** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

 
| **x**                                                                                                                                                                                                                      | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                       |       |                                                                                          |
| **For the  quarterly period ended September 24, 2006**                                                                                                                                                                     |
|                                                                                                                                                                                                                       |       |                                                                                          |
| **OR**                                                                                                                                                                                                                     |
| ** **                                                                                                                                                                                                                 |
| **o**                                                                                                                                                                                                                      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                       |       |                                                                                          |
| **For the  transition period  from               to               ** |

 

**Commission file number0-24746**

** **

**TESSCO Technologies Incorporated**

(Exact name of registrant as specified in charter)

 

| **Delaware**                                     |   | **52-0729657**       |
|--------------------------------------------------|--------|----------------------|
| (State or other  jurisdiction of                 |   | (IRS Employer        |
| incorporation or  organization)                  |   | Identification  No.) |
|                                             |   |                 |
| **11126  McCormick Road, Hunt Valley, Maryland** |   | **21031**            |
| (Address of  principal executive offices)        |   | (Zip Code)           |

 

Registrant’s telephone number, including area code:   **(410) 229-1000**

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to filing requirements for the past 90 days.  Yes x      No o

Indicate by check mark if the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer (as defined in Rule12b-2 of the Act).  Large accelerated filer o      Acceleratedfiler o      Non-Accelerated Filer x

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act).  Yes o      No x

 

Thenumber of shares of the registrant’s Common Stock, $.01 par value per share,outstanding as of October 31, 2006, was 3,659,058.

 

----

 

**TESSCO Technologies Incorporated**

**Index to Form 10-Q**

 
| **Part I   Financial  Information** |
|-----------------------------------------------|
|                                          |   |   |
| Item 1.                                       |   | Financial Statements |
|                                          |   |   |
|                                          |   | Consolidated  Balance Sheets as of September 24, 2006 (unaudited) and March 26, 2006 |
|                                          |   |   |
|                                          |   | Unaudited Consolidated Statements of Income for the  periods ended September 24, 2006 and September 25, 2005 |
|                                          |   |   |
|                                          |   | Unaudited Consolidated Statements of Cash Flows for  the periods ended September 24, 2006 and September 25, 2005 |
|                                          |   |   |
|                                          |   | Notes to Consolidated Financial Statements |
|                                          |   |   |
| Item 2.                                       |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
|                                          |   |   |
| Item 3.                                       |   | Quantitative  and Qualitative Disclosures about Market Risk |
|                                          |   |   |
| Item 4.                                       |   | Controls and Procedures |
|                                          |   |   |
| **Part  II   Other  Information**   |
|                                          |   |   |
| Item 1.                                       |   | Legal Proceedings |
|                                          |   |   |
| Item 1A.                                 |   | Risk  Factors |
|                                          |   |   |
| Item 2.                                       |   | Unregistered  Sales of Equity Securities and Use of Proceeds |
|                                          |   |   |
| Item 3.                                       |   | Defaults upon  Senior Securities |
|                                          |   |   |
| Item 4.                                       |   | Submission of  Matters to a Vote of Security Holders |
|                                          |   |   |
| Item 5.                                       |   | Other Information |
|                                          |   |   |
| Item 6.                                       |   | Exhibits |
|                                          |   |   |
| Signature                                     |
|                                          |   |   |

 

2

----

 

**Part I.  Financial Information**

**Item 1.  Financial Statements**

**TESSCO**TECHNOLOGIES INCORPORATED

**ConsolidatedBalance Sheets**
| ** **                                         | ** ** | **September 24,  2006** | ** **  | **March 26,  2006** | ** ** |
|----------------------------------------------------|------------|------------------------------|-------------|--------------------------|------------|
| ** **                                         | ** ** | **(unaudited)**              | ** **  | ** **               | ** ** |
| **ASSETS**                                         |       |                         |        |                     |       |
|                                               |       |                         |        |                     |       |
| Current  assets:                                   |       |                         |        |                     |       |
| Cash and cash equivalents                          |       | $                            | —      |                     | $          | 2,286,900 |   |
| Trade accounts receivable, net                     |       | 44,415,300                   |        | 43,576,500               |       |
| Product inventory                                  |       | 59,344,800                   |        | 47,615,700               |       |
| Deferred tax asset                                 |       | 2,396,000                    |        | 2,396,000                |       |
| Prepaid expenses and other current assets          |       | 3,430,800                    |        | 2,799,200                |       |
| Total current assets                               |       | 109,586,900                  |        | 98,674,300               |       |
|                                               |       |                         |        |                     |       |
| Property  and equipment, net                       |       | 24,523,900                   |        | 24,619,800               |       |
| Goodwill,  net                                     |       | 3,571,200                    |        | 2,452,200                |       |
| Other  long-term assets                            |       | 2,539,900                    |        | 1,054,100                |       |
| Total assets                                       |       | $                            | 140,221,900 |                     | $          | 126,800,400 |   |
|                                               |       |                         |        |                     |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**     |       |                         |        |                     |       |
|                                               |       |                         |        |                     |       |
| Current  liabilities:                              |       |                         |        |                     |       |
| Trade accounts payable                             |       | $                            | 57,685,000  |                     | $          | 44,984,000 |   |
| Accrued expenses and other current liabilities     |       | 11,749,100                   |        | 7,543,400                |       |
| Revolving credit facility                          |       | 7,935,400                    |        | —                   |       |
| Current portion of long-term debt                  |       | 355,500                      |        | 442,500                  |       |
| Total current liabilities                          |       | 77,725,000                   |        | 52,969,900               |       |
|                                               |       |                         |        |                     |       |
| Deferred  tax liability                            |       | 2,785,300                    |        | 2,785,300                |       |
| Long-term  debt, net of current portion            |       | 4,381,700                    |        | 4,559,400                |       |
| Other  long-term liabilities                       |       | 1,362,400                    |        | 1,379,000                |       |
| Total liabilities                                  |       | 86,254,400                   |        | 61,693,600               |       |
|                                               |       |                         |        |                     |       |
| Commitments  and contingencies                     |       |                         |        |                     |       |
|                                               |       |                         |        |                     |       |
| Shareholders’  equity:                        |       |                         |        |                     |       |
| Preferred stock                                    |       | —                       |        | —                   |       |
| Common stock                                       |       | 50,100                       |        | 49,600                   |       |
| Additional paid-in capital                         |       | 25,937,000                   |        | 24,748,700               |       |
| Treasury stock, at cost                            |       | (25,521,700                  | )           | (9,521,100               | )          |
| Retained earnings                                  |       | 53,473,600                   |        | 49,764,200               |       |
| Accumulated other comprehensive income, net of tax |       | 28,500                       |        | 65,400                   |       |
| Total shareholders’ equity                    |       | 53,967,500                   |        | 65,106,800               |       |
| Total  liabilities and shareholders’ equity   |       | $                            | 140,221,900 |                     | $          | 126,800,400 |   |

 

See accompanying notes.

3

----

**TESSCO**TECHNOLOGIES INCORPORATED

**Consolidated Statements of Income**
| ** **                                   | ** ** | **Fiscal Quarters Ended** | ** **  | **Six Months Ended** | ** ** |
|----------------------------------------------|------------|-------------------------------------|-------------|--------------------------------|------------|
| ** **                                   | ** ** | **September 24,  2006**        | ** **  | **September 25,  2005**   | ** ** | **September 24,  2006** | ** ** | **September 25,  2005** | ** ** |
| ** **                                   | ** ** | **(unaudited)**                     | ** **  | **(unaudited)**                | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
|                                         |       |                                |        |                           |       |   |   |   |   |
| Revenues                                     |       | $                                   | 118,655,700 |                           | $          | 137,632,800 |   | $ | 230,596,000 |   | $ | 285,956,100 |   |
| Cost of goods sold                           |       | 88,625,800                          |        | 109,266,200                    |       | 172,481,000 |   | 231,567,400 |   |
| Gross profit                                 |       | 30,029,900                          |        | 28,366,600                     |       | 58,115,000 |   | 54,388,700 |   |
| Selling, general and administrative expenses |       | 26,855,800                          |        | 25,543,500                     |       | 51,823,900 |   | 49,503,300 |   |
| Income from operations                       |       | 3,174,100                           |        | 2,823,100                      |       | 6,291,100 |   | 4,885,400 |   |
| Interest, net                                |       | 180,500                             |        | 29,100                         |       | 335,800 |   | 67,100 |   |
| Income before provision for  income taxes    |       | 2,993,600                           |        | 2,794,000                      |       | 5,955,300 |   | 4,818,300 |   |
| Provision for income taxes                   |       | 1,137,600                           |        | 1,089,600                      |       | 2,245,900 |   | 1,879,100 |   |
| Net income                                   |       | $                                   | 1,856,000   |                           | $          | 1,704,400 |   | $ | 3,709,400 |   | $ | 2,939,200 |   |
| Basic earnings per share                     |       | $                                   | 0.45        |                           | $          | 0.40 |   | $ | 0.90 |   | $ | 0.69 |   |
| Diluted earnings per share                   |       | $                                   | 0.44        |                           | $          | 0.40 |   | $ | 0.87 |   | $ | 0.69 |   |
| Basic weighted average shares outstanding    |       | 4,103,500                           |        | 4,238,300                      |       | 4,142,000 |   | 4,237,500 |   |
| Diluted  weighted average shares outstanding |       | 4,225,300                           |        | 4,300,300                      |       | 4,250,600 |   | 4,288,700 |   |

 

See accompanying notes.

4

----

**TESSCO**TECHNOLOGIES INCORPORATED

**Consolidated Statements of Cash Flows**
| ** **                                                                                   | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                   | ** ** | **September 24,  2006**   | ** ** | **September 25,  2005** | ** ** |
| ** **                                                                                   | ** ** | **(unaudited)**                | ** ** | **(unaudited)** | ** ** |
| Cash flows from operating activities:                                                        |       |                           |       |   |   |
| Net income                                                                                   |       | $                              | 3,709,400  |   | $ | 2,939,200 |   |
| Adjustments to reconcile net  income to net cash provided by (used in) operating activities: |       |                           |       |   |   |
| Depreciation and amortization                                                                |       | 2,320,300                      |       | 2,407,600 |   |
| Non-cash stock compensation  expense                                                         |       | 991,900                        |       | 564,000 |   |
| Deferred taxes and other  non-cash items                                                     |       | 60,500                         |       | (800 | ) |
| Change in trade accounts  receivable                                                         |       | 846,700                        |       | 22,848,800 |   |
| Change in product inventory                                                                  |       | (10,832,500                    | )          | 15,039,300 |   |
| Change in prepaid expenses and  other current assets                                         |       | (614,400                       | )          | 708,100 |   |
| Change in trade accounts  payable                                                            |       | 11,342,100                     |       | (44,723,600 | ) |
| Change in accrued expenses and  other current liabilities                                    |       | 1,553,500                      |       | (309,000 | ) |
| Net cash provided by (used in)  operating activities                                         |       | 9,377,500                      |       | (526,400 | ) |
|                                                                                         |       |                           |       |   |   |
| Cash flows from investing activities:                                                        |       |                           |       |   |   |
| Purchases of property and  equipment                                                         |       | (2,054,600                     | )          | (1,595,100 | ) |
| Acquisition of business in  purchase transaction                                             |       | (3,933,300                     | )          | — |   |
| Net cash used in investing  activities                                                       |       | (5,987,900                     | )          | (1,595,100 | ) |
|                                                                                         |       |                           |       |   |   |
| Cash flows from financing activities:                                                        |       |                           |       |   |   |
| Net borrowings from revolving  credit facility                                               |       | 7,935,400                      |       | — |   |
| Payments on long-term debt                                                                   |       | (264,700                       | )          | (180,700 | ) |
| Net proceeds from issuance of  stock                                                         |       | 95,400                         |       | 124,400 |   |
| Purchase of treasury stock                                                                   |       | (16,000,600                    | )          | (451,600 | ) |
| Excess tax benefit from  stock-based compensation                                            |       | 101,500                        |       | — |   |
| Bank overdraft                                                                               |       | 2,456,500                      |       | — |   |
| Net cash used in financing  activities                                                       |       | (5,676,500                     | )          | (507,900 | ) |
|                                                                                         |       |                           |       |   |   |
| Net decrease in cash and cash  equivalents                                                   |       | (2,286,900                     | )          | (2,629,400 | ) |
|                                                                                         |       |                           |       |   |   |
| Cash and cash equivalents, beginning of period                                               |       | 2,286,900                      |       | 3,880,800 |   |
|                                                                                         |       |                           |       |   |   |
| Cash  and cash equivalents, end of period                                                    |       | $                              | —     |   | $ | 1,251,400 |   |

 

See accompanying notes.

5

----

 

**TESSCO Technologies Incorporated**

**Notes to Consolidated Financial Statements**

**September 24, 2006**

(Unaudited)

# **Note 1.  Description of Business and Basis ofPresentation**

# TESSCO Technologies Incorporated, a Delawarecorporation (TESSCO or the Company), is a leading provider of integratedproduct and supply chain solutions to the professionals that design, build,run, maintain and use wireless, mobile, fixed and in-building systems. TheCompany provides marketing and sales services, knowledge and supply chain management,product solution delivery and control systems utilizing extensive Internet andinformation technology.  Approximately97% 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.

# In management’s opinion, theaccompanying interim financial statements of the Company include alladjustments, consisting only of normal, recurring adjustments, necessary for afair presentation of the Company’s financial position for the interim periodspresented.  These statements arepresented in accordance with the rules and regulations of the Securities andExchange Commission (SEC).  Certaininformation and footnote disclosures normally included in the Company’s annualfinancial statements have been omitted from these statements, as permittedunder the applicable rules and regulations. The results of operations presented in the accompanying interimfinancial statements are not necessarily representative of operations for anentire year.  The information included inthis Form 10-Q should be read in conjunction with the financial statements andnotes thereto included in the Company’s Form 10-K for the fiscal year endedMarch 26, 2006.

# **Note 2. Recently Issued Accounting Pronouncements**

# In July 2006, the Financial Accounting Standards Board(FASB) issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty inIncome Taxes,” which clarifies the accounting for income taxes by prescribingthe minimum recognition threshold a tax position is required to meet beforebeing recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement,classification, interest and penalties, accounting in interim periods,disclosure and transition. FIN 48 is effective for fiscal years beginning afterDecember 15, 2006.  The Company isreviewing FIN 48 to determine the impact of adoption on its financialstatements.

In September 2006, theFASB issued FASB Statement No. 157, “Fair Value Measurements”(FASB 157), which provides guidance for using fair value to measure assetsand liabilities. The standard also responds to investors’ requests for expandedinformation about the extent to which companies measure assets and liabilitiesat fair value, the information used to measure fair value, and the effect offair value measurements on earnings. The standard applies whenever otherstandards require (or permit) assets or liabilities to be measured at fairvalue. The standard does not expand the use of fair value in any newcircumstances. FASB 157 is effective for fiscal years beginning afterNovember 15, 2007, and interim periods within those fiscal years. TheCompany does not believe that the new standard will have a material impact onits financial statements.

# **Note 3. Borrowings Under Revolving Credit Facility and Long-Term Debt**

# On April 28, 2003, the Company established astock buyback program. In September 2006, the Company purchased 641,775 sharesof its outstanding common stock pursuant to the stock buyback program. Of the 641,775shares repurchased during the first six months of the fiscal year, 629,575shares were purchased for approximately $15.7 million in one transaction with alarge former shareholder.  Thistransaction significantly reduced shareholders’ equity, and because thepurchase price was funded with borrowings under the Company’s revolving creditfacility, it also increased total liabilities. Prior to entering into this transaction, the Company discussed theproposed transaction, the anticipated borrowings necessary to consummate thetransaction and its possible impact on the Company’s financial condition, withWachovia Bank, N.A. and SunTrust Bank, the lenders under the Company’srevolving credit facility and term loan. The Company concluded that, as a result of the transaction, at the endof the second fiscal quarter it might not meet the Maximum Total Liabilities toTangible Net Worth covenant under the terms of its revolving credit facilityand term loan.  Anticipating thispossibility, prior to entering into the transaction the Company requested awaiver of the covenant from the banks and both agreed at that time to waivecompliance with the covenant for the second fiscal quarter.  It was subsequently determined that theCompany, in fact, did not comply with the covenant, and the waiver allowed theCompany to avoid a covenant violation under the terms of these loans.  If the Company does not comply, or anticipatesthat it will not comply, with this or any other covenant under its revolvingcredit facility for the third or any future quarter, the Company would expectto work closely with the banks to attempt to obtain additional waivers, asnecessary.  There can be no assurancethat the Company will comply with the covenant as of the end of the third orany future quarter or, if not, that the banks will provide another waiver.  If the Company does not comply and if thebanks refuse to provide another waiver, the Company would violate the covenant,which could result in the occurrence of an event of default under the terms ofthese loans, whereupon the balance outstanding under both of these loans, aswell as the balances outstanding under the Company’s other debt agreements, wouldbecome payable in full and the Company’s ability to borrow under its existingrevolving credit facility would be eliminated. In such an instance, management would seek to obtain other sources ofcomparable financing, the availability (or terms) of which cannot be assured,either in a timely manner or at all.

6

----

# **Note 4. Stock Compensation**

# Effective March 27, 2006, the Company adoptedStatement of Financial Accounting Standards (SFAS) No. 123R, “Share-BasedPayment,” using the modified prospective application transition method. Becausethe fair value recognition provisions of SFAS No. 123, “Accounting forStock-Based Compensation,” which the Company had previously adopted effectiveMarch 29, 2004, and SFAS No. 123R are generally consistent with respect tothe Company’s share-based payments (other than as described below), theadoption of SFAS No. 123R did not have a material impact on the Company’sfinancial position, results of operations or cash flows.

# SFAS No. 123R requires the Company to include in itscalculation of periodic stock compensation expense an estimate of futureforfeitures.  Prior to fiscal year 2007,in accordance with SFAS No. 123, the Company only included forfeitures in itscalculation of stock compensation expense when the awards were actuallyforfeited.  The inclusion of estimated inlieu of actual forfeitures did not have a material impact on the Company’sfinancial position or results of operations for the quarter and the six monthsended September 24, 2006.  Prior tothe adoption of SFAS No. 123R, benefits of tax deductions in excess ofrecognized compensation costs were reported as operating cash flows. SFASNo. 123R requires excess tax benefits be reported as a financing cashflow.

# The Company’s selling, general and administrativeexpenses for the three months and six months ended September 24, 2006 includes$462,400 and $991,900, respectively, of stock compensation expense.  The Company’s selling, general andadministrative expenses for the three months and six months ended September 25,2005 includes $335,100 and $556,000, respectively, of stock compensationexpense.  Provision for income taxes forthe three months and six months ended September 24, 2006 includes $175,700 and$373,900, respectively, of income tax benefits related to our stock-basedcompensation arrangements.  Provision forincome taxes for the three months and six months ended September 25, 2005includes $130,700 and $216,800, respectively, of income tax benefits related toour stock-based compensation arrangements.

# The Company’s stock incentive plan is the Amended andRestated 1994 Stock and Incentive Plan (the 1994 Plan).  The 1994 Plan allows for the grant of awardsin respect of an aggregate of 1,172,500 shares of the Company’s common stock.As of September 24, 2006, 85,021 shares were available for issue in respect ofawards available for future grant under the 1994 Plan. The 1994 Plan allows forthe grant of incentive stock options, nonqualified stock options, stockappreciation rights, restricted stock and restricted stock units and otherperformance awards.  No additional awardscan be made under the 1994 Plan after July 22, 2009, without shareholderapproval of an extension of the plan term. Options, restricted stock and Performance Stock Unit (PSU) awards havebeen granted as awards under the 1994 Plan. Shares which are subject to outstanding PSU or other awards under thePlan, and which are not earned, are returned to the 1994 Plan and becomeavailable for future issuance.

# **Performance Stock Units: **Beginning in fiscal year2005, the Company’s equity-based compensation philosophy and practice shiftedaway from awarding stock options to granting performance-based and time-vestedstock grants.  Accordingly, in April2004, the Company’s Board of Directors established a Performance Stock UnitAward Program under the 1994 Plan.  Underthe program, Performance Stock Units (PSUs) have been granted to selectedindividuals. Each PSU entitles the participant to earn TESSCO common stock, butonly after earnings per share and, for non-director employee participants,individual performance targets are met over a defined performance cycle.Performance cycles, which are fixed for each grant at the date of grant, rangefrom one to three years.  Once earned,shares vest and are issued over a specified period of time determined at thetime of the grant, provided that the participant remains employed by orassociated with the Company at the time of share issuance.  Earnings per share targets, which take intoaccount the earnings impact of this program, are set by the Board of Directorsin advance for the complete performance cycle at levels designed to growshareowner value, and for those PSUs which are based upon multiple yearperformance cycles, typically represent continual increases in earnings pershare.  If actual performance does notreach the minimum annual or cumulative threshold targets, no shares are issued.Under SFAS No. 123R, the Company records compensation expense on its PSUs overthe service period, based on the number of shares management estimates willultimately be issued.  Accordingly, theCompany determines the periodic financial statement compensation expense basedupon the stock price at the PSU grant date, management’s projections of futureEPS performance over the performance cycle, and the resulting amount ofestimated share issuances, net of estimated forfeitures.  Future changes in factors impacting theultimate number of shares granted could cause these estimates to changesignificantly in future periods.  TheCompany estimated

7

----

# the forfeiture rateprimarily based on historical experience. The Company’s calculated forfeiturerate was approximately 4%.

The following table summarizes the activity under the Company’s PSUprogram for the six months ended September 24, 2006:

|                                                     | ** ** | **2006**         | ** ** | **Weighted Average  Fair Value at Grant** | ** ** |
|-----------------------------------------------------|------------|------------------|------------|---------------------------------------------------------------|------------|
| Outstanding  shares, non-vested beginning of period |       | 428,125          |       | $                                                             | 13.73      |   |
| Granted                                             |       | 150,000          |       | 19.30                                                         |       |
| Outstanding  shares, non-vested end of period       |       | 578,125          |       | $                                                             | 15.17      |   |
| Vesting period                                      |       | May 1, 2006-2010 |       |                                                          |       |

 

Of the 578,125 outstanding shares covered by PSUs,93,359 shares are earned but not yet issued and will vest and be issued ratablyon or about May 1 of 2007 and 2008, provided that the recipient remainsemployed by or associated with the Company at the time of issuance.  The remaining 484,766 may or may not beearned depending upon: (1) whether cumulative and/or annual earnings per shareperformance of the Company reaches or exceeds at least the thresholdperformance targets; (2) the extent to which participants meet applicableindividual performance targets; and (3) the participants remain employed by orassociated with the Company for all or a portion of the performance cycles andvesting periods.

In May 2006, 52,869 shares were earned and becamevested related to fiscal year 2005 and/or fiscal year 2006 performance.Unrecognized compensation expense based on the current expectation of targetsto be achieved as of September 24, 2006 for PSUs expected to be earned is $3.7million.  These costs are expected to berecognized over a weighted average period of 2.8 years.  If the maximum target of PSUs outstandingwere assumed to be earned, total unrecognized compensation costs would be $8.4million.

**Stock Options:**  For thethree months ended September 24, 2006, options for 7,000 shares were forfeitedat an average exercise price of $26.32. For the three months ended September 25, 2005, options for 65,500 shareswere forfeited at an average exercise price of $13.64 per share.  In accordance with SFAS No. 123R, the fairvalue of the Company’s stock options have been determined using theBlack-Scholes Merton option pricing model, based upon facts and assumptionsexisting at the date of grant.  Stockoptions granted have exercise prices equal to the market price of the Company’scommon stock on the grant date.

The value of each option at the date of grant is amortized ascompensation expense over the option service period.  This occurs without regard to subsequentchanges in stock price, volatility or interest rates over time, provided thatthe option remains outstanding.  Thefollowing table summarizes the pertinent option information for outstandingoptions:
| ** **                        | ** ** | **Six months ended September 24, 2006** | ** ** |
|-----------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                        | ** ** | **Shares**                                                       | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Weighted  Average  Remaining  Contractual Life** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
| Outstanding,  beginning of period |       | 160,000                                                          |       | $ | 12.51 |   |   |   |   |   |
| Forfeited                         |       | 7,000                                                            |       | 26.32 |   |   |   |   |   |
| Outstanding, end  of period       |       | 153,000                                                          |       | $ | 11.87 |   | 3.60 |   | $ | 1,821,800 |   |
| Exercisable, end of  period       |       | 137,000                                                          |       | $ | 12.39 |   | 3.37 |   | $ | 1,561,200 |   |

 

The aggregate intrinsic value in the table aboverepresents the total pretax intrinsic value (the difference between the closingstock price on the last trading day of the second quarter of fiscal year 2007and the exercise price, multiplied by the number of in-the-money options) thatwould have been received by the option holders had all option holders exercisedtheir options on September 24, 2006. This amount changes based on the fair market value of TESSCO’s stock.

As of September 24, 2006, there was $65,800 of totalunrecognized compensation costs related to stock options. These costs areexpected to be recognized over a weighted average period of approximately oneyear.

**Restricted Stock:**  During thesecond quarter of fiscal year 2007, the Company granted 100,000 shares of theCompany common stock as a restricted stock award under the 1994 Plan.  All shares of this restricted stock grantvest 10% per annum beginning on the last day of fiscal year 2007 and 

8

----

ending on the last day of fiscal year 2016.  The weighted average fair value for theseshares at the grant date was $23.76.  Noother shares of restricted stock are currently issued as awards under the 1994Plan.  As of September 24, 2006, therewas approximately $2.4 million of total unrecognized compensation costs relatedto restricted stock.  These costs areexpected to be recognized over a weighted average period of approximately 9.5years.

**TeamMember Stock Purchase Plan:**  During fiscal year 2000, theCompany adopted the Team Member Stock Purchase Plan. This plan permits eligibleemployees to purchase up to an aggregate of 200,000 shares of the Company’scommon stock at 85% of the lower of the market price on the first day of asix-month period or the market price on the last day of that same six-monthperiod.  The Company’s expenses relatingto this plan are for its administration and expense associated with the fairvalue of this benefit in accordance with SFAS No. 123R.  Expenses incurred for the Team Member StockPurchase Plan during the three months and six months ended September 24, 2006related to SFAS No. 123R was $8,400. During the three months and six months ended September 24, 2006, 1,555and 3,878 shares, respectively, were sold to employees under this plan, havinga weighted average market value of $15.51 and $12.96.

# **Note 5. Acquisition**

# On April 21, 2006, the Company acquired substantiallyall the non-cash net assets of TerraWave Solutions, Ltd. and its commonly ownedaffiliate, GigaWave Technologies, Ltd. for an initial cash payment ofapproximately $3.8 million, and additional cash earn-out payments over afour-year period, contingent on the achievement of certain minimum earningsthresholds ($1.5 million of the $3.8 million cash amount paid at closing is anon-refundable prepayment against future earn-out payments, if any).  To the extent that certain minimum earningsthresholds are not achieved, the Company will not be able to recover thisprepayment.  The maximum amount ofcontingent future earn-out payments (after subtracting the $1.5 millionprepayment) is $15.5 million.  Anycontingent payments made under the terms of the purchase agreement will betreated as an additional cost of the acquired businesses and additionalgoodwill will be recorded.  Additionally,acquisition related transaction costs, primarily comprised of legal andaccounting fees totaled $89,500.

# The TerraWave business (TerraWave), now owned byTESSCO, designs, configures and offers 802.11 Wi-Fi products and accessories,many of which are branded under TerraWave’s private label.  Some of the TerraWave-branded products aresold with products of Cisco Systems under Cisco’s Strategic TechnologyIntegrator program.  The GigaWavebusiness (GigaWave), now owned by TESSCO, provides curriculum development andhands-on, instructor-led training courses for the Wireless Local Area Network(WLAN) industry. GigaWave develops and delivers wireless networking coursewarefor Cisco Systems, allowing IT professionals to obtain Cisco WirelessCertifications.   Both of these businessesare included in the Company’s network infrastructure segment.

# The Company has included the financial results ofTerraWave and GigaWave in its consolidated financial statements beginning April21, 2006 (Acquisition Date).  Pro formaresults have not been presented as the impact of the acquisition is notmaterial and did not involve a significant amount of assets.

# This acquisition has beenaccounted for as a business combination in accordance with SFAS No. 141, “BusinessCombinations.”  Under business combinationaccounting, the total preliminary purchase price was allocated to TerraWave andGigaWave’s net tangible and identifiable intangible assets based on theirestimated fair values as of April 21, 2006. The excess of the purchase price over the net tangible and identifiableintangible assets was recorded as goodwill. The preliminary purchase price was allocated as set forth below:

| Trade accounts receivable         |   | $         | 1,685,500 |   |
|-----------------------------------|--------|-----------|-----------|--------|
| Product  inventory                |   | 896,600   |      |
| Prepaid expenses                  |   | 17,200    |      |
| Identifiable  intangible assets   |   | 1,630,000 |      |
| Goodwill                          |   | 519,000   |      |
| Fixed assets                      |   | 139,600   |      |
| Trade accounts  payable           |   | (758,900  | )         |
| Accrued expenses                  |   | (195,700  | )         |
| Total preliminary  purchase price |   | $         | 3,933,300 |   |

 

In performing its preliminary purchase price allocation, the Companyconsidered, among other factors, its intention for future use of acquiredassets, analyses of historical financial performance and estimates of futureperformance of 

9

----

TerraWave and GigaWave. The Company’s estimate of the fair value of intangibleassets was based, in part, on a valuation completed by an independent valuationspecialist, and estimates and assumptions provided by management. Theidentified intangible assets consisted of service-marks, covenants not tocompete and customer contracts and relationships.  Based upon the preliminary purchase priceallocation, the trademarks are estimated to have an approximate fair value of$850,000 and an indefinite life, the customer contacts are estimated to have anapproximate fair value of $490,000 and an estimated useful life of four yearsand the covenants not to compete are estimated to have an approximate fairvalue of $290,000 and an estimated useful life of six years.  Goodwill noted above is expected to bedeductible for tax purposes.  The primaryfactors contributing to a purchase price that resulted in the recognition ofgoodwill included expansion of the WLAN product line, expansion of markets forTESSCO’s existing products, the acquired employee force and the expansion ofTESSCO’s training business.

For the period of April 21, 2006 through September 25, 2006, anadditional $600,000 has been accrued for additional earn-out based onachievement of certain earnings thresholds. This amount has been recorded as goodwill and will be paid out inaccordance with the terms of the purchase agreement.

# **Note 6. Earnings Per Share**

# The dilutive effect of all outstanding options,restricted stock and PSUs has been determined by using the treasury stock method.  The weighted average shares outstanding iscalculated as follows:

 
| ** **                                                          | ** ** | **Fiscal Quarters Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------------|------------|-------------------------------------|------------|--------------------------------|------------|
| ** **                                                          | ** ** | **September 24,  2006**        | ** ** | **September 25,  2005**   | ** ** | **September 24,  2006** | ** ** | **September 25,  2005** | ** ** |
|                                                                |       |                                |       |                           |       |   |   |   |   |
| Basic weighted average common shares outstanding                    |       | 4,103,500                           |       | 4,238,300                      |       | 4,142,000 |   | 4,237,500 |   |
| Dilutive common shares outstanding — restricted stock and PSUs |       | 52,700                              |       | 31,400                         |       | 43,400 |   | 34,000 |   |
| Dilutive common shares outstanding — stock options             |       | 69,100                              |       | 30,600                         |       | 65,200 |   | 17,200 |   |
| Diluted  weighted average common shares outstanding                 |       | 4,225,300                           |       | 4,300,300                      |       | 4,250,600 |   | 4,288,700 |   |

 

As of September 24, 2006, stock options with respect to 153,000 shares ofcommon stock were outstanding, of which options to purchase 500 shares ofcommon stock at a weighted average exercise price of $23.94 per share were notincluded in the computation of diluted earnings per share because the options’exercise prices were greater than the average market price of the common sharesand, therefore, the effect would be antidilutive. All restricted stock wasantidilutive.

# **Note 7. Business Segments**

# The Company evaluates revenue, gross profit andinventory as three business segments:

(1)******      **Networkinfrastructure products, which are used to build, repair and upgrade wirelesstelecommunications, computing and Internetnetworks, and generally complement radio frequency transmitting and switchingequipment provided directly by original equipment manufacturers (OEMs).  Results from the recently acquired businessesof TerraWave and GigaWave are included in network infrastructure.

(2)******      **Mobile devices and accessory products, whichinclude cellular telephones and other data devices, pagers and two-way radiosand related accessories such as replacement batteries, cases, speakers, mobileamplifiers, power supplies, headsets, mounts, car antennas and various wirelessdata devices.

(3)******      **Installation, test and maintenance products,which are used to install, tune, maintain and repair wireless communicationsequipment.

Within the mobile devices and accessories line of business, the Companysells to both commercial and consumer markets. The network infrastructure and installation, test and maintenance linesof business sell primarily to commercial markets.  The Company also regularly reviews itscommercial results of operations in two customer categories.  These two 

10

----

customer categories and the consumer customer category, for which resultsof operations are also separately reviewed, are described further below:

·                  Commercial Public Carriers and Network Operators. Public carriers and network operators includesystems operators that are generally responsible for building and maintainingthe infrastructure system and provide airtime service to individualsubscribers.

·                  Commercial Self-Maintained Users, Governments andResellers.  Self-maintained user (SMU) andgovernment customers include commercial entities such as major utilities andtransportation companies, federal agencies and state and local governments,including public safety organizations. Resellers include dealers and resellersthat sell, install and service cellular telephone, paging and two-way radiocommunications equipment primarily for the consumer and small businessmarkets.  These resellers include localand national proprietorships and retailers, as well as sales and installationcenters operated by cellular and paging carriers.

·                  Consumers. Consumers include customers that buy through anyaffinity partner relationships or directly from our consumer website,YourWirelessSource.comTM.

The Company measures segment performance based on segment grossprofit.  The segment operations developtheir product offering, pricing and strategies, which are collaborative withone another and the centralized sales and marketing function.  Therefore, the Company does not segregateassets, other than inventory, for internal reporting, evaluating performance orallocating capital.  Product deliveryrevenue and certain cost of sales expenses have been allocated to each segmentbased on a percentage of revenues and/or gross profit, as applicable.

 
| **(Amounts in thousands)**         | ** ** | **Network  Infrastructure** | ** ** | **Mobile  Devices and  Accessories** | ** ** | **Installation,  Test and  Maintenance** | ** ** | **Total** | ** ** |
|----------------------------------------------|------------|-----------------------------|------------|-------------------------------------------|------------|-----------------------------------------------|------------|-----------|------------|
| **Fiscal  Quarter ended September 24, 2006** |       |                        |       |                                      |       |                                          |       |      |       |
| Commercial  Revenues:                        |       |                        |       |                                      |       |                                          |       |      |       |
| Public Carriers and Network Operators        |       | $                           | 11,868     |                                      | $          | 603                                           |       | $         | 3,016      |   | $ | 15,487 |   |
| SMUs, Governments and Resellers              |       | 31,415                      |       | 51,005                                    |       | 18,973                                        |       | 101,393   |       |
| Total Commercial  Revenues                   |       | 43,283                      |       | 51,608                                    |       | 21,989                                        |       | 116,880   |       |
| Consumer  Revenues                           |       | —                      |       | 1,776                                     |       | —                                        |       | 1,776     |       |
| Total Revenues                               |       | $                           | 43,283     |                                      | $          | 53,384                                        |       | $         | 21,989     |   | $ | 118,656 |   |
|                                         |       |                        |       |                                      |       |                                          |       |      |       |
| Commercial Gross  Profit:                    |       |                        |       |                                      |       |                                          |       |      |       |
| Public Carriers and Network Operators        |       | $                           | 2,943      |                                      | $          | 192                                           |       | $         | 807        |   | $ | 3,942 |   |
| SMUs, Governments and Resellers              |       | 7,933                       |       | 10,466                                    |       | 6,846                                         |       | 25,245    |       |
| Total Commercial  Gross Profit               |       | 10,876                      |       | 10,658                                    |       | 7,653                                         |       | 29,187    |       |
| Consumer Gross  Profit                       |       | —                      |       | 843                                       |       | —                                        |       | 843       |       |
| Total Gross  Profit                          |       | $                           | 10,876     |                                      | $          | 11,501                                        |       | $         | 7,653      |   | $ | 30,030 |   |
|                                         |       |                        |       |                                      |       |                                          |       |      |       |
| Product  Inventory                           |       | $                           | 16,902     |                                      | $          | 22,545                                        |       | $         | 19,898     |   | $ | 59,345 |   |
|                                         |       |                        |       |                                      |       |                                          |       |      |       |
| **Fiscal  Quarter ended September 25, 2005** |       |                        |       |                                      |       |                                          |       |      |       |
| Commercial  Revenues:                        |       |                        |       |                                      |       |                                          |       |      |       |
| Public Carriers and Network Operators        |       | $                           | 13,915     |                                      | $          | 571                                           |       | $         | 3,751      |   | $ | 18,237 |   |
| SMUs, Governments and Resellers              |       | 25,114                      |       | 23,749                                    |       | 11,961                                        |       | 60,824    |       |
| Total Commercial  Revenues                   |       | 39,029                      |       | 24,320                                    |       | 15,712                                        |       | 79,061    |       |
| Consumer  Revenues                           |       | —                      |       | 58,572                                    |       | —                                        |       | 58,572    |       |
| Total Revenues                               |       | $                           | 39,029     |                                      | $          | 82,892                                        |       | $         | 15,712     |   | $ | 137,633 |   |
|                                         |       |                        |       |                                      |       |                                          |       |      |       |
| Commercial Gross  Profit:                    |       |                        |       |                                      |       |                                          |       |      |       |
| Public Carriers and Network Operators        |       | $                           | 3,219      |                                      | $          | 170                                           |       | $         | 935        |   | $ | 4,324 |   |
| SMUs, Governments and Resellers              |       | 5,864                       |       | 6,144                                     |       | 3,976                                         |       | 15,984    |       |
| Total Commercial  Gross Profit               |       | 9,083                       |       | 6,314                                     |       | 4,911                                         |       | 20,308    |       |
| Consumer Gross  Profit                       |       | —                      |       | 8,059                                     |       | —                                        |       | 8,059     |       |
| Total Gross  Profit                          |       | $                           | 9,083      |                                      | $          | 14,373                                        |       | $         | 4,911      |   | $ | 28,367 |   |
|                                         |       |                        |       |                                      |       |                                          |       |      |       |
| Product  Inventory                           |       | $                           | 17,804     |                                      | $          | 15,230                                        |       | $         | 12,759     |   | $ | 45,793 |   |

 

11

----

 
| **(Amounts in thousands)**     | ** ** | **Network  Infrastructure** | ** ** | **Mobile  Devices and   Accessories** | ** ** | **Installation,  Test and  Maintenance** | ** ** | **Total** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|-----------|------------|
| **Six  Months ended September 24, 2006** |       |                        |       |                                            |       |                                          |       |      |       |
| Commercial  Revenues:                    |       |                        |       |                                            |       |                                          |       |      |       |
| Public Carriers and Network Operators    |       | $                           | 24,095     |                                            | $          | 1,258                                         |       | $         | 7,266      |   | $ | 32,619 |   |
| SMUs, Governments and Resellers          |       | 56,840                      |       | 92,253                                          |       | 45,590                                        |       | 194,683   |       |
| Total Commercial  Revenues               |       | 80,935                      |       | 93,511                                          |       | 52,856                                        |       | 227,302   |       |
| Consumer  Revenues                       |       | —                      |       | 3,294                                           |       | —                                        |       | 3,294     |       |
| Total Revenue                            |       | $                           | 80,935     |                                            | $          | 96,805                                        |       | $         | 52,856     |   | $ | 230,596 |   |
|                                     |       |                        |       |                                            |       |                                          |       |      |       |
| Commercial Gross  Profit:                |       |                        |       |                                            |       |                                          |       |      |       |
| Public Carriers and Network Operators    |       | $                           | 5,745      |                                            | $          | 377                                           |       | $         | 1,757      |   | $ | 7,879 |   |
| SMUs, Governments and Resellers          |       | 14,164                      |       | 19,019                                          |       | 15,454                                        |       | 48,637    |       |
| Total Commercial  Gross Profit           |       | 19,909                      |       | 19,396                                          |       | 17,211                                        |       | 56,516    |       |
| Consumer Gross  Profit                   |       | —                      |       | 1,599                                           |       | —                                        |       | 1,599     |       |
| Total Gross  Profit                      |       | $                           | 19,909     |                                            | $          | 20,995                                        |       | $         | 17,211     |   | $ | 58,115 |   |
|                                     |       |                        |       |                                            |       |                                          |       |      |       |
| Product Inventory                        |       | $                           | 16,902     |                                            | $          | 22,545                                        |       | $         | 19,898     |   | $ | 59,345 |   |
|                                     |       |                        |       |                                            |       |                                          |       |      |       |
| **Six  Months ended September 25, 2005** |       |                        |       |                                            |       |                                          |       |      |       |
| Commercial  Revenues:                    |       |                        |       |                                            |       |                                          |       |      |       |
| Public Carriers and Network Operators    |       | $                           | 28,278     |                                            | $          | 1,131                                         |       | $         | 8,134      |   | $ | 37,543 |   |
| SMUs, Governments and Resellers          |       | 45,647                      |       | 46,574                                          |       | 23,028                                        |       | 115,249   |       |
| Total Commercial  Revenues               |       | 73,925                      |       | 47,705                                          |       | 31,162                                        |       | 152,792   |       |
| Consumer  Revenues                       |       | —                      |       | 133,164                                         |       | —                                        |       | 133,164   |       |
| Total Revenue                            |       | $                           | 73,925     |                                            | $          | 180,869                                       |       | $         | 31,162     |   | $ | 285,956 |   |
|                                     |       |                        |       |                                            |       |                                          |       |      |       |
| Commercial Gross  Profit:                |       |                        |       |                                            |       |                                          |       |      |       |
| Public Carriers and Network Operators    |       | $                           | 6,565      |                                            | $          | 327                                           |       | $         | 1,932      |   | $ | 8,824 |   |
| SMUs, Governments and Resellers          |       | 10,863                      |       | 11,927                                          |       | 7,515                                         |       | 30,305    |       |
| Total Commercial  Gross Profit           |       | 17,428                      |       | 12,254                                          |       | 9,447                                         |       | 39,129    |       |
| Consumer Gross  Profit                   |       | —                      |       | 15,260                                          |       | —                                        |       | 15,260    |       |
| Total Gross  Profit                      |       | $                           | 17,428     |                                            | $          | 27,514                                        |       | $         | 9,447      |   | $ | 54,389 |   |
|                                     |       |                        |       |                                            |       |                                          |       |      |       |
| Product Inventory                        |       | $                           | 17,804     |                                            | $          | 15,230                                        |       | $         | 12,759     |   | $ | 45,793 |   |

#  

# **Note 8.  Customer Concentration**

# The Company’s future results could be negativelyimpacted by the loss of certain customer and/or vendor relationships.  For the three months and six months endedSeptember 24, 2006, sales of products to the Company’s top customerrelationship, Cingular Wireless LLC, accounted for 21% and 18% of total revenues, respectively, and 15% and 13% of totalgross profits, respectively.  Forthe three months and six months ended September 24, 2006, sales of productsrelated to the Company’s top vendor relationship, the Nokia Inc. (Nokia) repairand replacement component relationship, accounted for 9% and 13% of total revenues, respectively, and 16% and 20% of totalgross profits, respectively.  TheNokia relationship is a complete supply chain relationship and, therefore, wehave no alternative sources of supply, and our purchases, and ultimately ourresale of these products, is dependent upon the continuation of the Nokiarelationship.  We also sell productsother than Nokia repair and replacement materials to many of thesecustomers.  Absent this arrangement withNokia, we would maintain the ability to sell these other products to thesecustomers. At September 24, 2006, repairand component parts purchased from Nokia accounted for 26% of the dollar valueof the total product inventory, based on the purchase price for theinventory.

In September 2005, T-Mobile, previously the Company’s largest customerrelationship, transitioned the TESSCO provided e-commerce marketing and salessystem to their own in-house web solution and alternative third-party logistics

12

----

provider, andaccordingly, revenues from this relationship ceased.  In the first half of fiscal year 2007, this affinity relationship did not accountfor any revenues or gross profits. T-Mobile accounted for 40% and 45% of total revenues and 23% and 22% oftotal gross profit in the three months and six months ended September 25, 2005,respectively.

# **Note 9. Reclassifications**

# Certain reclassifications have been made to the prioryear Consolidated Financial Statements to conform to the current yearpresentation.

# 

# **Note 10.  Subsequent Events**

# On October 19, 2006, the Company’sBoard of Directors approved a stock dividend providing each holder of record ofthe Company’s common stock on the close of business November 15, 2006 oneadditional share for every two outstanding shares held.  TESSCO’s transfer agent will issue theadditional shares on November 29, 2006. The market price for TESSCO’s commonstock as reported by Nasdaq will reflect the stock dividend beginning November30, 2006.  The number of authorizedshares remains at 15 million.

 

**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

This commentaryshould be read in conjunction with the Management’s Discussion and Analysis ofFinancial Condition and Results of Operations from the Company’s Form 10-K forthe fiscal year ended March 26, 2006.

**BusinessOverview and Environment**

TESSCOTechnologies Incorporated (TESSCO) is a leading provider of integrated productand supply chain solutions to the professionals that design, build, run,maintain and use wireless mobile, fixed and in-building systems.  Although we sell products to customers inover 100 countries, approximately 97% of our sales are made to customers in theUnited States.  We have operations andoffice facilities in Hunt Valley, Maryland, Reno, Nevada and San Antonio,Texas.  Due to the diversity in ourbusiness, we are not significantly affected by seasonality.

We offer a widerange of products that are classified into three business segments: networkinfrastructure; mobile devices and accessories; and installation, test and maintenance.

·                                          Network infrastructure products, which are sold to ourcommercial customers, are used to build, repair and upgrade wirelesstelecommunications, computing and Internet networks. Sales of traditionalnetwork infrastructure products, such as cable, transmission lines and antennasare in part dependent on capital spending in the wireless communicationsindustry.  However, we have also beengrowing our offering of wireless broadband and network equipment products,which are not as dependent on the overall capital spending of theindustry.  The acquisition of TerraWaveand GigaWave in late April 2006 further broadened our WLAN product and serviceoffering in this segment.

·                                          Mobile devices and accessory products include cellulartelephones and other data devices, pagers and two-way radios and relatedaccessories.  Mobile devices andaccessory products are widely sold to commercial customers and consumers.  Commercial customers include retail stores,value-added resellers and dealers. Consumers are primarily reached through our affinity partnerships, wherewe offer services including customized order fulfillment, outsourced callcenters, and building and maintaining private label Internet sites.

·                                          Installation, test and maintenance products, which aresold to our commercial customers, are used to install, tune, maintain andrepair wireless communications equipment. Approximately 50% and 57% of all ofour installation, test and maintenance sales for the first three months and sixmonths of fiscal year 2007, respectively, were generated from the sales ofreplacement parts and materials for original equipment manufacturers, primarilyNokia Inc. (Nokia).  The arrangements onwhich these relationships are based, like many of our other customer and vendorarrangements, are of limited duration and are terminable by either party uponseveral months or otherwise short notice. The remainder of this segment is madeup of sophisticated analysis equipment and various frequency-, voltage- andpower-measuring 

13

----

devices, as well as an assortment of tools, hardwareand supplies required by service technicians. Both our repair and replacement parts sales and consumer sales throughour affinity partnerships are reliant on relationships with a small number ofvendors.

We view our customer basein three major categories:

·                                          Commercial Public Carriers and NetworkOperators.  Public carriers and network operators includesystems operators that are generally responsible for building and maintainingthe infrastructure system and provide airtime service to individual subscribers.

·                                          Commercial Self-Maintained Users (SMUs),Governments and Resellers.  SMUs and government customersinclude commercial entities such as major utilities and transportationcompanies, federal agencies and state and local governments, including publicsafety organizations. Resellers include dealers and resellers that sell,install and service cellular telephone, paging and two-way radio communicationsequipment primarily for the consumer and small business markets.  These resellers include local and nationalproprietorships and retailers, as well as sales and installation centersoperated by cellular and paging carriers.

·                                          Consumers.  Consumers arecustomers buying through any of our affinity-partner relationships or directlyfrom our consumer website, YourWirelessSource.comTM.

The wirelesscommunications distribution industry is competitive and fragmented, and iscomprised of several national distributors. In addition, many manufacturerssell direct. Barriers to entry for distributors are relatively low,particularly in the mobile devices and accessory market, and the risk of newcompetitors entering the market is high. Consolidation of larger wireless carriers has and will most likelycontinue to impact our current and potential customer base.  In addition, the agreements or arrangementswith our customers or vendors (including Nokia) looking to us for product andsupply chain solutions are typically of limited duration and are terminable byeither party upon several months notice. Our ability to maintain these relationships is subject to competitivepressures and challenges.  We believe,however, that our strength in service, the breadth and depth of our productoffering, our information technology system, our large customer base andpurchasing relationships with approximately 350 manufacturers provide us with asignificant competitive advantage over new entrants to the market. 

Our second quarterrevenues decreased by 14% compared to the second quarter of last year.  This decrease is a result of:

·                                          Consumer revenues decreased by 97% compared to lastyear’s second quarter due to the loss of the T-Mobile affinity relationship inSeptember 2005.

·                                          Commercial revenue growth of 48% compared to last year’ssecond quarter.  This growth was drivenby growth in each of our commercial lines of business. We experiencedexceptionally strong growth in our installation, test and maintenance segment.This significant increase was primarily driven by large sales related to ourrepair components relationship with Nokia. Going forward, we expect that revenues and gross profits from sales ofthese repair components will not continue at this level, but will return tolevels more consistent with those experienced last fiscal year.

The transitioned T-Mobileaffinity relationship consisted primarily of low-margin handset sales.  The increases in the higher margin commercialbusiness in the second quarter, more than offset the loss of the gross profitgenerated from this T-Mobile business and thus, gross profits have increased by6% despite the overall decrease in revenues.

Our second quarterselling, general and administrative expenses grew by 5% compared to theprior-year quarter.  Because of the grossprofit growth described above and the smaller growth in expenses, our earningsper share reached $0.44 in the second quarter of fiscal year 2007, compared to$0.40 in the second quarter of fiscal year 2006.

14

----

 

**Resultsof Operations**

The following tablesummarizes the unaudited results of our operations for the three months and sixmonths ended September 24, 2006 and September 25, 2005:
| ** **                                                                      | ** ** | **Fiscal Quarters Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------------------------|------------|-------------------------------------|------------|--------------------------------|------------|
| **(Amounts in thousands, except per share data)** | ** ** | **September 24,  2006**        | ** ** | **September 25,  2005**   | ** ** | **$  Change** | ** ** | **%  Change** | ** ** | **September 24,  2006** | ** ** | **September 25,  2005** | ** ** | **$  Change** | ** ** | **%  Change** | ** ** |
| Commercial Revenues                                                             |       |                                |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Network  Infrastructure:                                                        |       |                                |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public  Carriers and Network Operators                                          |       | $                                   | 11,868     |                           | $          | 13,915 |   | $ | (2,047 | ) | (14.7%) |   | $ | 24,095 |   | $ | 28,278 |   | $ | (4,183 | ) | (14.8%) |   |
| SMUs,  Governments and Resellers                                                |       | 31,415                              |       | 25,114                         |       | 6,301 |   | 25.1% |   | 56,840 |   | 45,647 |   | 11,193 |   | 24.5% |   |
| Total  Network Infrastructure                                                   |       | 43,283                              |       | 39,029                         |       | 4,254 |   | 10.9% |   | 80,935 |   | 73,925 |   | 7,010 |   | 9.5% |   |
| Mobile  Devices and Accessories:                                                |       |                                |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public  Carriers and Network Operators                                          |       | 603                                 |       | 571                            |       | 32 |   | 5.6% |   | 1,258 |   | 1,131 |   | 127 |   | 11.2% |   |
| SMUs,  Governments and Resellers                                                |       | 51,005                              |       | 23,749                         |       | 27,256 |   | 114.8% |   | 92,253 |   | 46,574 |   | 45,679 |   | 98.1% |   |
| Total  Mobile Devices and Accessories                                           |       | 51,608                              |       | 24,320                         |       | 27,288 |   | 112.2% |   | 93,511 |   | 47,705 |   | 45,806 |   | 96.0% |   |
| Installation,  Test and Maintenance:                                            |       |                                |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public  Carriers and Network Operators                                          |       | 3,016                               |       | 3,751                          |       | (735 | ) | (19.6%) |   | 7,266 |   | 8,134 |   | (868 | ) | (10.7%) |   |
| SMUs,  Governments and Resellers                                                |       | 18,973                              |       | 11,961                         |       | 7,012 |   | 58.6% |   | 45,590 |   | 23,028 |   | 22,562 |   | 98.0% |   |
| Total  Installation, Test and Maintenance                                       |       | 21,989                              |       | 15,712                         |       | 6,277 |   | 40.0% |   | 52,856 |   | 31,162 |   | 21,694 |   | 69.6% |   |
| Total Commercial  Revenues                                                      |       | 116,880                             |       | 79,061                         |       | 37,819 |   | 47.8% |   | 227,302 |   | 152,792 |   | 74,510 |   | 48.8% |   |
| Consumer Revenues -  Mobile Devices and Accessories                             |       | 1,776                               |       | 58,572                         |       | (56,796 | ) | (97.0%) |   | 3,294 |   | 133,164 |   | (129,870 | ) | (97.5%) |   |
| Total Revenues                                                                  |       | $                                   | 118,656    |                           | $          | 137,633 |   | $ | (18,977 | ) | (13.8%) |   | $ | 230,596 |   | $ | 285,956 |   | $ | (55,360 | ) | (19.4%) |   |
|                                                                            |       |                                |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial Gross Profit                                                         |       |                                |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Network  Infrastructure:                                                        |       |                                |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public  Carriers and Network Operators                                          |       | $                                   | 2,943      |                           | $          | 3,219 |   | $ | (276 | ) | (8.6%) |   | $ | 5,745 |   | $ | 6,565 |   | $ | (820 | ) | (12.5%) |   |
| SMUs,  Governments and Resellers                                                |       | 7,933                               |       | 5,864                          |       | 2,069 |   | 35.3% |   | 14,164 |   | 10,863 |   | 3,301 |   | 30.4% |   |
| Total  Network Infrastructure                                                   |       | 10,876                              |       | 9,083                          |       | 1,793 |   | 19.7% |   | 19,909 |   | 17,428 |   | 2,481 |   | 14.2% |   |
| Mobile  Devices and Accessories:                                                |       |                                |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public  Carriers and Network Operators                                          |       | 192                                 |       | 170                            |       | 22 |   | 12.9% |   | 377 |   | 327 |   | 50 |   | 15.3% |   |
| SMUs,  Governments and Resellers                                                |       | 10,466                              |       | 6,144                          |       | 4,322 |   | 70.3% |   | 19,019 |   | 11,927 |   | 7,092 |   | 59.5% |   |
| Total  Mobile Devices and Accessories                                           |       | 10,658                              |       | 6,314                          |       | 4,344 |   | 68.8% |   | 19,396 |   | 12,254 |   | 7,142 |   | 58.3% |   |
| Installation,  Test and Maintenance:                                            |       |                                |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public  Carriers and Network Operators                                          |       | 807                                 |       | 935                            |       | (128 | ) | (13.7%) |   | 1,757 |   | 1,932 |   | (175 | ) | (9.1%) |   |
| SMUs,  Governments and Resellers                                                |       | 6,846                               |       | 3,976                          |       | 2,870 |   | 72.2% |   | 15,454 |   | 7,515 |   | 7,939 |   | 105.6% |   |
| Total  Installation, Test and Maintenance                                       |       | 7,653                               |       | 4,911                          |       | 2,742 |   | 55.8% |   | 17,211 |   | 9,447 |   | 7,764 |   | 82.2% |   |
| Total  Commercial Gross Profit                                                  |       | 29,187                              |       | 20,308                         |       | 8,879 |   | 43.7% |   | 56,516 |   | 39,129 |   | 17,387 |   | 44.4% |   |
| Consumer Gross Profit -  Mobile Devices and Accessories                         |       | 843                                 |       | 8,059                          |       | (7,216 | ) | (89.5%) |   | 1,599 |   | 15,260 |   | (13,661 | ) | (89.5%) |   |
| Total Gross Profit                                                              |       | 30,030                              |       | 28,367                         |       | 1,663 |   | 5.9% |   | 58,115 |   | 54,389 |   | 3,726 |   | 6.9% |   |
|                                                                            |       |                                |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general and  administrative expenses                                   |       | 26,856                              |       | 25,544                         |       | 1,312 |   | 5.1% |   | 51,824 |   | 49,504 |   | 2,320 |   | 4.7% |   |
| Income  from operations                                                         |       | 3,174                               |       | 2,823                          |       | 351 |   | 12.4% |   | 6,291 |   | 4,885 |   | 1,406 |   | 28.8% |   |
| Interest, net                                                                   |       | 180                                 |       | 29                             |       | 151 |   | NM |   | 336 |   | 67 |   | 269 |   | NM |   |
| Income  before provision for income taxes                                       |       | 2,994                               |       | 2,794                          |       | 200 |   | 7.2% |   | 5,955 |   | 4,818 |   | 1,137 |   | 23.6% |   |
| Provision for income  taxes                                                     |       | 1,138                               |       | 1,090                          |       | 48 |   | 4.4% |   | 2,246 |   | 1,879 |   | 367 |   | 19.5% |   |
| Net  income                                                                     |       | $                                   | 1,856      |                           | $          | 1,704 |   | $ | 152 |   | 8.9% |   | $ | 3,709 |   | $ | 2,939 |   | $ | 770 |   | 26.2% |   |
| Diluted earnings per  share                                                     |       | $                                   | 0.44       |                           | $          | 0.40 |   | $ | 0.04 |   | 10.0% |   | $ | 0.87 |   | $ | 0.69 |   | $ | 0.18 |   | 26.1% |   |

----

NM - not meaningful

15

----

###### **SecondQuarter of Fiscal Year 2007 Compared with Second Quarter of Fiscal Year 2006**

###### **Revenues. **Revenues for thesecond quarter of fiscal year 2007 decreased 14% as compared with the secondquarter of fiscal year 2006, primarily due to a 97% decrease in consumerrevenues, substantially offset by a 48% growth in commercial revenues.  While total sales in our mobile devices andaccessories line of business declined due to the large decrease in consumersales, we grew sales in all of our commercial lines of business.

Sales in the mobiledevices and accessories line of business decreased 36% in the second quarter offiscal year 2007, as compared with the prior-year period.  The decrease was due to a 97% decrease inconsumer sales, offset by a 112% increase in commercial sales.  The decrease in consumer sales wasattributable to the transition in the second quarter of fiscal year 2006 of theTESSCO provided e-commerce marketing and sales system to T-Mobile’s ownin-house web solution and alternative third-party logistics provider.  The increase in commercial revenues formobile devices and accessories, which are sold primarily to SMUs, governmentsand resellers, but also to public carriers and network operators, was primarilydue to increased sales of accessory products to carrier and independent retailcustomers.  During the third quarter offiscal year 2006, we began supplying several new wireless carrier customers,including Cingular Wireless LLC.

Network infrastructuresales increased 11% as compared with the second quarter of last year, primarilydue to an increase in sales of fixed wireless broadband products and wirelesslocal area network (WLAN) products. These increases were largely a result of our acquisition of TerraWaveand GigaWave, which primarily offer WLAN products and training.  The market for broadband and networkequipment products continues to emerge and grow.  Our growth in sales of network infrastructureproduct was in sales to SMUs, governments and resellers, as we have focused ondiversification beyond the traditional infrastructure carrier customer.  Although we believe the market for bothbroadband and RF propagation products will continue to grow, there can be noassurance that these trends will continue.

Revenues from ourinstallation, test and maintenance line of business had a 40% increase from theprior-year quarter, primarily due to large sales of repair parts related to ourexpanded major repair components relationship with Nokia.  Going forward, we expect that revenues fromsales of these repair components will not continue at this level, but willreturn to levels more consistent with those experienced last fiscal year.

**GrossProfit. **Gross profit for the second quarter of fiscal year2007 increased 6% as compared with the second quarter of fiscal year 2006.Total commercial gross profit grew 44%, while consumer gross profit decreased90% as a result of the transition of the T-Mobile relationship as discussedabove.  Gross profit margin increased to25.3% in the second quarter of fiscal year 2007 from 20.6% in second quarter offiscal year 2006.  Gross profit margin inour network infrastructure segment increased from 23.3% in the second quarterof fiscal year 2006 to 25.1% in the second quarter of fiscal year 2007.  In our installation, test and maintenancesegment, gross profit margin increased to 34.8% in the second quarter of fiscalyear 2007 from 31.3% in the second quarter of fiscal year 2006, which wasprimarily driven by large sales of repair components as discussed above.  Generally, our gross margins by productwithin these segments have been sustained and these variations are related tosales mix within the segment product offerings. Gross profit margin in our mobile devices and accessories segmentincreased to 21.5% in the second quarter of this fiscal year from 17.3% in thesecond quarter of last year.  Thisincrease is primarily attributable to a large decrease in low margin consumersales which had been related to the T-Mobile relationship, partially offset bya decrease in gross profit margin for our commercial sales.  The decrease in commercial gross profitmargin for our mobile devices and accessories, from 26.0% in the second quarterof last fiscal year to 20.7% for the second quarter of this fiscal year, isattributable to sales mix within the product offering in part due to new retailrelationships established in the third quarter of fiscal year 2006.  We account for inventory at the lower of costor market, and as a result, write-offs/write-downs occur due to damage, deterioration,obsolescence, changes in prices and other causes.

Our ongoing ability toearn revenues and gross profits from customers and vendors looking to us forproduct and supply chain solutions is dependent upon a number of factors.  The terms, and accordingly the factors, applicableto each affinity relationship often differ. Among these factors are the strength of the customer’s or vendor’sbusiness, the supply and demand for the product or service, including pricestability, changing customer or vendor requirements, and our ability to supportthe customer or vendor and to continually demonstrate that we can improve theway they do business.  In addition, theagreements or arrangements on which our affinity relationships are based aretypically of limited duration, 

16

----

and are terminable byeither party upon several months or otherwise relatively short notice.  These affinity relationships could also beaffected by wireless carrier consolidation.

**Selling,General and Administrative Expenses.** Total selling,general and administrative expenses increased by 5% in the second quarter offiscal year 2007 as compared with the second quarter of fiscal year 2006.  Selling, general and administrative expensesas a percentage of revenues increased to 23% in the second quarter of fiscalyear 2007 from 19% in the second quarter of fiscal year 2006, primarily due tothe large decrease in consumer revenues and increased expenses related tobusiness generation activities as discussed below, partially offset bydecreased freight costs.  The increase inselling, general and administrative expenses were primarily driven by increasedlabor expenses, including our reward programs, and increased marketingexpenses, but was partially offset by a decrease in freight expenses.

Labor expenses related tobusiness generation activities increased over the prior year quarter. Theseincreases are reflective of our increased focus on our commercialbusiness.  Labor costs have alsoincreased over the prior-year quarter due to increased accruals related to ourreward programs, including Performance Stock Units (PSU). PSU expense is basedon actual results to date and management’s current estimates of futureperformance in relation to pre-determined performance targets. Labor costs werealso impacted by the acquisition of TerraWave and GigaWave in April 2006.  Total labor costs, including benefits,increased by approximately $1.6 million from the second quarter of fiscal year2006 to the second quarter of fiscal year 2007.

Marketing expenses alsoincreased in the second quarter of fiscal year 2007 as compared with the secondquarter of fiscal year 2006.  Marketing expense increased due to salespromotion costs related to increased sales to retail customers.  Also, during the second quarter of fiscalyear 2007, we began a media campaign utilizing different marketing techniquesto broaden our outreach.  Totalmarketing and sales promotion expenses increased by approximately $1.9 millionfrom the second quarter of fiscal year 2006 to second quarter of fiscal year2007.

Freight costs in the secondquarter of fiscal year 2007 decreased approximately $1.6 million over theprior-year quarter, primarily due to the loss of consumer sales associated withour T-Mobile relationship which ended in the second quarter of fiscal year2006.  This decrease was partially offsetby the freight costs associated with the increase in commercial sales.

We continuallyevaluate the credit worthiness of our existing customer receivable portfolioand provide an appropriate reserve based on this evaluation.  We also evaluate the credit worthiness ofprospective customers and make decisions regarding extension of credit terms tosuch prospects based on this evaluation. Accordingly, we recorded a provision for bad debts of $332,200 and $505,500 for the second quarterended September 24, 2006 and September 25, 2005, respectively.

**Interest,Net.**  Net interest expense increased from $29,100in the second quarter of fiscal year 2006 to $180,500 in the second quarter offiscal year 2007 primarily due to increased interest expense on our revolvingcredit facility, as well as increased interest expense on our existing termbank loan due to higher interest rates. As noted below, we entered into a receive variable/pay fixed interestrate swap on our existing bank loan, thus fixing the interest rate on this loanat 6.38%.  The average balance on ourrevolving credit facility increased during the second quarter of fiscal year2007, partially as a result of a large stock buyback discussed further belowunder the “Liquidity” caption.  Interestexpense on our other debt instruments had only minor variances fromyear-to-year in total.

**IncomeTaxes, Net Income and Diluted Earnings per Share.** The effective tax rate in the second quarterof fiscal year 2007 was 38.0% as compared with 39.0% in the second quarter offiscal year 2006.  As a result of thefactors discussed above driving growth in sales and gross profit, net incomeand diluted earnings per share for the second quarter of fiscal year 2007 increased9% and 10%, respectively, over the prior-year quarter.

###### **FirstSix Months of Fiscal Year 2007 Compared with First Six Month of Fiscal Year2006**

###### **Revenues. **Revenues for thefirst six months of fiscal year 2007 decreased 19% as compared with the firstsix months of fiscal year 2006, primarily due to a 98% decrease in consumerrevenues, substantially offset by a 49% growth in commercial revenues.  While total sales in our mobile devices andaccessories line of business declined due to the large decrease in consumersales, we grew sales in all of our commercial lines of business.

17

----

Sales in the mobiledevices and accessories line of business decreased 46% in the first six monthsof fiscal year 2007, as compared with the prior-year period.  The decrease was due to a 98% decrease inconsumer sales, offset by a 96% increase in commercial sales.  The decrease in consumer sales wasattributable to the transition in the first six months of fiscal year 2006 ofthe TESSCO provided e-commerce marketing and sales system to T-Mobile’s ownin-house web solution and alternative third-party logistics provider.  The increase in commercial revenues formobile devices and accessories, which are sold primarily to SMUs, governmentsand resellers, but also to public carriers and network operators, was primarilydue to increased sales of accessory products to carrier and independent retailcustomers.  During the third quarter offiscal year 2006, we began supplying several new wireless carrier customers,including Cingular Wireless LLC.

Network infrastructuresales increased 10% as compared with the first six months of last year,primarily due to an increase in sales of fixed wireless broadband products andwireless local area network (WLAN) products. These increases were largely a result of our acquisition of TerraWaveand GigaWave, which primarily offer WLAN products and training.  The market for broadband and networkequipment products continues to emerge and grow.  The market for radio frequency (RF)propagation products continues to be challenging, especially in cable products;however, our revenue for these products increased over the prior year,primarily driven by growth in antenna systems and tower site support products.Our growth in sales of network infrastructure product was in sales to SMUs,governments and resellers, as we have focused on diversification beyond thetraditional infrastructure carrier customer. Although we believe the market for both broadband and RF propagation productswill continue to grow, there can be no assurance that these trends willcontinue.

Revenues from ourinstallation, test and maintenance line of business had a 70% increase from theprior year, primarily due to large sales of repair parts early in the quarterrelated to our expanded major repair components relationship with Nokia.  This increase in revenue was in part due toone-time large sales to certain customers. Going forward, we expect that revenues from sales of these repaircomponents will not continue at this level, but will return to levels moreconsistent with those experienced last fiscal year.

**GrossProfit. **Gross profit for the first six months of fiscal year2007 increased 7% as compared with the first six months of fiscal year 2006.Total commercial gross profit grew 44%, while consumer gross profit decreased90% as a result of the transition of the T-Mobile relationship as discussedabove.  Gross profit margin increased to25.2% in the first six months of fiscal year 2007 from 19.0% in first sixmonths of fiscal year 2006.  Gross profitmargin in our network infrastructure segment increased from 23.6% in the firstsix months of fiscal year 2006 to 24.6% in the first six months of fiscal year2007.  In our installation, test andmaintenance segment, gross profit margin increased to 32.6% in the first sixmonths of fiscal year 2007 from 30.3% in the first six months of fiscal year2006, which was primarily driven by large sales of repair components asdiscussed above.  Generally, our grossmargins by product within these segments have been sustained and thesevariations are related to sales mix within the segment product offerings,including repair and replacement parts in our installation, test andmaintenance line of business, an increased portion of which was accounted for ona net revenue basis.  Gross profit marginin our mobile devices and accessories segment increased to 21.7% in the firstsix months of this fiscal year from 15.2% in the first six months of last year.  This increase is primarily attributable to alarge decrease in low margin consumer sales which had been related to theT-Mobile relationship, and is partially offset by a decrease in gross profitmargin for our commercial sales.  Thedecrease in commercial gross profit margin for our mobile devices and accessories,from 25.7% in the first six months of last fiscal year to 20.7% for the firstsix months of this fiscal year, is attributable to sales mix within the productoffering in part due to new retail relationships established in the thirdquarter of fiscal year 2006.  We accountfor inventory at the lower of cost or market, and as a result,write-offs/write-downs occur due to damage, deterioration, obsolescence,changes in prices and other causes.

Our ongoing ability toearn revenues and gross profits from customers and vendors looking to us forproduct and supply chain solutions is dependent upon a number of factors.  The terms, and accordingly the factors,applicable to each affinity relationship often differ.  Among these factors are the strength of the customer’sor vendor’s business, the supply and demand for the product or service,including price stability, changing customer or vendor requirements, and ourability to support the customer or vendor and to continually demonstrate thatwe can improve the way they do business. In addition, the agreements or arrangements on which our affinityrelationships are based are typically of limited duration, and are terminableby either party upon several months or otherwise relatively short notice.  These affinity relationships could also beaffected by wireless carrier consolidation.

18

----

**Selling,General and Administrative Expenses.** Total selling,general and administrative expenses increased by 5% in the first six months offiscal year 2007 as compared with the first six months of fiscal year2006.  Selling, general andadministrative expenses as a percentage of revenues increased to 22% in thefirst six months of fiscal year 2007 from 17% in the first six months of fiscalyear 2006, primarily due to the large decrease in consumer revenues andincreased expenses related to business generation activities as discussedbelow, partially offset by decreased freight costs.

The largest factorscontributing to the increase in total selling, general and administrativeexpenses were increased labor expenses related to business generationactivities. These increases are reflective of our increased focus on ourcommercial business.  Labor costs havealso increased over the prior year due to increased accruals related to ourreward programs, including Performance Stock Units (PSU). PSU expense is basedon actual results to date and management’s current estimates of futureperformance in relation to pre-determined performance targets. Labor costs werealso impacted by the acquisition of TerraWave and GigaWave in April 2006.  Total labor costs, including benefits,increased by approximately $3.8 million from the first six months of fiscalyear 2006 to the first six months of fiscal year 2007.

Marketing expenses alsoincreased in the first six months of fiscal year 2007 as compared with thefirst six months of fiscal year 2006. Near the end of the first quarter of fiscal year 2006, we retained RTCRelationship Marketing, a direct- anddatabase- marketing firm to increase market awareness of TESSCO’s valueproposition and product and solutions offering among potential and existingcustomers.  Marketing expense alsoincreased due to sales promotion costs related to increased sales to retailcustomers.  During the second quarter offiscal year 2007, we began a media campaign utilizing different marketingtechniques to broaden our outreach.  Totalmarketing and sales promotion expenses increased by approximately $3.3 millionfrom the first six months of fiscal year 2006 to the first six months of fiscalyear 2007.

Freight costs in thefirst six months of fiscal year 2007 decreased approximately $3.9 million overthe prior year, primarily due to the loss of consumer sales associated with ourT-Mobile relationship which ended in the second quarter of fiscal year2006.  This decrease was partially offsetby the freight costs associated with the increase in commercial sales.    Credit card fee expense also decreased by approximately$300,000 as a result of the transition of this T-Mobile relationship.

We continuallyevaluate the credit worthiness of our existing customer receivable portfolioand provide an appropriate reserve based on this evaluation.  We also evaluate the credit worthiness ofprospective customers and make decisions regarding extension of credit terms tosuch prospects based on this evaluation. Accordingly, we recorded a provision for bad debts of $672,000 and $852,400 for the first sixmonths ended September 24, 2006 and September 25, 2005, respectively.

**Interest,Net.**  Net interest expense increased from $67,100in the first six months of fiscal year 2006 to $335,800 in the first six monthsof fiscal year 2007 primarily due to increased interest expense on ourrevolving credit facility, as well as increased interest expense on ourexisting term bank loan due to higher interest rates.  As noted below, we entered into a receivevariable/pay fixed interest rate swap on our existing bank loan, thus fixingthe interest rate on this loan at 6.38%. Interest expense on our other debt instruments had only minor variancesfrom year-to-year in total.

**IncomeTaxes, Net Income and Diluted Earnings per Share.** The effective tax rate in the first six monthsof fiscal year 2007 was 37.7% as compared with 39.0% in the first six months offiscal year 2006.  As a result of thefactors discussed above driving growth in sales and gross profit, net incomeand diluted earnings per share for the first six months of fiscal year 2007increased 26% over the prior-year quarter.

###### **Liquidityand Capital Resources**

###### We generated $9.4million of net cash from operating activities in the first six months of fiscalyear 2007 compared with a net cash outflow of $526,400 in the first six monthsof fiscal year 2006.  In the first sixmonths of fiscal year 2007, our cash inflow from operating activities wasprimarily driven by net income, net of deprecation and amortization, and asignificant increase in trade accounts payable, partially offset by an increasein product inventory.  The increase inproduct inventory and trade accounts payable was primarily due to our expandedmajor repair components relationship with Nokia as well as increased purchasesand on-hand inventory for our mobile devices and accessories vendors.   AtSeptember 24, 2006, repair and component parts purchased from Nokia accountedfor 26% of the dollar value of our total product inventory, based on thepurchase price for the inventory.  Trade 

19

----

accounts receivabledecreased due to the timing of collections from our customers, many of whommaintain accounts with open terms.

Capital expenditures of$2.1 million in the first six months of fiscal year 2007 were up fromexpenditures of $1.6 million in the first six months of fiscal year2006.  In both periods, capitalexpenditures primarily consisted of investment in information technology and infiscal year 2007, also included training equipment.

On April 21, 2006, the Company acquired substantially all the non-cashnet assets of TerraWave Solutions, Ltd. and its commonly owned affiliate,GigaWave Technologies, Ltd. for an initial cash payment of approximately $3.8million, and additional cash earn-out payments over a four-year period,contingent on the achievement of certain minimum earnings thresholds ($1.5million of the $3.8 million cash amount paid at closing is a non-refundableprepayment against future earn-out payments, if any).  To the extent that certain minimum earningsthresholds are not achieved, the Company will not be able to recover thisprepayment.  The maximum amount ofcontingent future earn-out payments (after subtracting the $1.5 millionprepayment) is $15.5 million.  Anycontingent payments made under the terms of the purchase agreement will be treatedas an additional cost of the acquired businesses and additional goodwill willbe recorded.  Additionally, acquisitionrelated transaction costs, primarily comprised of legal and accounting fees,totaled $89,500.

Net cash used forfinancing activities was $5.7 million in the first six months of fiscal year2007 compared with net cash used for financing activities of $507,900 for thefirst six months of fiscal year 2006.  Wehad a bank overdraft of approximately $2.5 million as ofSeptember 24, 2006.  During thefirst six months of fiscal year 2007, we purchased 641,775 shares of ouroutstanding common stock pursuant to our stock buyback program, compared with32,100 shares purchased in the first six months of fiscal year 2006.  From the beginning of our stock buybackprogram (the first quarter of fiscal 2004), through the end of the secondquarter of fiscal year 2007, a total of 1,142,478 shares have been purchasedunder this program for approximately $21.7 million, or an average price of$19.02 per share.  The Board of Directorshas authorized the purchase of up to 1,300,000 shares in the aggregate, andtherefore, 157,522 shares remained available to be purchased as of the end ofthe second quarter of fiscal year 2007. We expect to fund future purchases, if any, from working capital and/orour revolving credit facility.  Notimetable has been set for the completion of this program.

Of the 641,775 sharesrepurchased during the first six months of the fiscal year, 629,575 shares werepurchased at $25.00 per share for approximately $15.7 million in one transactionwith a large former shareholder.  Thistransaction significantly reduced our shareholders equity, and because thepurchase price was funded with borrowings under our revolving credit facility,it also increased our total liabilities. Prior to entering into this transaction, we discussed the proposedtransaction, the anticipated borrowings necessary to consummate the transactionand its possible impact on our financial condition, with Wachovia Bank, N.A.and SunTrust Bank, the lenders under our revolving credit facility and termloan.  We concluded that, as a result ofthe transaction, at the end of the second fiscal quarter we might not meet theMaximum Total Liabilities to Tangible Net Worth covenant under the terms of ourrevolving credit facility and term loan. Anticipating this possibility, prior to entering into the transaction werequested a waiver of the covenant from the banks and both agreed at that timeto waive compliance with the covenant for the second fiscal quarter.  It was subsequently determined that we, infact, did not comply with the covenant, and the waiver allowed us to avoid acovenant violation under the terms of these loans.  If we do not comply, or anticipate that wewill not comply, with this or any other covenant under our revolving creditfacility for the third or any future quarter, we would expect to work closelywith our banks to attempt to obtain additional waivers, as necessary.  There can be no assurance that we will complywith the covenant as of the end of the third or any future quarter or, if not,that the banks will provide another waiver. If we do not comply and if the banks refuse to provide another waiver,we would violate the covenant, which could result in the occurrence of an eventof default under the terms of these loans, whereupon the balance outstandingunder both of these loans, as well as the balances outstanding under our otherdebt agreements, would become payable in full and our ability to borrow underour existing revolving credit facility would be eliminated.  In such an instance, management would seek toobtain other sources of comparable financing, the availability (or terms) ofwhich cannot be assured, either in a timely manner or at all.

Also in anticipation ofthe continued repurchase of shares under our stock buyback program, we reviewedwith Wachovia Bank, N.A. and SunTrust Bank early in the second fiscal quarterterms applicable to our revolving credit facility which had the effect oflimiting both aggregate repurchases of our stock and our ability to useborrowings under the revolving credit facility to finance repurchases of ourstock, to $10 million.  After discussion,the banks agreed to change the relevant references from $10 million to $25million.  That agreement was memorializedpursuant to the terms of a joinder, 

20

----

assumption, ratificationand modification agreement entered into with the banks in respect of each ofthese facilities.  Also as part of thatundertaking, and as required of us under the terms of the existing documentsfor the revolving credit facility and term loan, we formally agreed with thebanks to join as co-borrowers under the revolving credit agreement and termloan several operating subsidiaries of ours that had been created morerecently, including those created in connection with the TerraWave and GigaWaveacquisitions, and to update and address other generally routine proceduralmatters relative to the documentation for these facilities.

To minimize interestexpense, our policy is to use excess available cash to pay down any balance onour $30 million revolving credit facility. The balance on our revolving credit facility at September 24, 2006 was$7.9 million, and therefore, we had no cash balance at the end of thequarter.  This facility has a term expiringin September 2007.  Included in accruedexpenses at the end of the second quarter is approximately $2.5 million ofoutstanding checks in excess of on-hand cash balances.  We expect to meet short-term and long-termliquidity needs through operating cash flow, supplemented by our existingrevolving credit facility.  In doing so,subject to our ability to maintain compliance with our debt covenants, asdiscussed in the preceding paragraph, the balance on our revolving creditfacility could increase depending on our working capital and other cashneeds.  As further discussed above, amongother covenants, we are currently required under our revolving credit facilityto maintain a Maximum Total Liabilities to Tangible Net Worth ratio (asdefined) of no more than 1.75. Our ongoing ability to borrow under ourrevolving credit facility is limited to amounts determined in accordance with aborrowing base provided for under the facility, and is also constrained by thenecessity for us to comply with the above and other credit agreement covenantsat the respective measurement dates. If we were to undertake anacquisition or other major capital purchases that require funds in excess ofits existing sources of liquidity, we would look to sources of funding fromadditional credit facilities, debt and/or equity issuances.  There can be no assurances that suchadditional future sources of funding would be available on terms acceptable tous, if at all.

OnOctober 1, 2005, we entered into a receive variable/pay fixed interest rateswap on a total notional amount of $4.2 million with Wachovia Bank, N.A. toavoid the risks associated with fluctuating interest rates on our existing termbank loan, which bears interest at a floating rate of LIBOR plus 1.75%, and toeliminate the variability in the cash outflow for interest payments.  The interest rate swap agreement locks theinterest rate for the outstanding principal balance of the loan at 6.38%through July 1, 2011.  There was nopayment due or received at inception of the swap.  No hedge ineffectiveness will be recognizedas the interest rate swaps’ provisions match the applicable provisions of theterm bank loan.  This cash flow hedge qualified for hedgeaccounting using the short-cut method since the swap terms match the criticalterms of the hedged debt.

###### **CriticalAccounting Policies and Estimates**

###### Our discussionand analysis of our financial condition and results of our operations are basedon our unaudited consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the UnitedStates.  The preparation of these financial statements requires us to makeestimates and judgments that affect the reported amount of assets, liabilities,revenues and expenses and related disclosure of contingent assets andliabilities.  Actual results may differ from these estimates underdifferent assumptions or conditions.

We have identified thepolicies below as critical to our business operations and the understanding ofour results of operations. For a detailed discussion on the application ofthese and other accounting policies, see the Notes to the ConsolidatedFinancial Statements in our Form 10-K for the fiscal year ended March 26, 2006.

*RevenueRecognition*.  We record revenue when 1) persuasive evidenceof an arrangement exists, 2) delivery has occurred or services have beenrendered, 3) our price to the buyer is fixed and determinable, and 4)collectibility is reasonably assured. Our revenue recognition policy includesevidence of arrangements for significant revenue transactions through eitherreceipt of a customer purchase order or a web-based order.  We record revenue when risk of loss haspassed to the customer and, in most cases, shipments are made using FOBshipping terms.  For a small portion ofour sales, we use FOB destination terms and record the revenue when the productis received by the customer.  Our pricesare always fixed at the time of sale. Historically, there have not been any material concessions provided toor by customers, future discounts, or other incentives subsequent to a sale. Wesell under normal commercial terms and, therefore, we only record sales ontransactions where collectibilty is reasonably assured.

Because our salestransactions meet the conditions set forth in Statement of Financial AccountingStandard (SFAS) No. 48, “Revenue Recognition When Right of Return Exists,” werecognize revenues from sales transactions containing sales returns provisionsat the time of the sale.  Theseconditions require that 1) our price be substantially fixed and determinable atthe date of sale, 2) the buyer is obligated to pay us, and such obligation isnot contingent on their resale of the product, 3) the buyer’s obligation to usdoes not change in the event of theft or physical destruction or damage of the 

21

----

product, 4) the buyerhas economic substance apart from us, 5) we do not have significant obligationsfor future performance to directly bring about resale of the product by thebuyer, and 6) the amount of future returns can be reasonably estimated.  Because our normal terms and conditions ofsale are consistent with conditions 1-5 above, and we are able to performcondition 6, we make a reasonable estimate of product returns in salestransactions and accrue a sales return reserve based on this estimate.

Our current andpotential customers are continuing to look for ways to reduce their inventoriesand lower their total costs, including distribution, order taking andfulfillment costs, while still providing their customers excellentservice.  Some of these companies haveturned to us to implement supply chain solutions, including purchasinginventory, assisting in demand forecasting, configuring, packaging, kitting anddelivering products and managing customer relations, from order taking throughcash collections.  In performing thesesolutions, we assume varying levels of involvement in the transactions andvarying levels of credit and inventory risk. As our solutions offerings continually evolve to meet the needs of ourcustomers, we constantly evaluate our revenue accounting based on the guidanceset forth in accounting standards generally accepted in the United States.  When applying this guidance in accordancewith Emerging Issues Task Force (EITF) No. 99-19, “Reporting Revenue Gross as aPrincipal versus Net as an Agent,” we look at the following indicators: whetherwe are the primary obligor in the transaction; whether we have generalinventory risk; whether we have latitude in establishing price; the extent towhich we change the product or perform part of the service; whether we haveresponsibility for supplier selection; whether we are involved in thedetermination of product and service specifications; whether we have physicalinventory risk; whether we have credit risk; and whether the amount we earn isfixed.  Each of our customerrelationships is independently evaluated based on the above guidance andrevenue is recorded on the appropriate basis.  Based on a review of the factors above, in the majority of our salesrelationships, we have concluded that we are the principal in the transactionand we record revenue based upon the gross amounts earned and booked. However,we do have certain relationships where we are not the principal and we recordrevenue on a net fee basis, regardless of amounts billed (less than 5% of ourtotal revenue). If applying this revenue recognition guidance resulted inrecording revenue on a different basis from which we have previously concluded,or if the factors above change significantly, revenues could increase ordecrease; however, our gross profit and net income would remain constant.

Most of our salesarrangements do not contain multiple elements. However, when we enter into arrangements that do contain multipleelements, we follow the guidance under EITF No. 00-21, “Revenue Arrangementswith Multiple Deliverables.”  Therefore,at the inception of the arrangement, we determine if each deliverable under thearrangement represents a separate unit of accounting.  We do this by determining whether theundelivered items have value to the customer on a stand-alone basis (if it issold separately by any other vendor or the customer could resell the delivereditem on a stand-alone basis), if there is objective and reliable evidence ofthe fair value of the item, and whether the delivery or performance of theundelivered item is considered probable and substantially in our control (incases where the arrangement includes a general right of return relative to thedelivered item).

*Allowancefor Doubtful Accounts*.  We use estimates to determine the amount ofthe allowance for doubtful accounts necessary to reduce accounts receivable andunbilled receivables to their expected net realizable value. We estimate theamount of the required allowance by reviewing the status of past-duereceivables and analyzing historical bad debt trends. Actual collectionexperience has not varied significantly from estimates, due primarily to creditpolicies, collection experience and our stability as it relates to its currentcustomer base.  Typical payments fromcommercial customers are due 30 days from the date of the invoice.  Sales made to consumers are primarily madethrough credit card transactions.  Wecharge-off receivables deemed to be uncollectible to the allowance for doubtfulaccounts.  Accounts receivable balancesare not collateralized.

*Impairmentof Long-Lived and Indefinite-Lived Assets*.  Our Consolidated Balance Sheet includesgoodwill of approximately $3.6 million. We perform an annual impairment test for goodwill on the first day ofour fourth quarter.  We also periodicallyevaluate our long-lived assets and intangible assets for potential impairmentindicators.  Our judgments regarding theexistence of impairment indicators are based on estimated future cash flows,market conditions, operational performance and legal factors.  Future events, such as significant changes incash flow assumptions, could cause us to conclude that impairment indicatorsexist and that the net book value of goodwill, long-lived assets or intangibleassets are impaired.  Had thedetermination been made that the goodwill asset was impaired, the value of thisasset would have been reduced by an amount up to $3.6 million, resulting in acharge to operations.

 

22

----

 

*IncomeTaxes*.  We recognize deferred tax assets andliabilities based on the differences between the financial statement carryingamounts and the tax bases of assets and liabilities.  We regularly review our deferred tax assetsfor recoverability.  This review is basedon historical taxable income, projected future taxable income and the expectedtiming of the reversals of existing temporary differences.  Based on this review, we have not establisheda valuation allowance.   If we are unableto generate sufficient taxable income, or if there is a material change in theactual effective tax rates or time period within which the underlying temporarydifferences become taxable or deductible, we could be required to establish avaluation allowance against all or a significant portion of our deferred taxassets, resulting in a substantial increase in our effective tax rate and amaterial adverse impact on our operating results.

In July, 2006, the Financial Accounting StandardsBoard (FASB) issued Interpretation No. 48 (FIN 48), “Accounting for Uncertaintyin Income Taxes,” which clarifies the accounting for income taxes byprescribing the minimum recognition threshold a tax position is required tomeet before being recognized in the financial statements.  FIN 48 also provides guidance onderecognition, measurement, classification, interest and penalties, accountingin interim periods, disclosure and transition. FIN 48 is effective for fiscalyears beginning after December 15, 2006. The Company is reviewing FIN 48 to determine the impact of adoption onits financial statements.

*Stock-BasedCompensation*.  Effective March 27, 2006, we adoptedStatement of Financial Accounting Standards (SFAS) No. 123R, “Share-BasedPayment,” using the modified prospective application transition method. Becausethe fair value recognition provisions of SFAS No. 123, “Accounting forStock-Based Compensation,” which we had previously adopted effective March 29,2004, and SFAS No. 123R are generally consistent with respect to ourshare-based payments (other than as described below), the adoption of SFASNo. 123R did not have a material impact on our financial position, resultsof operations or cash flows.

SFAS No. 123R requires us to include in our calculation of periodic stockcompensation expense an estimate of future forfeitures.  Previously, in accordance with SFAS No. 123,we included forfeitures in its calculation of stock compensation expense whenthe awards were actually forfeited.  Thischange did not have a material impact on our financial position or results of operations for the quarter.  Prior to the adoption of SFAS No. 123R,benefits of tax deductions in excess of recognized compensation costs werereported as operating cash flows. SFAS No. 123R requires excess taxbenefits be reported as a financing cash flow.

###### **Off-BalanceSheet Arrangements**

###### We have nomaterial off-balance sheet arrangements.

## **Forward-LookingStatements**

## This Reportmay contain forward-looking statements. These forward-looking statements maygenerally be identified by the use of the words “may,” “will,” “expects,” “anticipates,”“believes,” “estimates,” and similar expressions, but the absence of thesewords or phrases does not necessarily mean that a statement is not forwardlooking. Forward looking statements involve a number of risks anduncertainties. Our actual results may differ materially from those described inor 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-Kand other periodic reports filed with the Securities and Exchange Commission,under the heading “Risk Factors” and otherwise. Consequently, the reader iscautioned to consider all forward-looking statements in light of the risks towhich they are subject.

We are not able toidentify or control all circumstances that could occur in the future that mayadversely affect our business and operating results. Without limiting the risksthat we describe in our periodic reports and elsewhere, among the risks thatcould lead to a materially adverse impact on our business or operating resultsare the following: termination or non-renewal of limited duration agreements orarrangements with our vendors and affinity partners which are typicallyterminable by either party upon several months notice; loss of significantcustomers or relationships, including affinity relationships; loss of customerseither directly or indirectly as a result of consolidation among large wirelessservice carriers and others within the wireless communications industry; thestrength of the customers’, vendors’ and affinity partners’ business; economicconditions that may impact customers’ ability to fund or pay for the purchaseof our products and services, including credit risk; our dependence on arelatively small number of suppliers and vendors, which could hamper ourability to maintain appropriate inventory levels and meet customer demand;failure of our information 

23

----

technology system ordistribution system; technology changes in the wireless communicationsindustry, which could lead to significant inventory obsolescence and/or ourinability to offer key products that our customers demand; third-party freightcarrier interruption; increased competition from competitors, including manufacturersor national and regional distributors of the products we sell and the absenceof significant barriers to entry which could result in pricing and otherpressures on profitability and market share; our inability to access capitaland obtain financing as and when needed; transitional and other risksassociated with acquisitions of companies that we may undertake in an effort toexpand our business; the possibility that, for unforeseen reasons, we may bedelayed in entering into or performing, or may fail to enter into or perform,anticipated contracts or may otherwise be delayed in realizing or fail torealize anticipated revenues or anticipated savings; our inability to protectcertain intellectual property, including systems and technologies on which werely; and our inability to hire or retain for any reason our key professionals,management and staff.

## **AvailableInformation**

## Our InternetWeb site address is: www.tessco.com. We make available free of charge throughour Web site, 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 furnishedpursuant to Section 13 or 15(d) of the Exchange Act as soon as reasonablypracticable after such documents are electronically filed with, or furnishedto, the Securities and Exchange Commission. Also available on our Web site is our Code of Business Conduct andEthics.

**Item3.  Quantitative and QualitativeDisclosures about Market Risk**

Asnoted above under the caption “Liquidity and Other Capital Resources,” in October 2005, we entered into aninterest rate swap agreement on our existing bank term loan.  We believe our exposure to market risks,including exchange rate risk, interest rate risk and commodity price risk, isnot material at the present time.

###### **Item4.  Controls and Procedures**

The Company’s ChiefExecutive Officer (CEO) and Chief Financial Officer (CFO) have evaluated theeffectiveness of the Company’s disclosure controls and procedures (as such termis defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Actof 1934, as amended (Exchange Act)) as of the end of the period covered by thisquarterly report. A control system, no matter how well designed and operated,can provide only reasonable, not absolute, assurance that the control system’sobjectives will be met. Based on the evaluation of these controls andprocedures required by Rules 13a-15(b) or 15d-15(b) of the Exchange Act, theCompany’s management, including the CEO and CFO, have concluded that, as of theend of the period covered by this quarterly report, the Company’s disclosurecontrols and procedures were effective to provide reasonable assurance thatinformation required to be disclosed by the Company in reports that it files orsubmits under the Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in the Securities and Exchange Commission’srules and forms and to provide reasonable assurance that such information isaccumulated and communicated to the Company’s management, including the Company’sCEO and CFO, as appropriate to allow timely decisions regarding requireddisclosure. During the period covered by this quarterly report, there have beenno changes to the Company’s internal control over financial reporting that havematerially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.

**Part II. Other Information**

**Item1.  Legal Proceedings**

Lawsuits and claims arefiled against us from time to time in the ordinary course of business.  We do not believe that any lawsuits or claimscurrently pending against the Company, individually or in the aggregate, arematerial, or will have a material adverse affect on our financial condition orresults of operations.

**Item1A.  Risk Factors**

There were nomaterial changes in the risk factors previously disclosed in the Company’sAnnual Report on Form 10-K for the year ended March 26, 2006.

24

----

###### **Item2.  Unregistered Sales of EquitySecurities and Use of Proceeds**

The following table setsforth information with respect to purchases of TESSCO common stock by theCompany or any affiliated purchasers during the second quarter of fiscal year2007.

**IssuerPurchases of Equity Securities**
| **Period (1)**                         | ** ** | **Total Number  of Shares  Purchased** | ** ** | **Average  Price Paid  Per Share** | ** ** | **Total Number of  Shares Purchased  as Part of Publicly  Announced Plans  or Programs** | ** ** | **Maximum   Number of Shares  that May Yet Be  Purchased under  the Plans or  Programs (2)** | ** ** |
|---------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| June 26, 2006  through July 23, 2006        |       | —                                           |       | N/A                                          |       | —                                                                                                                           |       | 790,497                                                                                                                                        |       |
| July 24, 2006  through August 27, 2006      |       | —                                           |       | N/A                                          |       | —                                                                                                                           |       | 790,497                                                                                                                                        |       |
| August 28, 2006  through September 24, 2006 |       | 632,975                                          |       | $                                            | 25.00      |                                                                                                                             | 632,975    |                                                                                                                                           | 157,522    |   |
| Total                                       |       | 632,975                                          |       | $                                            | 25.00      |                                                                                                                             | 632,975    |                                                                                                                                           | 157,522    |   |

----

(1)          Periods indicated are fiscal accounting months for thesecond quarter of fiscal year 2007.

(2)          Values are as of the end of the fiscal accountingmonth or quarter, as applicable.

On April 28, 2003, ourBoard of Directors announced a stock buyback program and authorized thepurchase of up to 450,000 shares of our common stock pursuant to theprogram.  On October 20, 2005, our Boardof Directors amended the program and authorized the purchase of an additional450,000 shares of outstanding common stock. On July 17, 2006, our Board of Directors amended the program and authorizedthe purchase of an additional 400,000 shares of outstanding common stock, andas of that date, 1,300,000 shares have been authorized for repurchase.  During the second quarter of 2007, theCompany repurchased 632,975 shares of its common stock for approximately $15.8million. The vast majority of these shares were purchased in one transactionwith a large former shareholder.  Allshares repurchased during the second quarter of fiscal year 2007 were repurchasedunder this program.  As of September 24,2006, we had purchased an aggregate of 1,142,478 shares of our outstandingcommon stock pursuant to this program for approximately $21.7 million, or anaverage price of $19.02 per share. Accordingly, up to 157,522 shares remain available for repurchase.  Shares may be purchased from time to time inthe open market, by block purchase, or through negotiated transactions, orpossibly other transactions managed by broker-dealers.  No timetable has been set for completion ofthe program.

###### **Item3.  Defaults upon Senior Securities**

None

###### **Item4.  Submission of Matters to a Vote ofSecurity Holders**

Theinformation regarding the submission of matters to a vote of security holders,set forth on page 21 of the Company’s quarterly report on Form 10-Q for thefiscal quarter ended June 25, 2006, filed August 9, 2006, is incorporatedherein by reference.

###### **Item5.  Other Information**

None

###### **Item6.  Exhibits**

(a)                EXHIBITS:
|        |   | 10.1 |   | Joinder, Assumption, Ratification and Modification  Agreement, dated as of August 29, 2006 by and among the Registrant,  various affiliates of the Registrant and Wachovia Bank, N.A. and  SunTrust Bank, as lenders (Revolving Line of Credit Facility). |
|--------|--------|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | 10.2 |   | Joinder, Assumption, Ratification and Modification  Agreement, dated as of August 29, 2006 by and among the Registrant,  various affiliates of the Registrant and Wachovia Bank, N.A. and  SunTrust Bank, as lenders (Term Loan).                         |
|   |   | 31.1 |   | Rule 15d-14(a) Certification of Robert B. Barnhill,  Jr., Chief Executive Officer.                                                                                                                                                                                  |
|   |   | 31.2 |   | Rule 15d-14(a) Certification of David M. Young,  Chief Financial Officer.                                                                                                                                                                                           |
|   |   | 32.1 |   | Section 1350 Certification of Robert B. Barnhill,  Jr., Chief Executive Officer.                                                                                                                                                                                    |
|   |   | 32.2 |   | Section 1350 Certification of David M. Young, Chief  Financial Officer.                                                                                                                                                                                             |

 

25

----

**Signature**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                                    |   | TESSCO Technologies Incorporated |
|------------------------------------|--------|----------------------------------|
|                               |   |                             |   |   |
|                               |   |                             |   |   |
| Date:  November  8, 2006 |   | By:                              |   | /s/ David M. Young |
|                               |   |                             |   | David M. Young |
|                               |   |                             |   | Chief Financial Officer |
|                               |   |                             |   | (principal financial and accounting officer) |

 

26

----