 2020. Revenue in the commercial segment decreased by 8.4%. Revenues in our public carrier market, value-added resellers and integrators market, and retail market decreased by 1.1%, 12.5%, and 22.9%, respectively. The decline in revenues was largely driven by a combination of continued headwinds from the economic downturn, and the impact of COVID-19, which affected both of our business segments. We expect the challenges we have been facing in our commercial segment to continue, but to a lesser extent than we have experienced in our retail segment, and we are focused on growth and expansion of our commercial segment.
Cost of Goods Sold. Cost of goods sold for the first six months of fiscal 2021 decreased 10.4% compared with the first six months of fiscal 2020. In the commercial segment, cost of goods sold decreased by 6.3%. Cost of goods sold in our value-added resellers and integrators market decreased by 11.4%, partially offset by a 1.6% increase in cost of goods sold in our public carrier market. Cost of goods sold in our retail segment decreased by 21.8%. These changes in cost of goods sold in both segments were largely driven by changes in revenue and
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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 six months of fiscal 2021 decreased by 19.6% compared to the first six months of fiscal 2020. This decrease was primarily due to lower sales volume. Within our commercial segment, gross profit margin in our public carrier market decreased from 12.0% to 10.2%. Gross profit margin in our value-added resellers and integrators market decreased from 24.1% to 23.2%. We experienced margin compression within our public carrier market primarily due to a change in customer mix, with increased sales going to larger customers with lower margins. Within our retail segment, gross profit margin increased from 9.3% to 14.6% in the first six months of fiscal 2021, compared to 2020, primarily due to customer mix. As a result of these drivers on gross profit, overall gross profit margin decreased to 17.3% in the first six months of fiscal 2021, compared to 18.9% in the first six months of fiscal 2020.
Selling, General, Administrative and Restructuring Expenses. Total selling, general and administrative expenses decreased by $7.3 million for the first six months of fiscal 2021, compared to the first six months of fiscal 2020. Selling, general and administrative expenses as a percentage of revenues decreased from 19.8% for the first six months of fiscal 2020, to 19.4% for the first six months of fiscal 2021.
The decrease in our selling, general and administrative expenses was primarily due to a decrease of $4.0 million in compensation and benefit expense, $1.6 million in sales promotion expense, and $1.4 million in corporate support expense during the first six months of fiscal 2021 as compared to the first six months of fiscal 2020. These decreases were largely due to the decline in overall revenues and in cost reduction initiatives undertaken in the first six months, primarily associated with the retail segment.
We also incurred a $0.5 million restructuring charge related to severance expense for the first six months of fiscal 2020.
We continually evaluate the credit worthiness of our existing customer receivable portfolio and provide an appropriate reserve based on this evaluation. We also evaluate the credit worthiness of prospective and current customers and make decisions regarding extension of credit terms to such customers based on this evaluation. We had bad debt recovery, net of expense of $788,100 and bad debt expense of $27,500 for the six months ended September 27, 2020 and September 29, 2019, respectively.
Interest, Net. Net interest expense decreased from $543,800 for the first six months of fiscal 2020 to $216,600 for the first six months of fiscal 2021. Decrease in interest rates have resulted in decreased interest expense under our secured Revolving Credit Facility (discussed in Note 6 to our Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q).
Income Taxes, Net Income and Diluted Earnings per Share. The effective tax rate decreased from 24.9% for the first six months of fiscal 2020 to 7.0% for the first six months of fiscal 2021. The decrease in the effective
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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 increased 98.2% and diluted earnings per share decreased 96.6% for the first six months of fiscal 2021, compared to the first six months of fiscal 2020.
Liquidity and Capital Resources
The following table summarizes our cash flows provided by or used in operating, investing and financing activities for the six months ended September 27, 2020 and September 29, 2019.
Net cash provided by operating activities was $0.4 million for the first six months of fiscal 2021, compared with net cash used in operating activities of $14.0 million for the first six months of fiscal 2020. The fiscal 2021 inflow was due to a decrease in accounts receivable and inventory, partially offset by the net loss and a decrease in accounts payable.
Net cash used in investing activities was $7.0 million for the first six months of fiscal 2021, compared to $3.3 million used in the first six months of fiscal 2020. Cash used in both periods was due to capital expenditures largely comprised of investments in information technology.
Net cash provided by financing activities was $6.5 million for the first six months of fiscal 2021, compared to net cash provided by financing activities of $17.4 million for the first six months of fiscal 2020. We utilized our asset based secured Revolving Credit Facility during the first six months of fiscal 2021, leading to a cash inflow of $6.5 million during this period. During the first six months of fiscal 2020, we utilized our asset based secured Revolving Credit Facility, leading to a cash inflow of $20.9 million during this period. This inflow was partially offset by a cash outflow of $3.4 million during the first six months of fiscal 2020 due to cash dividends paid to shareholders. No cash dividend was paid during the first six months of fiscal 2021.
On October 19, 2017, the Company and its primary operating subsidiaries, as co-borrowers, entered into an Amended and Restated Credit Agreement with SunTrust Bank, as Administrative Agent, and Wells Fargo Bank, National Association, as a lender (the “Amended and Restated Credit Agreement”), which amended and restated the terms of a previously established secured Revolving Credit Facility and which resulted in, among other modifications, an increase in the Company’s borrowing limit to up to $75 million, from the previous borrowing limit of up to $35 million. In addition to increasing the borrowing limit, and among other modifications, the Amended and Restated Credit Agreement extended the applicable maturity date to October 19, 2021. As of September 27, 2020, borrowings under the secured Revolving Credit Facility totaled $32.1 million; therefore, we then had $42.9 million available, subject to the Borrowing Base limitations and compliance with the other applicable terms of the Amended and Restated Credit Agreement, including the financial and other covenants discussed in Note 6 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 6 to our Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
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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 the secured Revolving Credit Facility we entered into on October 29, 2020 will be sufficient to support our operations for at least the next twelve months. To minimize interest expense, our policy is to apply excess available cash to reduce the balance outstanding from time to time on our secured Revolving Credit Facility. Our increased focus over the past several quarters on business opportunities for sales to our public carrier customers led to the recent expansion of our secured Revolving Credit Facility, and has at times resulted in increased borrowings and dependence on that facility. We expect this trend to continue, although at present we have no plans for any further expansion of the facility. If we were to undertake an acquisition or other major capital purchases that require funds in excess of existing sources of liquidity, we would look to sources of funding from additional credit facilities, debt and/or equity issuances. As of September 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.
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Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain forward-looking statements. These forward-looking statements may generally be identified by the use of the words “may,” “will,” “expects,” “anticipates,” “believes,” “estimates,” “intends,” “projects,” “plans,” “should,” “would,” “could,” and similar expressions, but the absence of these words or phrases does not necessarily mean that a statement is not forward looking. Forward looking statements involve a number of known and unknown risks and uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Our actual results may differ materially from those described in or contemplated by any such forward-looking statement for a variety of reasons, including those risks identified in our most recent Annual Report on Form 10-K, this Quarterly Report on Form 10-Q, and other periodic reports filed with the SEC, under the heading “Risk Factors” and otherwise. Consequently, the reader is cautioned to consider all forward-looking statements in light of the risks to which they are subject.
We are not able to identify or control all circumstances that could occur in the future that may adversely affect our business and operating results. Without limiting the risks that we describe in our periodic reports and 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 the consent solicitation and other activism activities by Robert B. Barnhill, Jr. and certain other participants in his consent solicitation 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.
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This Quarterly Report on Form 10-Q also contains forward-looking statements regarding the definitive Inventory Purchase Agreement by and between the Company and Voice Comm, LLC, a Delaware limited liability company (“Voice Comm”). Although we believe the expectations reflected in any such statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained and therefore, actual outcomes and results may differ materially from what is expressed or forecasted. Some of the factors that may affect outcomes and results include, but are not limited to: (i) risks associated with the timing of the closing of transaction, including the risks that a condition to closing would not be satisfied within the expected timeframe or at all or that the closing of the transaction will not occur, (ii) unanticipated difficulties or expenditures relating to the transaction, the response of business partners, competitors and/or employees to the announcement of the transaction, (iii) availability of financing, and (iv) and general transactional risks.
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.
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, 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,
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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 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 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, except for the addition of the risk factors below.
The consummation of the sale of our retail business assets to Voice Comm is subject to a number of conditions and uncertainties, many of which are outside of our control.
The sale of our retail business assets to Voice Comm is expected to close in the third fiscal quarter of this fiscal year, subject to a number of closing conditions, including those customary for transactions of this kind. Accordingly, there are no assurances that the transaction will close in a timely manner, or ever. Failure to consummate the sale of our retail business assets to Voice Comm as anticipated will be disruptive to us generally, and to our ability to continue our retail business and related vendor and customer relationships, if needed, and to focus on our commercial business.
Our business could be negatively impacted as a result of the consent solicitation and other activism activities by Robert B. Barnhill, Jr. 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 September 2020, Mr. Barnhill and persons acting together with Mr. Barnhill initiated a consent solicitation to seek the consent of our stockholders holding at least a majority of our outstanding shares of common stock to, among other things, remove five members of our Board and replace them with four director candidates identified by Mr. Barnhill (the “Consent Solicitation”).
The Company has responded, seeking to oppose the Consent Solicitation. The Consent Solicitation and the Company’s ongoing response to it has resulted in, and may continue to cause, significant distraction for management and significant costs to the Company. Further, the Consent Solicitation and associated costs and distractions could lead to a materially adverse impact on our business or operating results.
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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.
*Filed herewith
˄ Portions of this exhibit have been omitted pursuant to Rule 601(b)(10)(iv) of Regulation S-K. The omitted information is not material and would likely cause competitive harm to the registrant if publicly disclosed.
Schedules omitted pursuant to Rule 601(a)(5) of Regulation S-K. The Company agrees to furnish a supplemental copy of any omitted schedule to the SEC upon request.
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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.
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TESSCO Technologies Incorporated |
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Date: November 6, 2020 |
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By: |
/s/ Aric M. Spitulnik |
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Aric Spitulnik |
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Chief Financial Officer |
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(principal financial and accounting officer) |
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THE SYMBOL “[--]” DENOTES PLACES WHERE CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH (i) NOT MATERIAL, AND (ii) WOULD LIKELY CAUSE COMPETITIVE HARM TO THE COMPANY IF PUBLICLY DISCLOSED
INVENTORY PURCHASE AGREEMENT
DATED AS OF October 28, 2020
by and among
VOICE COMM, LLC
and
TESSCO TECHNOLOGIES INCORPORATED,
TESSCO COMMUNICATIONS INCORPORATED
and
TESSCO INCORPORATED
Article 1 PURCHASE AND SALE OF PURCHASED ASSETS1
1.1Sale and Purchase1
1.2Purchased Assets2
1.3Excluded Assets2
Article 2 CONSIDERATION AND MANNER OF PAYMENT2
2.1Purchase Price2
2.2Assumed Liabilities3
2.3Excluded Liabilities3
2.4Inventory Closing True-Up Adjustment3
2.5Inventory Post-Closing Purchase Price Adjustment5
2.6Late Payments7
2.7Allocation of Purchase Price7
Article 3 SELLERS’ REPRESENTATIONS AND WARRANTIES7
3.1Organization and Authority8
3.2Title to Purchased Assets8
3.3Litigation8
3.4Compliance with Applicable Laws8
3.5Intellectual Property8
3.6No Conflict10
3.7Conduct of Retail Business10
3.8Licenses and Permits10
3.9Health, Safety and Environment10
3.10Personnel Agreements, Plans and Arrangements11
3.11Finders’ Fees11
3.12Product Liability11
3.13Financial Information11
3.14COVID-19 Pandemic11
3.15No Other Representations and Warranties12
Article 4 BUYER’S REPRESENTATIONS AND WARRANTIES12
4.1Organization12
4.2Authorization12
4.3No Conflict12
4.4Finders’ Fees12
4.5Sufficiency of Funds12
4.6Solvency13
4.7Litigation13
4.8No Other Representations or Warranties13
Article 5 CLOSING13
5.1Time and Place13
5.2Deliveries of Sellers13
5.3Deliveries of Buyer14
5.4Conditions to Closing15
Article 6 COVENANTS17
6.1Restrictive Covenants17
6.2Further Assurances; Consent of Third Parties; Excluded Ventev Inventory20
6.3Ventev Royalty Arrangement and Ventev Website22
6.4Inventory Storage and Shipment; Freight Costs24
6.5Returns24
6.6Prepaid Apple Connectors26
6.7Vendors27
6.8Transfer Taxes28
6.9Investigation; Confidential Information29
6.10European Inventory31
6.11Operation of the Business31
6.12No Solicitation of Acquisition Proposals31
6.13Warranty Matters32
6.14In-Transit Inventory32
6.15Transition Services33
Article 7 TERMINATION33
7.1Termination Events33
7.2Effect of Termination35
Article 8 INDEMNIFICATION36
8.1Indemnification by Sellers36
8.2Indemnification by Buyer37
8.3Indemnification Procedure for Third Party Claims37
8.4Failure to Give Timely Notice39
8.5Survival of Representations, Warranties and Covenants; Time Limits on Indemnification Obligations39
8.6Limitations on Indemnity39
8.7Materiality40
8.8Exclusive Remedy41
8.9Adjustments to Purchase Price41
8.10Setoff41
Article 9 MISCELLANEOUS41
9.1Notices, Consents, etc41
9.2Public Announcements42
9.3Severability43
9.4Amendment and Waiver43
9.5Counterparts43
9.6Execution and Delivery43
9.7Expenses43
9.8Governing Law; Venue43
9.9Waiver of Jury Trial44
9.10Headings44
9.11Assignment44
9.12Definitions44
9.13Entire Agreement49
9.14Third Parties49
9.15Interpretative Matters49
9.16No Strict Construction49
9.17Knowledge49
9.18Schedules49
9.19Injunctive Relief; Specific Performance50
GLOSSARY OF DEFINED TERMS
“Accountants”Section 2.4(c)
“Acquisition Proposal”Section 9.12
“Affiliate”Section 9.12
“Affiliated Group”Section 9.12
“Aggregate Proceeds”Section 2.5(d)
“Agreement”Introduction
“Assigned Ventev Mobile Intellectual Property”Section 6.3(a)
“Assumed Contracts”Section 1.2(b)
“Assumed Liabilities”Section 2.2
“Audit”Section 6.3(c)
“Bill of Sale”Section 5.2(a)
“Business Day”Section 9.12
“Buyer”Introduction
“Buyer Cure Period”Section 7.1(d)
“Buyer Indemnified Party”Section 8.1
“Calendar Quarter”Section 9.12
“Cap Amount”Section 8.6(a)
“Claim Notice”Section 8.3
“Closing”Section 5.1
“Closing Date”Section 5.1
“Closing Schedule”Section 2.4(a)
“Code”Section 9.12
“Collateral Source” Section 8.6(f)
“Competing Business”Section 6.1(b)
“Contract Year”Section 9.12
“COVID-19”Section 9.12
“COVID-19 Pandemic”Section 9.12
“Current Ventev Power Segment”Section 6.3(b)
“Deductible Amount”Section 8.6(a)
“Defense Counsel”Section 8.3
“Defense Notice”Section 8.3
“Deposit Amount”Section 2.1(a)
“Environmental and Safety Requirements”Section 3.9
“Estimated Inventory Value”Section 9.12
“Excess Returned Inventory”Section 6.5(b)
“Excluded Assets”Section 1.3
“Excluded European Inventory” Section 6.10
“Excluded Inventory”Section 9.12
“Excluded Inventory Closing”Section 6.7(a)
“Excluded Liabilities”Section 2.3
“Excluded Ventev Inventory”Section 6.2(e)
“Exercise Notice”Section 6.7(a)
“Final Inventory Value”Section 2.4(a)
“Financial Information”Section 3.13
“Fundamental Representations”Section 8.5
“GAAP”Section 9.12
“Governmental Authority”Section 9.12
“Governmental Order”Section 9.12
“Hazardous Wastes”Section 9.12
“Indemnified Party”Section 8.3
“Indemnifying Party”Section 8.3
“Intellectual Property Assignment Agreements”Section 5.2(e)
“Intellectual Property Coexistence Agreements”Section 5.2(d)
“Intellectual Property Registration Division Requests”Section 5.2(f)
“Inventory”Section 9.12
“Inventory Holdback Amount”Section 9.12
“Law”Section 9.12
“Liabilities”Section 9.12
“Licensed Ventev Mobile Intellectual Property”Section 6.3(a)
“Liens”Section 9.12
“Losses”Section 9.12
“Lowest Cost Value”Section 6.5(a)(ii)
“Mobile Website”Section 6.3(f)
“Net Sales Proceeds”Section 9.12
“Non-Compete Fee”Section 6.1(g)
“Non-Power Accessories”Section 6.3(b)
“Non-Ventev In-Transit Inventory”Section 6.14(a)
“Nonassignable Asset”Section 6.2(c)
“Other Adjustment Inventory”Section 2.5(a)
“Other Adjustment Returned Inventory”Section 2.5(a)
“Organizational Documents”Section 9.12
“Outside Date”Section 7.1(b)
“Overpayment Amount”Section 2.4(d)
“Parent”Introduction
“Parties”Introduction
“Person”Section 9.12
“Power Accessories”Section 6.3(b)
“Prepayment Amount”Section 6.6
“Protest Date”Section 2.4(b)
“Protest Notice”Section 2.4(b)
“Purchase Price”Section 2.1
“Purchase Price Adjustment Period”Section 2.5(b)
“Purchased Assets”Section 1.2
“Qualified Acquiror”Section 6.1(g)
“Recovery Costs”Section 8.6(f)
“Restricted Period”Section 6.1(b)
“Retail Business”Recital B
“Retail Business Employees”Section 3.10
“Retained Businesses”Recital D
“Return Period”Section 6.5(a)
“Returned Inventory”Section 6.5(a)
“Royalty”Section 6.3(b)
“Royalty Term”Section 6.3(b)
“SEC”Recital A
“Seller Entities”Recital A
“Seller” or “Sellers”Introduction
“Seller Cure Period”Section 7.1(c)
“Seller Indemnified Party”Section 8.2
“Seller Taxes”Section 9.12
“SKU”Section 9.12
“Specified Vendors”Section 6.7
“Tax”Section 9.12
“Tax Return”Section 9.12
“Termination Payment”Section 7.2(a)
“Territory”Section 6.1(b)
“Tessco”Introduction
“Tessco Communications”Introduction
“Third Party Claim”Section 8.3
“Tessco Labeled Inventory”Section 2.4(a)
“Transaction Documents”Section 9.12
“Transfer Taxes”Section 6.8
“Transition Ventev Inventory”Section 9.12
“Transition Ventev Inventory Amount”Section 9.12
“Treasury Regulations”Section 9.12
“Underpayment Amount”Section 2.4(d)
“Valuation Model”Section 2.5(a)
“Ventev Mobile Intellectual Property”Section 6.3(a)
“Ventev Products”Section 2.5(a)
“Ventev Returned Inventory”Section 2.5(a)
“Ventev Intellectual Property”Section 3.5(a)
“Ventev Website”Section 6.3(f)
“Warehoused Inventory”Section 6.4(a)
List of Exhibits
Exhibit AForm of Bill of Sale
Exhibit BForm of Intellectual Property Coexistence Agreement
Exhibit C-1Form of Trademark Assignment Agreement
Exhibit C-2Form of Nunc Pro Tunc Trademark Assignment
Exhibit C-3Form of Partial Trademark Assignment - Canada
Exhibit C-4 Form of Patent Assignment Agreement
Exhibit DForm of Intellectual Property Registration Division Request
List of Schedules
Schedule 1.2(b)Assumed Contracts
Schedule 1.2(c)Records, Marketing Materials and Customer Lists
Schedule 1.2(d)Ventev Products Quality Control Equipment and Software
Schedule 2.2(b)Assumed Liabilities
Schedule 2.4(a)Form of Closing Schedule
Schedule 2.5(a)Valuation Model Inventory
Schedule 3.2(a)Title to Purchased Assets
Schedule 3.2(b)Purchased Assets Locations
Schedule 3.3Litigation
Schedule 3.5(a)Intellectual Property
Schedule 3.6No Conflict
Schedule 3.7(a)Conduct of Retail Business
Schedule 3.10(a)Personnel Agreements
Schedule 3.10(b)Employment Claims
Schedule 3.12(a)Product Liability
Schedule 3.12(b)Ventev Products Standard Warranty
Schedule 3.13Financial Information
Schedule 6.1(c)Non-Solicitation
Schedule 6.2(c)Operational Transition
Schedule 6.3(a)Assigned Ventev Mobile Intellectual Property
Licensed Ventev Mobile Intellectual Property
Schedule 6.4(a)Warehoused Inventory
Schedule 6.4(b)Inventory Terms of Movement
Schedule 6.7Specified Vendors
Schedule 6.15Transition Services
INVENTORY PURCHASE AGREEMENT
This INVENTORY PURCHASE AGREEMENT (this “Agreement”), dated as of October 28, 2020, is by and among Voice Comm, LLC, a Delaware limited liability company (“Buyer”), TESSCO Technologies Incorporated, a Delaware corporation (“Parent”), TESSCO INCORPORATED, a Delaware corporation (“Tessco”), and TESSCO COMMUNICATIONS INCORPORATED, a Delaware corporation (“Tessco Communications” and together with Parent and Tessco, “Sellers” or individually, a “Seller”). Buyer and Sellers are referred to together as the “Parties.” Certain capitalized terms used herein shall have the meaning given to such terms in Section 9.12 below.
RECITALS
A.Parent and its subsidiaries, including, without limitation, Tessco and Tessco Communications (collectively, the “Seller Entities”), collectively are a value-added technology distributor, manufacturer, and solutions provider serving commercial and retail customers in the wireless infrastructure and mobile device accessories markets as described in greater detail in Parent’s filings with the United States Securities and Exchange Commission (the “SEC”) pursuant to the Securities Exchange Act of 1934, as amended, and has securities listed for trading on the Nasdaq Global Market.
B.Prior to the consummation of the transactions contemplated under this Agreement, one area of business which the Seller Entities were engaged was that of manufacturing, marketing, selling and/or distributing mobile device accessories to retail customers (the “Retail Business”).
C.Sellers wish to sell and assign to Buyer, and Buyer wishes to purchase and assume from Sellers, the Purchased Assets (as defined below) and the Assumed Liabilities (as defined below), all on the terms and conditions hereinafter set forth.
D.All of the Seller Entities’ assets and businesses, other than the Purchased Assets or Assumed Liabilities (collectively, the “Retained Businesses”), shall not be included in the transactions contemplated herein.
NOW, THEREFORE, in consideration of the mutual covenants of the Parties as hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the Parties hereby agree as follows:
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On or before the Closing Date, the Parties shall jointly prepare a certificate certifying the Estimated Inventory Value as of the Closing. The form of such certificate is set forth on Schedule 2.4(a) and shall be used to determine the cash payment to be delivered on the Closing Date pursuant to Section 2.1(b)(iii). In all cases, the Estimated Inventory Value will be determined using the “buckets” in the Valuation Model (as defined below). For the avoidance of doubt, the Tessco Labeled Inventory shall not be included in such certificate or included in the Estimated Inventory Value.
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Except as set forth in the applicable section or subsection of the Disclosure Schedules (or any other referenced section of subsection of the Disclosure Schedules if it is readily apparent on the face of such disclosure that the disclosure applies to such other referenced section or subsection), Sellers hereby jointly and severally represent and warrant to Buyer as follows:
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proceeding, hearing or investigation against or involving the Ventev Products under any Environmental and Safety Requirement based on any such fact, event or circumstance, including liability for cleanup costs, personal injury or property damage.
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Authorities relating to COVID-19 that are applicable to the Retail Business and the Purchased Assets.
Buyer hereby represents and warrants to Sellers as follows:
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the Purchase Price (based on projected volume of Inventory at Closing) and consummate the transactions contemplated by this Agreement and the Transaction Documents.
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All documents delivered to Buyer shall be in form and substance reasonably satisfactory to Buyer.
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All documents delivered to Sellers shall be in form and substance reasonably satisfactory to Sellers.
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Ventev Products (collectively, or as applicable to a specific manufacturer where the context suggests, the “Prepayment Amount”). Buyer agrees that it will use its reasonable efforts to continue manufacturing Ventev Products following the Closing with each of the manufacturers with whom Sellers have made prepayments so long as the applicable manufacturer is competitive with other manufacturers in terms of price, quality and timing; provided that Buyer is not obligated to continue so manufacturing if Buyer determines that such requirements have not been met. If Buyer selects any such manufacturer with whom Sellers have made prepayments, Buyer and Sellers shall instruct the applicable manufacturer to apply any then remaining portion of the Prepayment Amount to each of Buyer’s orders, as and when purchase orders are placed with the manufacturer (or will otherwise cooperate in order placement and interface with the manufacturer including, if requested by Sellers, Sellers making purchases as directed and on behalf of Buyer in order to allow for the application of the applicable Prepayment Amount). In either such event, Buyer will reimburse Sellers for the applicable portion of the Prepayment Amount for each such prepaid Apple connector so used, which reimbursement shall be paid within thirty (30) days of Buyer receiving such Ventev Products. For the avoidance of doubt, the Prepayment Amount shall continue to be held in Sellers’ name and for Sellers’ account(s) with each such manufacturer and shall be considered an Excluded Asset, unless and until other arrangements acceptable to Buyer and Sellers are made, subject only to Buyer’s first right for a period of [--] after the Closing to apply the applicable Prepayment Amount against Buyer purchases from the applicable manufacturer and reimburse Sellers therefor. Notwithstanding the foregoing, Sellers will be permitted to sell or otherwise dispose of any of the Apple connectors, or to otherwise monetize the remaining Prepayment Amount, in any case for its sole benefit; provided that before so doing Sellers shall notify Buyer of the price and other relevant terms of the proposed transaction whereupon Buyer will have a right of first refusal for [--] to purchase such Apple connectors (or the rights thereto) on the same price and terms. If Buyer does not elect to exercise such right of first refusal, Sellers may sell such connectors to the third party purchaser or to dispose or monetize the connectors or Prepayment Amount on terms no less favorable to Sellers’ counterparty as those described in the notice.
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immediately be tendered by written notice to Sellers for payment or defense as the case may be.
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or otherwise enter into, any Acquisition Proposal. Sellers hereby confirm that they have discontinued, and have previously directed their respective Affiliates and representatives to discontinue, any solicitation efforts or negotiations with respect to or in furtherance of any Acquisition Proposal. Sellers shall promptly (and in any event within twenty-four (24) hours after receipt thereof by Sellers, any of their respective Affiliates or representatives) advise Buyer of the receipt of any Acquisition Proposal.
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in the event the Indemnifying Party and the Indemnified Party cannot agree upon such counsel within ten (10) days after the Defense Notice is provided, then the Indemnifying Party shall propose an alternate Defense Counsel, which shall be subject again to the Indemnified Party’s approval, which approval again shall not be unreasonably withheld, conditioned or delayed. If the Parties still fail to agree on Defense Counsel, then, at such time, they shall mutually agree in good faith on a procedure to determine the Defense Counsel. Notwithstanding the foregoing, however, the Parties agree that Ballard Spahr LLP (with respect to Sellers) and Katten Muchin Rosenman LLP (with respect to Buyer) shall be deemed to be pre-approved as Defense Counsel upon request by either Party.
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TESSCO Technologies Incorporated
11126 McCormick Road
Hunt Valley, MD
Attention: Aric Spitulnik
Email: Spitulnik@tessco.com
with a copy (which shall not constitute notice) to:
Ballard Spahr LLP
300 E Lombard Street
Baltimore, MD 21202
Attention: Douglas Fox and Michael Kuhn
Email: foxd@ballardspahr.com and kuhnm@ballardspahr.com
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Voice Comm LLC
80 Twinbridge Drive
Pennsauken, NJ 08110
Attention: Derek Weiss and Glen Roland
Email: dweiss@myvoicecomm.com and groland@myvoicecomm.com
with a copy (which shall not constitute notice) to:
Rockwave Capital
126 East 56th Street
New York, NY 10022
Attention: Daniel Goldberg
Email: dg@rockwavecapital.com
and to:
Katten Muchin Rosenman LLP
575 Madison Avenue
New York, NY 10022
Attention: Evan Borenstein
Email: evan.borenstein@katten.com
Date of service of such notice shall be (i) the date such notice is personally delivered, (ii) the next succeeding Business Day after date of delivery to the overnight courier if sent by overnight courier for next Business Day service or (iii) on the date of transmission if sent by electronic mail and upon confirmation of transmission or receipt generated by the sender’s computer showing that such communication was sent to the appropriate electronic mail address on a specified date. Any Party may change the address for notice by notifying the other Party of such change in accordance with this Section 9.1.
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issuance, and shall consider any comments received by the non-disclosing Party in good faith in advance of making any such disclosure or public statement.
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“Acquisition Proposal” means a bona fide offer or proposal to acquire, directly or indirectly, the Retail Business or all or any substantial portion of the Purchased Assets, in each case, in a single transaction or series of related transactions (whether such acquisition is structured as a sale of stock, sale of assets, merger, recapitalization or otherwise, other than the transactions provided for in this Agreement).
“Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by or is under common control with such Person. For purposes of the immediately preceding sentence, the term “controls” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, means (a) the current ownership of, or contractual right to vote, at least a majority of the outstanding voting securities of a Person or (b) the possession, directly or indirectly, of any other power to direct or cause the direction of the management and policies of such a Person, by contract or otherwise.
“Affiliated Group” means an affiliated group as defined in Section 1504 of the Code (or analogous combined, consolidated or unitary group defined under state, local or foreign income Tax Law).
“Board Change” means the occurrence of a change in the current Board of Directors of Parent such that the current members of the Board of Directors other than Robert B. Barnhill, Jr. no longer comprise a majority of the members of the Board.
“Business Day” means any day that is not a Saturday, a Sunday or a day on which the banks in New York, New York are closed.
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“Calendar Quarter” means March 31, June 30, September 30, or December 31, as applicable.
“Cash Consideration” means the sum of (a) $5,000,000, (b) the Transition Ventev Inventory Amount and the amounts paid by Buyer to Sellers for Transition Ventev Inventory delivered to Buyer after the Closing Date, and (c) the Final Inventory Value.
“Code” means the Internal Revenue Code of 1986, as amended.
“Contract Year” means the calendar year, except as otherwise set forth in Section 6.3(b).
“COVID-19” means the infectious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) and commonly known as “COVID-19.”
“COVID-19 Measure” means any action taken by Sellers, or that Sellers refrain from taking, on the basis of any requirement of any quarantine, “shelter in place”, “stay at home”, workforce reduction, social distancing, shut down, closure, sequester, or any other Law, Governmental Order, directive, guidelines, or written recommendations (which shall include recommendations included on websites, social media or other electronic means) by any Governmental Authority in connection with or in response to the COVID-19 Pandemic.
“COVID-19 Pandemic” means the pandemic caused by COVID-19 which, as of the date hereof, has spread throughout the world and has resulted in Governmental Authorities implementing numerous measures to try to contain COVID-19, including travel bans and restrictions, quarantines, shelter-in-place orders, stay-at-home orders and shutdowns.
“Estimated Inventory Value” means an amount equal to the [--] of the Inventory (other than the Transition Ventev Inventory) set forth on the Valuation Model, to be calculated in accordance with the Valuation Model.
“Excluded Inventory” means (a) all inventory of the Retail Business supplied by a Specified Vendor that has not established a commercial relationship with Buyer prior to the Closing Date (including any additions to such inventory due to customer returns after the Closing or acquired by Sellers subsequent to the Closing in the ordinary course pursuant to purchase orders submitted prior to Closing) and (b) all Excluded European Inventory.
“GAAP” means United States generally accepted accounting principles, consistently applied.
“Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction.
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“Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.
“Hazardous Wastes” means: (a) hazardous materials, hazardous substances, extremely hazardous substances or hazardous wastes, as those terms are defined by the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. §6901 et seq., and any other Environmental and Safety Requirements; (b) petroleum, including crude oil or any fraction thereof which is liquid at standard conditions of temperature and pressure (60 degrees Fahrenheit and 14.7 pounds per square inch absolute); (c) any radioactive material, including any source, special nuclear, or by-product material as defined in 42 U.S.C. §2011 et seq.; (d) asbestos in any form or condition; and (e) any other material, substance or waste to which liability or standards of conduct may be imposed under any Environmental and Safety Requirements.
“Inventory” means all inventory of the Retail Business, wherever located (including all Transition Ventev Inventory), other than Excluded Inventory and Excluded Ventev Inventory, in each case as listed on Schedule 1.2(a), as updated as of the Closing.
“Inventory Holdback Amount” means an amount equal to [--] of the Estimated Inventory Value, calculated in accordance with the Valuation Model as of the Closing.
“Law” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any Governmental Authority.
“Liabilities” means any indebtedness, liabilities or obligations of any nature whatsoever, whether accrued or unaccrued, absolute or contingent, direct or indirect, asserted or unasserted, fixed or unfixed, known or unknown, choate or inchoate, perfected or unperfected, liquidated or unliquidated, secured or unsecured, or otherwise, and whether due or to become due.
“Liens” means any claims, liens, charges, restrictions, options, preemptive rights, mortgages, hypothecations, assessments, pledges, encumbrances or security interests of any kind or nature whatsoever.
“Losses” means any and all losses, actual damages, Liabilities, Taxes, deficiencies, demands, claims, suits, actions, causes of action, assessments, interest, fines, penalties, costs or expenses, including reasonable attorneys’ fees and expenses (but excluding, in each case, punitive damages unless such damages are paid to a third party).
“Material Adverse Effect” means (a) any state of facts, events, changes, effects, results, occurrences, circumstances or developments that, individually or in the aggregate with all other facts, events, changes, effects, results, occurrences, circumstances or developments, would, or would reasonably be expected to, prevent or materially impair or delay Sellers’ ability to consummate the transactions contemplated by this Agreement in a timely manner, and (b) any state of facts, events, changes, effects, results, occurrences, circumstances or developments that, individually or in the aggregate with all other facts, events, changes, effects, results, occurrences, circumstances or developments, has had or would reasonably be expected to have, a material adverse effect on the financial condition, assets, liabilities, business or operating results of the
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Retail Business taken as a whole; provided that none of the following either alone or taken together with other facts, events, changes, effects, results, occurrences, circumstances or developments, will constitute, or be taken into account in determining whether there has been a Material Adverse Effect: (i) changes, events, occurrences or developments in, or effects or results arising from or relating to, general business or economic conditions affecting the industry in which the Retail Business operates, including cyclical fluctuations and trends; (ii) changes, events, occurrences or developments in, or effects or results arising from or relating to, national or international political or social conditions, including the engagement by the United States in hostilities or the escalation thereof, whether or not pursuant to the declaration of a national emergency or war, or the occurrence or the escalation of any military, cyber or terrorist attack upon the United States, or any of its territories, possessions, or diplomatic or consular offices or upon any military installation, asset, equipment or personnel of the United States; (iii) changes, events, occurrences or developments in, or effects or results arising from or relating to, financial banking, or securities markets; (iv) changes in, or effects arising from or relating to, any earthquake, hurricane, tsunami, tornado, flood, mudslide or other natural disaster, pandemic (including the COVID-19 Pandemic), weather condition, explosion or fire or other force majeure event or act of God; (v) changes, events, developments, occurrences, results or effects arising from or relating to the announcement, pendency or performance of this Agreement or the transactions contemplated hereby; or (vi) any failure, in and of itself, to achieve any budgets, projections, forecasts, estimates, plans, predictions, performance metrics or operating statistics or the inputs into such items (but, for the avoidance of doubt, not the underlying causes of any such failure to the extent such underlying cause is not otherwise excluded from the definition of Material Adverse Effect), except in the case of the foregoing clauses (i), (ii) and (iii), to the extent such facts, events, changes, effects, results, occurrences, circumstances or developments have a disproportionate impact on the Retail Business, as compared to other participants engaged in the industries in which the Retail Business operates.
“Net Sales Proceeds” means (a) the gross sales price of Inventory; and (b) the value of any non-cash consideration provided by a vendor in connection with opportunistic, non-ordinary course or one-off arrangements with such vendor (excluding standard return right or stock balancing) pursuant to which Buyer swaps or exchanges Inventory purchased from Sellers for newer inventory of such vendor (with the value of the corresponding newer inventory constituting the proceeds subject to the post-Closing purchase price adjustment set forth in this Agreement), in each case less out-of-pocket expenses associated with the sale or other transaction (e.g., freight costs, credit cards fees, packaging, and similar expenses) excluding selling, general and administrative expenses. For purposes of clause (a) above, Buyer shall not discount certain items of Inventory or allocate the value received upon the sale of multiple items of Inventory in each case in bad faith for the purpose of avoiding payment on the post-Closing purchase price adjustment set forth in this Agreement. Notwithstanding the foregoing, for purposes of Section 2.5, any Royalty paid pursuant to Section 6.3(b) shall constitute an out-of-pocket expense associated with the sale and be deducted from the calculation of Net Sales Proceeds.
“Organizational Documents” means (a) in the case of any Person organized as a corporation, the certificate or articles of incorporation of such corporation and the bylaws of such corporation, (b) in the case of any Person organized as a limited liability company, the certificate of formation or organization and the limited liability company agreement or operating agreement, (c) in the case of any Person organized as a limited partnership, the certificate of limited
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partnership and partnership agreement of such limited partnership, (d) in the case of any other Person, all constitutive or organizational documents of such Person which address matters relating to the business and affairs of such Person similar to the matters addressed by the documents referred to in clauses (a) through (c) above in the case of Persons organized as corporations, limited liability companies or limited partnerships and (e) any amendment to any of the foregoing.
“Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated association, limited liability company, corporation, entity or Governmental Authority.
“Seller Taxes” means, without duplication, (a) any and all Taxes imposed on Sellers for any taxable period, (b) any and all Taxes imposed on or with respect to the Purchased Assets for any taxable period (or portion of any taxable period) ending on or before the Closing Date, (c) any and all Taxes imposed in connection with the transactions contemplated by this Agreement (including any Transfer Taxes), or (d) any and all amounts payable (including Taxes) by Buyer with respect to the Purchased Assets as a result of transferee, successor or similar liability (including bulk transfer or similar Laws) by operation of Law (including pursuant to Treasury Regulations Section 1.1502-6 (or any predecessor or successor thereof or any analogous or similar Law)) or otherwise, which relate to an event or transaction occurring on or before the Closing Date.
“SKU” means the manufacturer part number applicable to a particular product or good.
“Tax” means any federal, state, local or foreign income, gross receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll, license, employee or other withholding, or other tax, of any kind whatsoever, including any interest, penalties or additions to tax or additional amounts in respect of the foregoing; the foregoing shall include any transferee or secondary liability for a tax and any liability assumed by agreement or arising as a result of being (or ceasing to be) a member of any Affiliated Group (or being included (or required to be included) in any Tax Return relating thereto).
“Tax Return” means any return, declaration, report, claim for refund, information return, notice, form or other documents filed or required to be filed, or maintained or required to be maintained, in connection with the determination, assessment or collection of any Tax of any Person or the administration of any Laws relating to any Tax, including any schedule, statements or attachment thereto or amendment thereof.
“Transaction Documents” means all agreements and instruments contemplated by and being delivered pursuant to or in connection with this Agreement.
“Transition Ventev Inventory” means Ventev-branded, mobile device accessory inventory and any Apple connectors which Buyer directed Sellers to purchase or consented to Sellers ordering on or after [--], through the Closing Date; provided, however that any such
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inventory which has been ordered but is in production or in transit as of the Closing shall only constitute Transition Ventev Inventory when it is received by Buyer.
“Transition Ventev Inventory Amount” means an amount equal to [--] of Sellers’ all-in cost with respect to Transition Ventev Inventory held by Sellers as of the Closing (which, for the avoidance of doubt, shall not include any Transition Ventev Inventory [--]), other than Excluded Ventev Inventory.
“Treasury Regulations” means the United States Treasury regulations issued pursuant to the Code.
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disclosure that the disclosure applies to such other referenced section or subsection. Inclusion of any matter in the Disclosure Schedule shall expressly not be deemed to constitute an admission by a Party or otherwise imply that any such matter is material, has a Material Adverse Effect or creates a measure for, or further defines the meaning of, materiality or Material Adverse Effect and their correlative terms for the purposes of this Agreement. Any capitalized terms used but not defined in any section of the Disclosure Schedule shall have the same meaning assigned to such term herein.
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[Signature page follows.]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written.
SELLERS:
TESSCO TECHNOLOGIES INCORPORATED
By:/s/ Aric Spitulnik
Name:Aric Spitulnik
Its:CFO
TESSCO INCORPORATED
By:/s/ Aric Spitulnik
Name:Aric Spitulnik
Its:CFO
TESSCO COMMUNICATIONS INCORPORATED
By:/s/ Aric Spitulnik
Name:Aric Spitulnik
Its:CFO
BUYER:
VOICE COMM, LLC
By:/s/Derek Weiss
Name:Derek Weiss
Its:Chief Executive Officer
Exhibit 31.1.1
CERTIFICATION
I, Sandip Mukerjee, certify that:
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Date: |
November 6, 2020 |
By: |
/s/ Sandip Mukerjee |
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Sandip Mukerjee |
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President and Chief Executive Officer |
Exhibit 31.2.1
CERTIFICATION
I, Aric Spitulnik, certify that:
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Date: |
November 6, 2020 |
By: |
/s/ Aric M. Spitulnik |
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Aric Spitulnik |
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Senior Vice President, Corporate Secretary and |
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Chief Financial Officer |
Exhibit 32.1.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, Sandip Mukerjee, Chief Executive Officer of TESSCO Technologies Incorporated (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
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Date: |
November 6, 2020 |
By: |
/s/ Sandip Mukerjee |
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Sandip Mukerjee |
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Exhibit 32.2.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, Aric Spitulnik, Chief Financial Officer of TESSCO Technologies Incorporated (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1.The Quarterly Report on Form 10-Q of the Company for the quarter ended September 27, 2020 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: |
November 6, 2020 |
By: |
/s/ Aric M. Spitulnik |
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Aric Spitulnik |
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.