Overview


The following discussion should be read together with the Consolidated Financial
Statements and the related Notes thereto and other financial information
appearing elsewhere in this Form 10-K. All references herein to the term "fiscal
year" shall mean a year ended March 31 of the year specified.
As noted above, the Company's reporting obligations with the SEC were suspended
beginning with the fiscal year that commenced on April 1, 2021; therefore, this
Form 10-K will be the last Company financial document filed with the SEC unless
circumstances change and reporting obligations are re-activated. The Company
intends to file future quarterly, unaudited results on the OTC Market website
beginning with quarter ending June 30, 2021, but could reassess in the future.
Westell Technologies, Inc. (Pink: WSTL) trades on the OTC Pink Open Market and
the Westell financial information can be found at:
www.otcmarkets.com/stock/WSTL/financials.
Westell Technologies, Inc., (the "Company") was incorporated in Delaware in 1980
and is headquartered at 750 North Commons Drive, Aurora, Illinois 60504. The
Company is a leading provider of high-performance network infrastructure
solutions focused on innovation and differentiation at the edge of communication
networks where end users connect. The Company's portfolio of products and
solutions enable service providers and network operators to improve performance
and reduce operating expenses. With millions of products successfully deployed
worldwide, the Company is a trusted partner for transforming networks into
high-quality reliable systems.
Reverse/Forward Stock Split and Deregistration/Delisting of Class A Common Stock
On September 29, 2020, the Company filed amendments to its amended and restated
certificate of incorporation to effect a 1-for-1,000 reverse stock split of the
Company's Class A and Class B Common Stock, followed immediately by a
1,000-for-1 forward stock split (the "Transaction"). The Company's stockholders
approved the Transaction at the Annual Meeting of Stockholders held on September
29, 2020. The effective date of the Transaction was October 1, 2020. As a result
of the Transaction, the Company paid $7.2 million to repurchase approximately
4.9 million shares of the Class A Common Stock at a purchase price of $1.48 per
share.
In October 2020, the Company filed a Form 25 and Form 15 with the SEC to delist
and deregister our Class A Common Stock. As a result, our Class A Common Stock
is no longer listed on the Nasdaq Capital Market and trading in our Class A
Common Stock will only occur in privately negotiated sales and on the OTC Pink
Open Market, if one or more brokers continues to choose to make a market for our
Class A Common Stock there and complies with applicable regulatory requirements;
however, there can be no assurances regarding any such trading.
COVID-19 Impact
In March 2020, the World Health Organization declared the spread of COVID-19 a
pandemic. COVID-19 continues to mutate throughout the U.S. and around the world.
As a result, throughout fiscal year 2021 and into fiscal year 2022, authorities
continue to implement numerous measures to try to contain the virus, including
restrictions on travel, quarantine recommendations, and various business
restrictions. The Company is considered an "essential business" due to the
industries and customers we serve, including critical telecommunications
infrastructure. Accordingly, we have followed recommendations of the Centers for
Disease Control (the "CDC") and have continued operations with enhanced safety
precautions throughout the pandemic.
To support the health and well-being of our workforce, customers, partners and
communities, all of our employees who do not have critical in-person functions
have been working remotely to lower the number of people working on-site at any
given time. For those employees working in our facilities, we have instituted
mediation measures including increased distancing of workstations, more frequent
cleanings, face mask requirements, restricting access to our premises, and other
safety precautions. We continue to monitor and follow CDC and State COVID-19
guidelines and will revise our mediation efforts and protocols based on those
guidelines.
We have experienced and may continue to experience the adverse impact of the
pandemic on our financial results. There remains significant uncertainty with
respect to future customer demand, supply chain availability, and transportation
costs going forward. These uncertainties depend on the duration of the pandemic
and containment measures as well as how our compliance with these measures will
impact our operations as well as those of our customers, contract manufacturers
and other supply chain partners.
We are continuing to monitor developments related to the pandemic on our own
operations as well as on our suppliers, contract manufacturers and customers. We
intend to adapt to the changing environment while acting to ensure the health
and safety of our employees.
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On April 14, 2020, the Company received $1.6 million pursuant to a loan under
the Paycheck Protection Program (the "PPP") of the 2020 Coronavirus Aid, Relief
and Economic Security Act (the "CARES Act") administered by the Small Business
Association. On March 16, 2021, JPM notified the Company that the SBA provided
forgiveness for the full amount of the PPP Loan, plus all related accrued
interest. The gain associated with the forgiveness is presented on the
Statements of Operations as Gain on forgiveness of first draw PPP loan.
On March 15, 2021, the Company obtained an unsecured second draw PPP loan
through St. Charles Bank & Trust Company, N.A. ("Wintrust") in the amount of
$1.6 million (the "PPP2 Loan"). The PPP2 Loan was made through the SBA pursuant
to the Consolidated Appropriations Act, 2021 (the "CAA") that was signed into
law in December 2020.  All or a portion of this loan may be forgiven if certain
requirements are met.  The Company intends to adhere to the requirement and
apply for loan forgiveness, but no assurance can be given that the Company will
obtain forgiveness of the PPP2 Loan, in whole or in part.
Segments
The Company has three reportable operating segments: In-Building Wireless
("IBW"), Intelligent Site Management ("ISM"), and Communications Network
Solutions ("CNS").
  IBW Segment
IBW segment solutions enable cellular and public safety coverage in stadiums,
arenas, malls, buildings, and other indoor areas not served well or at all by
the existing "macro" outdoor cellular network. For cellular service, solutions
include indoor distributed antenna systems ("DAS"), DAS conditioners and digital
repeaters. For the public safety market, solutions include Class A repeaters,
Class B repeaters, and battery backup units. IBW also offers ancillary products
that consist of passive system components and antennas for both the cellular
service and public safety markets.
  ISM Segment
ISM segment solutions include a suite of remote units, which provide
machine-to-machine ("M2M") communications that enable operators to remotely
monitor, manage, and control physical site infrastructure and support systems.
Remote units can be and often are combined with the Company's Optima management
software system. ISM also offers support services (i.e., maintenance agreements)
and deployment services (i.e., installation).
  CNS Segment
CNS segment solutions include a broad range of hardened network infrastructure
offerings suitable for both indoor and outdoor use. The offerings consist of
integrated cabinets, power distribution products, copper and fiber network
connectivity products, fiber access products and T1 network interface units
("NIUs").
Customers
The Company's customer base for its products includes communication service
providers, systems integrators, neutral host operators, and distributors.
Communication service providers include wireless and wireline service providers,
multiple systems operators ("MSOs"), and Internet service providers ("ISPs").
Due to stringent customer quality specifications and the regulated environment
in which customers operate, the Company must undergo lengthy approval and
procurement processes prior to selling most of its products. Accordingly, the
Company must make significant up-front investments in product and market
development prior to actual commencement of sales of new products. Prices for
the Company's products vary based upon volume, customer specifications, and
other criteria, and they are subject to change for a variety of reasons,
including cost and competitive factors.
To remain competitive, the Company must continue to invest in new product
development and in targeted sales and marketing efforts to launch new product
features and lines. Failure to increase revenues from new products, whether due
to lack of market acceptance, competition, technological changes, purchasing
decisions, meeting technical specifications or otherwise, could have a material
adverse effect on the Company's business and results of operations. The Company
expects to continue to evaluate new product opportunities and invest in product
research and development activities.
In view of the Company's reliance on the telecommunications market for revenues,
the project nature of the business, the unpredictability of orders, and pricing
pressures, the Company believes that period-to-period comparisons of its
financial results should not be relied upon as an indication of future
performance. The Company has experienced quarterly fluctuations in customer
ordering and purchasing activity due primarily to the project-based nature of
the business and to budgeting and procurement patterns toward the end of the
calendar year or the beginning of a new year. While these factors can result in
the greatest fluctuations in the Company's third and fourth fiscal quarters,
this is not always consistent and may not always correlate to financial results.
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Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with GAAP requires
management to make use of certain estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, and that affect
the reported amounts of revenue and expenses during the reported periods. The
Company bases estimates on historical experience and on various other
assumptions that management believes are reasonable under the circumstances.
These estimates and assumptions form the basis for judgments about carrying
values of assets and liabilities that may not be readily apparent from other
sources. Actual results could differ from the amounts reported.
In Note 2 to the Consolidated Financial Statements, the Company includes a
discussion of its significant accounting policies. The Company believes the
following are the most critical accounting policies and estimates used in the
preparation of the financial statements. The Company considers an accounting
policy or estimate to be critical if it requires assumptions to be made
concerning uncertainties, and if changes in these assumptions could have a
material impact on financial condition or results of operations.
Inventories and Inventory Valuation
Inventories are stated at the lower of first-in, first-out ("FIFO") cost or net
realizable value. Net realizable value is based upon an estimated average
selling price reduced by estimated costs of disposal. Should actual market
conditions differ from the Company's estimates, the Company's future results of
operations could be materially affected. Reductions in inventory valuation are
included in Cost of revenue in the accompanying Consolidated Statements of
Operations. The Company reviews inventory for excess quantities and obsolescence
based on its best estimates of future demand, product lifecycle status and
product development plans. The Company uses historical information along with
these future estimates to reduce the inventory cost basis. Subsequent changes in
facts and circumstances do not result in the restoration or increase in that
newly established cost basis. Prices anticipated for future inventory demand are
compared to current and committed inventory values.
Intangible Assets
Intangible assets with determinable lives are amortized over the useful lives of
the assets. If the Company were to determine that a change to the remaining
estimated useful life of an intangible asset was necessary, then the remaining
carrying amount of the intangible asset would be amortized prospectively over
that revised remaining useful life. On an ongoing basis, intangible assets and
other long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of such assets may not be
recoverable. Determination of recoverability is based on an estimate of
undiscounted future cash flows resulting from the use of the asset and its
eventual disposition. If the carrying amount of an asset exceeds its estimated
future undiscounted cash flows, an impairment loss is recorded for the excess of
the asset's carrying amount over its fair value.
Income Taxes
The Company accounts for income taxes under the provisions of ASC Topic 740,
Income Taxes ("ASC 740"). ASC 740 requires an asset and liability based approach
in accounting for income taxes. Deferred income tax assets, including net
operating loss ("NOL") and certain tax credit carryovers and liabilities, are
recorded based on the differences between the financial statement and tax bases
of assets and liabilities, applying enacted statutory tax rates in effect for
the year in which the tax differences are expected to reverse. Valuation
allowances are provided against deferred tax assets that are assessed as not
likely to be realized. On a quarterly basis, management evaluates the
recoverability of deferred tax assets and the need for a valuation allowance.
This evaluation requires the use of estimates and assumptions and considers all
positive and negative evidence and factors, such as the scheduled reversal of
temporary differences, the mix of earnings in the jurisdictions in which the
Company operates, and prudent and feasible tax planning strategies. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the dates of enactment. The Company accounts for unrecognized tax
benefits based upon its assessment of whether a tax benefit is more likely than
not to be sustained upon examination by tax authorities. The Company reports a
liability for unrecognized tax benefits resulting from unrecognized tax benefits
taken or expected to be taken in a tax return and recognizes interest and
penalties, if any, related to its unrecognized tax benefits in income tax
expense.
Revenue Recognition and Deferred Revenue
The Company records revenue based on a five-step model in accordance with ASC
Topic 606, Revenue From Contracts With Customers ("ASC 606"). The Company's
revenue is derived from the sale of products, software, and services identified
in contracts. A contract exists when both parties have an approved agreement
that creates enforceable rights and obligations, identifies performance
obligations and payment terms and has commercial substance. The Company records
revenue from these contracts when control of the products or services transfer
to the customer. The amount of revenue to be recognized is based upon the
consideration, including the impact of any variable consideration that the
Company expects to be entitled to receive in exchange for these products and
services.
The majority of the Company's revenue is recorded at a point in time from the
sale of tangible products. Revenue is recorded when control of the products
passes to the customer, dependent upon the terms of the underlying contract. For
right-to-use
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software, revenue is recognized at the point in time the customer has the right
to use and can substantially benefit from use of the software. Products
regularly include warranties that include bug fixes and minor updates so that
the products continue to function as promised in a dynamic environment, and
phone support. These standard warranties are assurance type warranties that do
not offer any services beyond the assurance that the product will continue
working as specified. Therefore, warranties are not considered separate
performance obligations. Instead, the Company accrues the expected cost of
warranty. Extended warranties are sold separately with a post-contract support
("PCS") agreement. PCS revenue is recognized over time during the support
period. Revenue from installation services is recognized when the services have
been completed or transferred as this is when the customer has obtained control.
The Company has contracts with multiple performance obligations. When the sales
agreement involves multiple performance obligations, each obligation is
separately identified and the transaction price is allocated based on the amount
of consideration the Company expects to be entitled to in exchange for
transferring the promised good or service to the customer. In most cases, the
Company allocates the consideration to each performance obligation based on the
relative stand-alone selling price ("RSP") of the distinct performance
obligation. In circumstances where RSP is not observable, the Company allocates
the consideration for the performance obligations by utilizing the residual
approach.
For performance obligations that the Company satisfies over time, revenue is
recognized by consistently applying a method of measuring progress toward
complete satisfaction of that performance obligation. The Company utilizes the
method that most accurately depicts the progress toward completion of the
performance obligation. If the measure of remaining rights exceeds the measure
of the remaining performance obligations, the Company records a contract asset.
Conversely, if the measure of the remaining performance obligations exceeds the
measure of the remaining rights, the Company records a contract liability.
Contract assets and liabilities related to product returns will be recorded as
contract assets and liabilities and presented on the Consolidated Balance Sheets
in Prepaid expenses and other current assets and Deferred revenue, respectively.
Customer billings for services not yet rendered are deferred and recognized as
revenue as the services are rendered. The associated deferred revenue is
included in Deferred revenue or Deferred revenue non-current, as appropriate, in
the Consolidated Balance Sheets.
The Company records revenue net of taxes.
Results of Operations
Fiscal Years Ended March 31, 2021 and 2020
Revenue by segment            Fiscal Year Ended March 31,                  Increase (Decrease)
                                                                                 2021 vs.
(in thousands)                    2021                   2020                      2020
IBW                    $        9,683                 $ 10,021            $               (338)
ISM                             9,352                   10,101                            (749)
CNS                            10,912                    9,834                           1,078
Consolidated revenue   $       29,947                 $ 29,956            $                 (9)


IBW
IBW segment revenue decreased $0.3 million in fiscal year 2021 when compared to
fiscal year 2020.
The following is a more detailed analysis of the IBW product revenue in fiscal
year 2021, compared to the prior year and anticipated trends:
• The Company recognized revenue of approximately $0.9 million from the new
Crossfire Cellular DAS product line that was introduced in fiscal year 2021. The
Company has a $2.0 million Crossfire product backlog that is expected to ship in
the second or third quarter of fiscal year 2022. The Crossfire system is a
digital transport system extending cellular signals throughout buildings where
existing cellular coverage is poor. Due to the project-based nature of this
revenue, it is difficult to make a determination on future trends, but we
anticipate the new Crossfire product line is a growth opportunity.

• Sales of DAS conditioners, which include our Universal DAS Interface Tray
("UDIT") active conditioner, were down approximately $0.3 million in fiscal year
2021, compared to the prior year. During fiscal year 2020, sales of DAS
conditioners also decreased compared to prior years due to network architecture
shifts to alternative solutions in large venues such as stadiums and arenas, as
well as integration of RF signal power attenuation (the primary function of
conditioners) into larger network elements. Going forward, we do not anticipate
sales of conditioners to rebound to previous levels, but we do expect on-going
demand where customers may add capacity to the existing
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embedded base of large-venue DAS networks, as well as in smaller in-building DAS
deployments that require a stand-alone conditioner.

• Sales of cellular repeaters were down approximately $0.4 million in fiscal
year 2021, compared to the prior year. While still a reliable and proven
solution for amplifying cellular coverage inside a building, lower sales of
cellular repeaters are reflective of the continuing downward-demand trend as our
larger customers have had a stronger preference for small cells to provide
in-building cellular coverage. We expect the cellular repeater market to decline
as customers continue to shift to other forms of commercial in-building
coverage, such as small cells.

• Despite the slowdown of installations due to COVID-19 during fiscal year 2021,
sales were relatively flat for our public safety products, which include Class A
Repeaters, Class B Repeaters and battery backup units, compared to the prior
year. These public safety repeaters perform similarly to cellular repeaters and
extend public safety radio signals inside buildings where existing radio
coverage does not reach. The products are dedicated only to public safety
frequency bands and meet the strict National Fire Protection Association
("NFPA") regulatory requirements. We expect the market for public safety
products to grow as more local municipalities pass and enforce ordinances that
require in-building wireless communication coverage for first responders and
emergency personnel. The Company recently launched two new UL2524 compliant
public safety products: an Enhanced Class B repeater in July 2020 and
ProtectLink Class A/B repeater in April 2021.

• Ancillary products (passive RF system components and antennas) sales decreased
by $0.6 million in fiscal year 2021, compared to the prior year. Future
ancillary product revenue could potentially increase with the increase in public
safety revenue, but may follow the same flat-to-down trend as DAS conditioners
and cellular repeaters.

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

ISM


ISM segment revenue decreased by $0.7 million in fiscal year 2021, compared to
the prior year. The decrease was primarily driven by demand for sales of remote
units, offset in part by small increases in deployment and support revenue. The
RMM-300, a new monitoring product, was launched in March 2021. The RMM-300
includes 40 input/output ports and a built-in processor core with an Ethernet
port to backhaul alarms to a Network Operating Center ("NOC"). A Tier 1 carrier
started purchasing the product in March 2021 and is installing the product as
they upgrade their 3G cellular sites. Due to the project-based nature of our ISM
business, it is difficult to make a determination on future trends.
COVID-19-related travel restrictions are expected to continue to impact timing
of new installations while government and customer restrictions remain in place.
Although it is uncertain, we may see increased demand for our ISM remote
monitoring equipment and software given the current market conditions and,
customers may choose to accurately monitor remote locations so they dispatch the
correct repair personnel, especially in areas where there are limited personnel,
local travel restrictions, and a need to limit face-to-face interactions;
however, we cannot provide any assurances.

CNS


CNS segment revenue increased $1.1 million in fiscal year 2021, compared to
fiscal year 2020. The increase was primarily due to increased sales from
integrated cabinets.
Sales of integrated cabinets, which are heavily project-based, are likely to
remain uneven. While we expect sales of power distribution products and
copper/fiber connectivity panels to remain steady, we anticipate revenue from T1
NIUs and TMAs, which are older technology with declining use, to continue to
decrease over time.
COVID-19 restrictions on travel could increase demand for our CNS integrated
cabinets used in rural broadband, which is expected to expand to support a
larger number of people working remotely. However, customers could also feel
pressure to delay their capital spending to preserve cash.
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Gross profit and gross margin                       Fiscal Year Ended March 31,              Increase (Decrease)
                                                                                                                        2021 vs.
(in thousands)                                    2021                   2020                                             2020
IBW                                        $        2,524           $      2,613                                     $        (89)
                                                     26.1   %               26.1  %                                             -  %
ISM                                        $        5,244           $      5,236                                     $          8
                                                     56.1   %               51.8  %                                           4.3  %
CNS                                        $        2,304           $      1,798                                     $        506
                                                     21.1   %               18.3  %                                           2.8  %
Consolidated gross profit                  $       10,072           $      9,647                                     $        425
Consolidated gross margin                            33.6   %               32.2  %                                           1.4  %


In fiscal year 2021, consolidated gross margin increased 1.4% compared to fiscal
year 2020.
The primary factors that caused year-over-year changes within each segment are
as follows:
•IBW segment gross margin remained steady primarily due to a shift to lower
margin from public safety products and increased freight and tariff costs,
offset by lower excess and obsolete costs. The fiscal year 2021 provision for
excess and obsolete inventory included approximately $0.3 million related to the
decision to discontinue future production of products under the license
agreement. See Long-lived assets impairment below.
•ISM segment gross margin increased, by 4.3%, due primarily to lower excess and
obsolete inventory, offset in part by lower revenue against fixed costs.
•CNS segment gross margin increased, by 2.8%, due primarily to lower excess and
obsolete inventory costs.
Other factors contributed broadly to impact gross margins. Increased tariffs on
products and components imported from China have caused cost increases over
fiscal year 2020 costs. In fiscal year 2021, we experienced delivery delays,
shortages and increased transportation costs due to the global impact of
COVID-19. Supply shortages have required us to purchase parts from suppliers at
higher costs that were not passed along to our customers. We expect these trends
to continue well into fiscal year 2022.
Research and development ("R&D")                 Fiscal Year Ended March 31,                      Increase (Decrease)
                                                                                                       2021 vs.
(in thousands)                                   2021                    2020                            2020
IBW                                       $        1,596           $       1,757                $               (161)
ISM                                                1,623                   2,237                                (614)
CNS                                                  813                   1,352                                (539)
Consolidated R&D expense                  $        4,032           $       5,346                $             (1,314)
Percentage of revenue                                 13   %                  18  %


In fiscal year 2021, R&D expense decreased $1.3 million compared to fiscal year
2020. The decrease was primarily attributable to a lower expense structure
resulting from the Company's overall cost reduction efforts across all three
reporting segments, including the restructuring in the quarter ended December
31, 2019 and included a temporary salary reduction during the first quarter of
fiscal year 2021 in response to COVID-19. The IBW segment recently launched two
new UL2524 compliant public safety products: an Enhanced Class B repeater in
July 2020, and ProtectLink Class A/B repeater in April 2021.
Sales and marketing ("S&M")                          Fiscal Year Ended March 31,                      Increase (Decrease)
                                                                                                           2021 vs.
(in thousands)                                       2021                    2020                            2020
Consolidated S&M expense                      $        5,207           $       7,592                $             (2,385)
Percentage of revenue                                     17   %                  25  %


In fiscal year 2021, sales and marketing expense decreased by $2.4 million,
compared to fiscal year 2020. The decrease was largely attributable to a lower
expense structure from the restructuring in the quarter ended December 31, 2019,
and the Company's overall cost reduction efforts. The decrease also reflects
lower travel and entertainment expenses primarily due to COVID-19 restricted
travel and included a temporary salary reduction during the first quarter of
fiscal year 2021 in response to COVID-19.
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General and administrative ("G&A")                 Fiscal Year Ended March 31,                      Increase (Decrease)
                                                                                                         2021 vs.
(in thousands)                                     2021                    2020                            2020
Consolidated G&A expense                    $        4,086           $       4,757                $               (671)
Percentage of revenue                                   14   %                  16  %


In fiscal year 2021, general and administrative expense decreased by $0.7
million, compared to fiscal year 2020. The decrease was largely attributable to
a lower expense structure from the restructuring in the quarter ended December
31, 2019, and the Company's overall cost reduction efforts. Fiscal year 2021
includes approximately $0.3 million of non-recurring transactions costs related
to the reverse/forward stock split, offset in part by a temporary salary
reduction during the first quarter of fiscal year 2021 in response to COVID-19.

Intangibles amortization
Acquisition-related amortization                                  Fiscal Year Ended March 31,                             Increase (Decrease)
                                                                                                                               2021 vs.
(in thousands)                                                    2021                           2020                            2020
Consolidated intangibles amortization               $           903                        $       1,233                $               (330)


Amortization amounts in the fiscal years 2021 and 2020, were non-cash expenses
related to ISM intangible assets established through prior acquisition. These
intangible assets consist of product technology, customer relationships, and
trade names derived from the acquisition. The decrease of $0.3 million in fiscal
year 2021, compared to the prior fiscal year, resulted primarily from trademark
intangibles becoming fully amortized in the fourth quarter of fiscal year 2020.
Product Licensing Rights
On July 31, 2019, the Company entered into a five year License and Service
Agreement (the "Agreement") with a public safety manufacturing company pursuant
to which the Company obtained worldwide product licensing rights for existing
products to be manufactured at our contract manufacturer for our IBW segment.
Under the terms of the Agreement, the Company made an up-front payment of $1.0
million, in connection with the execution of the Agreement and was required to
pay an additional $1.0 million upon the achievement of certain milestones, as
well as royalties on future sales. As of March 31, 2020, $0.3 million for the
last milestone was unpaid and is presented in Accounts Payable on the
Consolidated Balance Sheet. The product licensing rights are being amortized
straight-line over the term of the Agreement. The amortization related to this
intangible asset was $0.2 million and $0.3 million during fiscal years 2021 and
2020, respectively, and is presented in Cost of revenue on the Consolidated
Statements of Operations. In February 2021, a small fire at a subcontractor
destroyed inventory that was being used to produce some of Westell's products.
Insurance policies are expected, but not guaranteed, to cover the replacement
value of the assets that incurred losses or damages, less a $50,000 deductible.
The loss of the inventory caused delays in delivering products and a decision to
accelerate engineering efforts to develop a new replacement product. See
Long-lived assets impairment below.
Restructuring                                               Fiscal Year Ended March 31,                                Increase (Decrease)
                                                                                                                            2021 vs.
(in thousands)                                              2021                              2020                            2020
Consolidated restructuring expense          $              -                            $         234                $               (234)


There were no restructuring expenses recorded in fiscal year 2021. In fiscal
year 2020, the Company recorded a restructuring expense of $0.2 million related
to employee termination costs that spanned all three segments.
Long-lived assets impairment                           Fiscal Year Ended March 31,                            Increase (Decrease)
                                                                                                                   2021 vs.
(in thousands)                                    2021                             2020                              2020
Consolidated long-lived assets impairment             525                            1,007                  $               (482)


In February 2021, as previously mentioned, a small fire at a subcontractor
destroyed inventory that was being used to produce product under the IBW license
agreement. Due to long lead times, increased costs and new minimum order
quantities on replacement components, the Company made a decision to accelerate
engineering efforts to develop a new replacement product and abandon the
production of product under the license agreement. As a result, during the
quarter ended March 31, 2021, the Company recorded a non-cash impairment loss of
$0.5 million to fully impair the product licensing right intangible asset.
During the quarter ended March 31, 2020, the Company incurred an impairment
charge of $1.0 million in connection with our product license, acquired under
the Agreement, to produce and sell specific Public Safety products. This
non-cash impairment of an intangible asset was triggered by the uncertainties
caused by demand disruptions in part due to site access limitations and
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delayed project planning and approvals due to COVID-19. The potential deferral
of revenues within a fixed license period created an impaired value.
Gain on forgiveness of first draw PPP loan
On April 14, 2020, the Company obtained an unsecured first draw Paycheck
Protection Program ("PPP") loan through JPMorgan Chase Bank, N.A. ("JPM") in the
amount of $1.6 million (the "PPP Loan"). The PPP Loan was made through the
United States Small Business Administration (the "SBA") as part of the PPP under
the 2020 Coronavirus Aid, Relief and Economic Security Act (the "CARES Act").
On March 16, 2021, JPM notified the Company that the SBA provided forgiveness
for the full amount of the PPP Loan, plus all related accrued interest. The gain
associated with the forgiveness is presented on the Statements of Operations as
Gain on forgiveness of first draw PPP loan.
Other income (expense)                                 Fiscal Year Ended March 31,                            Increase (Decrease)
                                                                                                                   2021 vs.
(in thousands)                                    2021                             2020                              2020
Consolidated other income (expense)                   288                              456                  $               (168)


Other income (expense), net was income of $0.3 million and $0.5 million for
fiscal years 2021 and 2020, respectively. Other income (expense), net contains
interest income earned on cash and cash equivalents plus foreign currency gains
and losses related primarily to receivables and investments denominated in
Australian and Canadian currencies. The fiscal year 2021 also includes a $0.2
million gain on the sale of IPV4 addresses. The decrease during fiscal year
2021, compared to the prior fiscal year, was primarily due to decreased cash
balances and lower interest rates on investments.
Income tax (expense) benefit
Income tax benefit in fiscal year 2021 was $22,000 and income tax expense in
fiscal year 2020 was $36,000. Income tax expense resulted from foreign tax and
state tax based on gross margin and in fiscal year 2021 the reversal of a
previously identified uncertain tax position following the closing of an audit.
In fiscal years 2021 and 2020, the Company continued to maintain a full
valuation allowance on deferred tax assets.
As of March 31, 2020, the Company has a $0.3 million tax receivable associated
with prior federal alternative minimum tax ("AMT") credit carryforward, which is
recorded as a tax receivable within Prepaid and other non-current assets on the
Consolidated Balance Sheets. On March 27, 2020, the CARES Act was signed into
law. Among the changes to the U.S. federal income tax rules, the CARES Act
accelerated the timeframe for refunds of AMT credits. The Company recovered the
entire amount in fiscal year 2021 via tax refunds. Under the CARES Act, the
Company is deferring the employer portion of social security taxes and will
apply for a refund of its Alternative Minimum Tax credit. For the fiscal year
2021, the Company has deferred $0.4 million of payroll taxes. The payroll taxes
will be deferred until the due dates of December 31, 2021 and December 31, 2022.
The Company records a deferred tax asset for the payroll tax liability that is
not deductible in fiscal year 2021 for income tax purposes. Also under the CARES
Act, the PPP was established to provide loans to eligible businesses. Under the
terms of the PPP, certain amounts of the loan may be forgiven if used for
qualifying expenses, as described in the CARES Act. For fiscal year 2021, the
Company is excluding $1.6 million of income related to the loan forgiveness from
taxable income.
Net income (loss)
Net loss was $2.7 million and $10.1 million in fiscal years 2021 and 2020,
respectively. The change was due to the cumulative effects of the variances
identified above.
Quarterly Results of Operations
The Company has experienced, and may continue to experience, fluctuations in
quarterly results of operations. Such fluctuations in quarterly results may
correspond to substantial fluctuations in the market price of the Class A Common
Stock. Some factors, which have had an influence on and may continue to
influence the Company's results of operations in a particular quarter include,
but are not limited to, the size and timing of customer orders and subsequent
shipments, customer order deferrals in anticipation of new products, timing of
product introductions or enhancements by the Company or its competitors, market
acceptance of new products, technological changes in the telecommunications
industry, competitive pricing pressures, accuracy of customer forecasts of
end-user demand, write-offs for excess or obsolete inventory, impairments,
changes in the Company's operating expenses, personnel changes, foreign currency
fluctuations, changes in the mix of products sold, quality control of products
sold, disruption in sources of supplies, regulatory changes, capital spending,
delays of payments by customers, working capital deficits and general economic
conditions, as well as the ongoing COVID-19 pandemic.
                                      -24-
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Sales to the Company's customers typically involve long approval and procurement
cycles and can involve large purchase commitments. Accordingly, cancellation or
deferral of orders could cause significant fluctuations in the Company's
quarterly results of operations. As a result, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and caution should be used when placing reliance upon such
comparisons as indications of future performance.
Liquidity and Capital Resources
Overview
Due to significant uncertainty around future customer demand, supply chain
availability, transportation costs, and our ability to sustain our operations as
the COVID-19 pandemic continues, we are proactively managing costs and working
capital in order to protect our financial position and maintain our workforce.
Effective April 1, 2020, we reduced operating expenses through director fee
reductions, elimination of non-essential travel, and reduced discretionary
spending. At March 31, 2021 and 2020, the Company had $16.9 million and $20.9
million in cash and cash equivalents, respectively.
To preserve cash and liquidity, we are delaying non-essential capital
expenditures and will delay usage of funds authorized under our stock repurchase
program. On April 14, 2020, the Company obtained an unsecured first draw PPP
loan through JPMorgan Chase Bank, N.A. ("JPM") in the amount of $1.6 million.
The PPP Loan was made through the SBA as part of the PPP under the CARES Act.
On March 16, 2021, JPM notified the Company that the SBA provided forgiveness
for the full amount of the PPP Loan, plus all related accrued interest. On March
22, 2021, the Company received funds pursuant to an unsecured second draw PPP
loan through St. Charles Bank & Trust Company, N.A. ("Wintrust") in the amount
of $1.6 million. The PPP2 Loan is presented on the Consolidated Balance Sheets
as Note Payable- non-current. The PPP2 Loan was made through the SBA pursuant to
the CAA that was signed into law in December 2020.  The PPP2 Loan has a
five-year term, bears interest at a rate of 1.00% per annum, and may be prepaid
at any time without incurring any prepayment charges. All or a portion of this
loan may be forgiven if certain requirements are met.  The Company intends to
adhere to the requirement and apply for loan forgiveness, but no assurance can
be given that the Company will obtain forgiveness of the PPP2 Loan, in whole or
in part.
Under the CARES Act, the Company is deferring the employer portion of social
security taxes and will apply for a refund of its Alternative Minimum Tax
credit. For the fiscal year ended March 31, 2021, the Company has deferred $0.4
million of payroll taxes. The payroll taxes will be deferred until the due dates
of December 31, 2021 and December 31, 2022. The Company continues to monitor
government economic stabilization efforts and is awaiting further IRS
clarification to determine eligibility for the calendar year 2021 employee
retention credit ("ERC").
We expect our existing cash balance will be sufficient to meet our liquidity
needs for the next twelve months.
Cash Flows
The Consolidated Statements of Cash Flows include discontinued operations.
The significant changes in cash flows were as follows:
                                                                 Fiscal Year Ended March 31,
(in thousands)                                                 2021                             2020

Net cash flow provided by (used in):


  Operating activities                            $               95                    $          (2,272)
  Investing activities                                           (72)                              (2,124)
  Financing activities                                        (4,008)                                (192)
Net increase (decrease) in cash and cash
equivalents                                       $           (3,985)                   $          (4,588)


The Company's operating activities generated cash of $0.1 million and used cash
of $2.3 million in fiscal years 2021 and 2020, respectively. The change resulted
primarily from the decreased net loss in the current period adjusted for
non-cash items, offset in part by a decrease in cash generated by working
capital when compared to the prior year.
The Company's investing activities used cash of $0.1 million and $2.1 million in
fiscal years 2021 and 2020, respectively. The decreased usage was primarily due
to the fiscal year 2020 $2.0 million investment in IBW product licensing rights.
The Company's financing activities used cash of $4.0 million and $0.2 million in
fiscal years 2021 and 2020, respectively. The increased use of cash was
primarily from the Transaction in the quarter ended December 31, 2020 where the
Company paid $7.2 million to repurchase 4.9 million shares of Class A Common
stock as part of the Transaction, offset in part by the $3.3 million in proceeds
from the PPP and PPP2 loans.
                                      -25-

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As of March 31, 2021, the Company had net deferred tax assets of approximately
$40.6 million before a valuation allowance of $40.6 million. The Company's
ability to utilize NOL carryforwards and other tax attributes to reduce future
federal taxable income is subject to potential limitations under Internal
Revenue Code Section 382 ("Section 382") and its related tax regulations. The
utilization of these attributes may be limited if certain ownership changes by
5% stockholders (as defined in Treasury regulations pursuant to Section 382) and
the effects of stock issuances by the Company during any three-year period
result in a cumulative change of more than 50% in the beneficial ownership of
the Company. The Company completed the Section 382 analysis for fiscal year 2021
and has concluded there were no ownership changes during the fiscal year 2021
that triggered a Section 382 limitation. If it is determined that an ownership
change has occurred under these rules, the Company would generally be subject to
an annual limitation on the use of pre-ownership change NOL carryforwards and
certain other losses and/or credits. In addition, certain future transactions
regarding the Company's equity, including the cumulative effects of small
transactions as well as transactions beyond the Company's control, could cause
an ownership change and therefore a potential limitation on the annual
utilization of the deferred tax assets. Also, as of March 31, 2021, the Company
had a $0.8 million tax contingency reserve related to uncertain tax positions.
Federal net operating loss carryforwards begin to expire in fiscal year 2022.
Realization of deferred tax assets associated with the Company's future
deductible temporary differences, net operating loss carryforwards and tax
credit carryforwards is dependent upon generating sufficient taxable income
prior to their expiration, among other factors. The Company weighed positive and
negative evidence to assess the need for a valuation allowance against deferred
tax assets and whether a tax benefit should be recorded when taxable losses are
incurred. The existence of a valuation allowance does not limit the availability
of tax assets to reduce taxes payable when taxable income arises. Management
periodically evaluates the recoverability of the deferred tax assets and may
adjust the valuation allowance against deferred tax assets accordingly.
Off-Balance Sheet Arrangements
The Company has a 50% equity ownership in AccessTel Kentrox Australia PTY LTD
("AKA"). AKA distributes network management solutions provided by the Company
and the other 50% owner to one customer. The Company holds equal voting control
with the other owner. All actions of AKA are decided at the board level by
majority vote. The Company also has an unlimited guarantee for the performance
of the other 50% owner in AKA, who primarily provides support and engineering
services to the customer. This guarantee was put in place at the request of the
AKA customer. The guarantee, which is estimated to have a maximum potential
future payment of $0.7 million, will stay in place as long as the contract
between AKA and the customer is in place. The Company would have recourse
against the other 50% owner in AKA in the event the guarantee is triggered. The
Company determined that it could perform on the obligation it guaranteed at a
positive rate of return and, therefore, did not assign value to the guarantee.

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