**Table of Contents**

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**UNITED STATES**

**SECURITIESAND 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 December 27, 2009**                                                                                                         |
|     |                                                                                                                                                               |
|     | **or**                                                                                                                                                             |
|     |                                                                                                                                                               |
| o        | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                           |
|     |                                                                                                                                                               |
| * * | ***For the transition period from             to           *** |

# * *

**CommissionFile Number: 0-24746**

# *** ***

# ***TESSCO TECHNOLOGIES INCORPORATED***

(Exact name ofregistrant as specified in its charter)

 

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

 

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

 

**(410)229-1000**

(Registrant’stelephone number, including area code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes x  No o

 

Indicateby check mark whether the registrant submitted electronically and posted on itscorporate Website, if any, every Interactive Data File required to be submittedand posted pursuant to Rule 405 of Regulation S-T during the preceding 12months (or for such shorter period that the registrant was required to submitand post such files). Yes o  No o

 

Indicate by check mark whether the registrant isa large accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See the definitions of “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 

 
| Large accelerated  filer  o | Accelerated filer  o          |
|----------------------------------|------------------------------------|
|                             |                               |
| Non-accelerated filer  o    | Smaller reporting  company  x |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes o  No x

 

The number of shares of the registrant’sCommon Stock, $0.01 par value per share, outstanding as of January 29,2010, was 4,801,693.

 

 

 

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**TESSCO TECHNOLOGIES INCORPORATED**

**Index to Form 10-Q**

 
| **Part I**  |       | **FINANCIAL INFORMATION** |
|------------------|------------|---------------------------|
|             |       |                      |   |   |
|             |       | Item 1.                   |   | Financial Statements. |
|             |       |                      |   |   |
|             |       | Item 2.                   |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations. |
|             |       |                      |   |   |
|             |       | Item 3.                   |   | Quantitative  and Qualitative Disclosure 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. |
|             |       |                      |   |   |
| ** **       | ** ** | Signatures                |

 

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###### **PART I. FINANCIALINFORMATION**

 

###### **Item 1. Financial Statements.**

 

**TESSCOTECHNOLOGIES INCORPORATED**

**UnauditedConsolidated Balance Sheets**

 
| ** **                                       | ** ** | **December 27,  2009** | ** **  | **March 29,********2009** | ** ** |
|--------------------------------------------------|------------|-----------------------------|-------------|--------------------------------|------------|
|                                             |       |                        |        |                           |       |
| **ASSETS**                                       |       |                        |        |                           |       |
|                                             |       |                        |        |                           |       |
| Current assets:                                  |       |                        |        |                           |       |
| Cash and cash equivalents                        |       | $                           | 5,510,400   |                           | $          | 599,800 |   |
| Trade accounts receivable, net                   |       | 55,112,100                  |        | 44,601,300                     |       |
| Product inventory, net                           |       | 58,832,200                  |        | 36,540,400                     |       |
| Deferred tax assets                              |       | 4,366,700                   |        | 4,366,700                      |       |
| Prepaid expenses and other current assets        |       | 1,580,400                   |        | 2,168,500                      |       |
| Total current assets                             |       | 125,401,800                 |        | 88,276,700                     |       |
|                                             |       |                        |        |                           |       |
| Property and equipment, net                      |       | 20,924,900                  |        | 21,566,900                     |       |
| Goodwill, net                                    |       | 9,017,700                   |        | 6,550,700                      |       |
| Other long-term assets                           |       | 2,012,100                   |        | 2,258,300                      |       |
| Total assets                                     |       | $                           | 157,356,500 |                           | $          | 118,652,600 |   |
|                                             |       |                        |        |                           |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**    |       |                        |        |                           |       |
|                                             |       |                        |        |                           |       |
| Current liabilities:                             |       |                        |        |                           |       |
| Trade accounts payable                           |       | $                           | 67,123,200  |                           | $          | 40,481,600 |   |
| Payroll, benefits and taxes                      |       | 8,597,800                   |        | 6,494,400                      |       |
| Income and sales tax liabilities                 |       | 4,557,600                   |        | 2,908,400                      |       |
| Accrued expenses and other current liabilities   |       | 1,441,800                   |        | 1,405,900                      |       |
| Current portion of long-term debt                |       | 377,800                     |        | 361,400                        |       |
| Total current liabilities                        |       | 82,098,200                  |        | 51,651,700                     |       |
|                                             |       |                        |        |                           |       |
| Deferred tax liabilities                         |       | 2,416,000                   |        | 2,416,000                      |       |
| Long-term debt, net of current portion           |       | 3,436,400                   |        | 3,481,700                      |       |
| Other long-term liabilities                      |       | 1,585,500                   |        | 937,000                        |       |
| Total liabilities                                |       | 89,536,100                  |        | 58,486,400                     |       |
|                                             |       |                        |        |                           |       |
| Shareholders’ equity:                       |       |                        |        |                           |       |
| Preferred stock                                  |       | —                      |        | —                         |       |
| Common stock                                     |       | 81,400                      |        | 80,100                         |       |
| Additional paid-in capital                       |       | 36,360,800                  |        | 34,503,700                     |       |
| Treasury stock                                   |       | (42,819,400                 | )           | (42,155,700                    | )          |
| Retained earnings                                |       | 74,307,400                  |        | 67,880,900                     |       |
| Accumulated other comprehensive loss, net of tax |       | (109,800                    | )           | (142,800                       | )          |
| Total shareholders’ equity                  |       | 67,820,400                  |        | 60,166,200                     |       |
| Total liabilities and shareholders’ equity  |       | $                           | 157,356,500 |                           | $          | 118,652,600 |   |

 

Seeaccompanying notes.

 

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**TESSCOTECHNOLOGIES INCORPORATED**

**Unaudited Consolidated Statements of Income**

 
| ** **                                   | ** ** | **Fiscal Quarters Ended**         | ** **  | **Nine Months Ended**             | ** ** |
|----------------------------------------------|------------|-----------------------------------|-------------|-----------------------------------|------------|
| ** **                                   | ** ** | **December 27,********2009** | ** **  | **December 28,********2008** | ** ** | **December 27,********2009** | ** ** | **December 28,********2008** | ** ** |
|                                         |       |                              |        |                              |       |   |   |   |   |
| Revenues                                     |       | $                                 | 149,721,200 |                              | $          | 118,943,300 |   | $ | 391,476,200 |   | $ | 384,785,300 |   |
| Cost of goods sold                           |       | 116,932,800                       |        | 89,675,900                        |       | 298,058,700 |   | 290,284,400 |   |
| Gross profit                                 |       | 32,788,400                        |        | 29,267,400                        |       | 93,417,500 |   | 94,500,900 |   |
| Selling, general and administrative expenses |       | 27,939,700                        |        | 26,868,200                        |       | 81,023,400 |   | 84,660,800 |   |
| Income from operations                       |       | 4,848,700                         |        | 2,399,200                         |       | 12,394,100 |   | 9,840,100 |   |
| Interest expense, net                        |       | 90,600                            |        | 213,700                           |       | 276,200 |   | 516,400 |   |
| Income before provision for income taxes     |       | 4,758,100                         |        | 2,185,500                         |       | 12,117,900 |   | 9,323,700 |   |
| Provision for income taxes                   |       | 1,850,900                         |        | 944,100                           |       | 4,706,100 |   | 3,780,900 |   |
| Net income                                   |       | $                                 | 2,907,200   |                              | $          | 1,241,400 |   | $ | 7,411,800 |   | $ | 5,542,800 |   |
| Basic earnings per share                     |       | $                                 | 0.59        |                              | $          | 0.26 | * | $ | 1.51 |   | $ | 1.09 | * |
| Diluted earnings per share                   |       | $                                 | 0.56        |                              | $          | 0.25 | * | $ | 1.45 |   | $ | 1.06 | * |
|                                         |       |                              |        |                              |       |   |   |   |   |
| Cash dividends declared per common share     |       | $                                 | 0.10        |                              | $          | — |   | $ | 0.20 |   | $ | — |   |

 

----

*Prior year basic and diluted earnings per share have been adjusted to show theeffects of adoption of the FASB standard addressing accounting forparticipating securities under the two-class method. See Note 3 for furtherdiscussion.

 

See accompanying notes.

 

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**TESSCOTECHNOLOGIES INCORPORATED**

**Unaudited Consolidated Statements of Cash Flows**

 
| ** **                                                                                                      | ** ** | **Nine Months Ended**       | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                      | ** ** | **December 27,  2009** | ** ** | **December 28,  2008** | ** ** |
|                                                                                                            |       |                        |       |   |   |
| Cash flows from operating activities:                                                                           |       |                        |       |   |   |
| Net income                                                                                                      |       | $                           | 7,411,800  |   | $ | 5,542,800 |   |
| Adjustments to reconcile net income to net cash provided  by operating activities:                              |       |                        |       |   |   |
| Depreciation and amortization                                                                                   |       | 3,086,000                   |       | 3,164,900 |   |
| Gain on sale of property and equipment                                                                          |       | —                      |       | (157,600 | ) |
| Non-cash stock compensation expense                                                                             |       | 1,750,600                   |       | 1,350,500 |   |
| Deferred income taxes and other                                                                                 |       | 918,800                     |       | (61,800 | ) |
| Change in trade accounts receivable                                                                             |       | (10,510,800                 | )          | 10,875,100 |   |
| Change in product inventory                                                                                     |       | (22,291,800                 | )          | (2,605,800 | ) |
| Change in prepaid expenses and other current assets                                                             |       | 646,400                     |       | (755,800 | ) |
| Change in trade accounts payable                                                                                |       | 26,556,600                  |       | (11,849,400 | ) |
| Change in payroll, benefits and taxes                                                                           |       | 2,103,400                   |       | 3,446,000 |   |
| Change in income and sales tax liabilities                                                                      |       | 1,649,200                   |       | (700,200 | ) |
| Change in accrued expenses and other current  liabilities                                                       |       | 101,800                     |       | 291,800 |   |
| Net cash provided by operating activities                                                                       |       | 11,422,000                  |       | 8,540,500 |   |
|                                                                                                            |       |                        |       |   |   |
| Cash flows from investing activities:                                                                           |       |                        |       |   |   |
| Purchases of property and equipment                                                                             |       | (2,318,400                  | )          | (2,491,100 | ) |
| Proceeds from sale of property and equipment                                                                    |       | —                      |       | 220,000 |   |
| Additional earn-out payments on acquired businesses                                                             |       | (2,382,000                  | )          | (1,309,000 | ) |
| Net cash used in investing activities                                                                           |       | (4,700,400                  | )          | (3,580,100 | ) |
|                                                                                                            |       |                        |       |   |   |
| Cash flows from financing activities:                                                                           |       |                        |       |   |   |
| Net borrowings on revolving line of credit                                                                      |       | —                      |       | 2,829,100 |   |
| Payments on long-term debt                                                                                      |       | (278,900                    | )          | (269,500 | ) |
| Proceeds from debt issuance                                                                                     |       | 250,000                     |       | — |   |
| Proceeds from issuance of stock                                                                                 |       | 57,600                      |       | 58,700 |   |
| Cash dividends paid                                                                                             |       | (985,300                    | )          | — |   |
| Purchases of treasury stock and repurchases of stock  from employees and directors for minimum tax withholdings |       | (484,900                    | )          | (8,419,600 | ) |
| Payments of debt issue costs                                                                                    |       | (175,000                    | )          | — |   |
| Excess tax (loss) benefit from stock-based  compensation                                                        |       | (194,500                    | )          | 187,900 |   |
| Net cash used in financing activities                                                                           |       | (1,811,000                  | )          | (5,613,400 | ) |
|                                                                                                            |       |                        |       |   |   |
| Net increase (decrease) in cash and cash equivalents                                                            |       | 4,910,600                   |       | (653,000 | ) |
|                                                                                                            |       |                        |       |   |   |
| Cash and cash equivalents, beginning of period                                                                  |       | 599,800                     |       | 2,086,200 |   |
|                                                                                                            |       |                        |       |   |   |
| Cash and cash equivalents, end of period                                                                        |       | $                           | 5,510,400  |   | $ | 1,433,200 |   |

 

Seeaccompanying notes.

 

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**TESSCO TECHNOLOGIES INCORPORATED**

**Notes to Unaudited ConsolidatedFinancial Statements**

**December 27, 2009**

 

# ***Note 1. Description of Business and Basisof Presentation***

 

TESSCOTechnologies Incorporated, a Delaware corporation (TESSCO, we, or the Company),is a leading provider of integrated product and supply chain solutions to theprofessionals that design, build, run, maintain and use wireless, mobile, fixedand in-building systems. The Company provides marketing and sales services,knowledge and supply chain management, product-solution delivery and controlsystems utilizing extensive Internet and information technology. Approximately97% of the Company’s sales are made to customers in the United States. TheCompany takes orders in several ways, including phone, fax, online and throughelectronic data interchange. Over 99% of the Company’s sales are made in UnitedStates Dollars.

 

In management’s opinion, the accompanying interimconsolidated financial statements of the Company include all adjustments,consisting only of normal, recurring adjustments, necessary for a fairpresentation of the Company’s financial position for the interim periodspresented. These statements are presented in accordance with the rules andregulations of the United States Securities and Exchange Commission (“SEC”).Certain information and footnote disclosures normally included in the Company’sannual financial statements have been omitted from these statements, aspermitted under the applicable rules and regulations. The results ofoperations presented in the accompanying interim consolidated financialstatements are not necessarily representative of operations for an entire year.The information included in this Form 10-Q should be read in conjunctionwith the consolidated financial statements and notes thereto included in theCompany’s Annual Report on Form 10-K for the fiscal year ended March 29,2009.

 

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

 

In September 2006, the Financial AccountingStandards Board (“FASB”) issued a new standard to provide guidance for usingfair value to measure assets and liabilities. The standard also responds toinvestors’ requests for expanded information about the extent to whichcompanies measure assets and liabilities at fair value, the information used tomeasure fair value, and the effect of fair value measurements on earnings. Thestandard applies whenever other standards require (or permit) assets or liabilitiesto be measured at fair value. It does not expand the use of fair value in anynew circumstances. In February 2008, the FASB partially deferred theeffective date of this standard for certain non-financial assets andliabilities that are recognized or disclosed at fair value in the financialstatements on a nonrecurring basis until fiscal years beginning after November 15,2008 or in the Company’s case, the fiscal year beginning March 30, 2009.The Company adopted this standard for its financial assets and liabilitieseffective as of March 31, 2008, and adopted the standard for non-financialassets and liabilities effective March 30, 2009. The adoption of thestandard did not have a material impact on the Company’s consolidated financialstatements. See Note 5 for additional disclosures.

 

In December 2007, the FASB issued a newstandard establishing principles and guidance regarding the informationprovided in financial reports about a business combination and its effects. Thestandard requires that the acquisition method of accounting be used for allbusiness combinations and that an acquirer be identified for each businesscombination. The standard requires the assets, liabilities, noncontrollinginterests, certain acquired contingencies and contingent consideration during abusiness combination to be measured at their fair value as of the acquisitiondate. The standard is effective for fiscal years beginning on or after December 15,2008. In April 2009, the FASB issued an amendment to this standard toclarify the initial and subsequent accounting disclosures of contingencies in abusiness combination. The Company adopted this standard effective March 30,2009 for any acquisitions made subsequent to that date. The adoption of thestandard did not impact the accounting for acquisitions made by the Companyprior to March 30, 2009, however it will impact the accounting treatmentof all acquisitions made after such date.

 

In March 2008, the FASB issued a new standardrequiring entities to provide enhanced disclosure of derivative instruments.Under the accounting standard, entities are required to provide enhanceddisclosures about (a) how and why an entity uses derivative instruments, (b) howderivative instruments and related hedged items are accounted for under otheraccounting standards and the related interpretations, and (c) howderivative instruments and related hedged items affect an entity’s financialposition, financial performance and cash flows. The provisions of this standardare effective for periods beginning after November 15, 2008. The adoptionof this standard did not have a material impact on the Company’s consolidatedfinancial statements.

 

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In April 2009, the FASB issued a new standardrequiring disclosures about the fair value of financial instruments for interimfinancial statements in addition to annual financial statements. The standardis effective for interim reporting periods ending after June 15, 2009. TheCompany adopted the standard effective June 28, 2009. The adoption of thestandard did not have a material impact on the Company’s interim consolidatedfinancial statements. See Note 5 for additional disclosures.

 

In May 2009, the FASB issued a new standardestablishing general standards of accounting for and disclosures of events thatoccur after the balance sheet date but before the financial statements areissued or are available to be issued. The standard requires disclosure of thedate through which an entity has evaluated subsequent events and the basis forthat date. The standard is effective for interim or annual financial periodsending after June 15, 2009. The adoption of the standard did not have amaterial impact on the Company’s consolidated financial statements. See Note 12for additional disclosures.

 

InJuly 2009, the FASB established “TheFASB Accounting Standards Codification” (the “Codification”). TheCodification replaced the United States Generally Accepted AccountingPrinciples (“GAAP”) and became the single source of authoritativenongovernmental U.S. GAAP. All guidance included in the Codification isauthoritative, even guidance that comes from what used to be deemed anon-authoritative section of a standard. All non-grandfathered, non-SECaccounting literature not included in the Codification is non-authoritative.Other than resolving certain minor inconsistencies in current GAAP, theCodification does not change GAAP, but is intended to make it easier to findand research GAAP applicable to particular transactions or specific accountingissues. The Codification is a new structure which takes accountingpronouncements and organizes them by approximately ninety accounting topics.The Codification is effective for interim and annual periods ending after September 15,2009. The adoption of the Codification did not have a material impact on theCompany’s consolidated financial statements.

 

# ***Note 3. Accounting Changes***

 

In June 2008, the FASB issued a new standardaddressing how entities account for participating securities. The standardprovides that unvested share-based payment awards that contain non-forfeitablerights to dividends are participating securities and shall be included in thecomputation of earnings per share pursuant to the two-class method under theaccounting standards and related interpretations. The two-class method ofcomputing earnings per share is an earnings allocation formula that determinesearnings per share for common stock and any participating securities accordingto dividends declared (whether paid or unpaid) and participation rights inundistributed earnings. Restricted stock of the Company of 105,000 shares as ofDecember 27, 2009 are considered participating securities since the awardcontains a non-forfeitable right to dividends irrespective of whether the stockultimately vests. This standard is effective for financial statements issuedfor fiscal years beginning after December 15, 2008 and interim periodswithin those years. Upon adoption, the Company retrospectively adjustedearnings per share data to conform to the provisions of the standard.Accordingly, the Company adopted the standard effective March 30, 2009 andcomputed earnings per share using the two-class method for all periodspresented. The standard reduced full fiscal year 2009, 2008 and 2007 dilutedearnings per common share by $0.03, $0.02 and $0.01, respectively, and reducedthird quarter and first nine months of fiscal year 2009 diluted earnings percommon share by less than $0.01 and $0.03, respectively. See Note 6 foradditional disclosures.

 

# ***Note 4. Stock Compensation***

 

TheCompany’s selling, general and administrative expenses for the fiscal quarterand nine months ended December 27, 2009 includes $598,800 and $1,750,600,respectively, of non-cash stock compensation expense. The Company’s selling,general and administrative expenses for the fiscal quarter and nine monthsended December 28, 2008 includes $268,600 and $1,350,500, respectively, ofnon-cash stock compensation expense. Stock compensation expense is primarilyrelated to our Performance Stock Unit (PSU) Program. In addition, the Companyrecorded an excess tax (loss) benefit directly to shareholders’ equity of($194,500) and $187,900, primarily related to the PSUs which vested during thenine months ended December 27, 2009 and December 28, 2008,respectively.

 

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**PerformanceStock Units:**The following table summarizes the activity underthe Company’s PSU program for the first nine months of fiscal year 2010:

 
| ** **                                                                         | ** ** | **Nine Months Ended  December 27, 2009** | ** ** | **Weighted Average  Fair Value at Grant  Date** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|-------------------------------------------------|------------|
| Shares  available for issue under outstanding PSUs, non-vested beginning of period |       | 359,494                                       |       | $                                               | 12.10      |   |
| Granted                                                                            |       | 264,000                                       |       | 8.77                                            |       |
| Vested                                                                             |       | (94,529                                       | )          | 12.29                                           |       |
| Forfeited/cancelled                                                                |       | (75,880                                       | )          | 11.71                                           |       |
| Shares  available for issue under outstanding PSUs, non-vested end of period       |       | 453,085                                       |       | $                                               | 10.12      |   |

 

Of the 453,085 shares availablefor issuance under outstanding PSUs, but not yet vested as of December 27,2009, 189,085 shares have been earned, and assuming the respective participantsremain employed by or associated with the Company on these dates, these shareswill vest and be issued ratably on or about May 1 of 2010, 2011 and 2012.

 

The PSUs cancelled during fiscal year2010 related to the fiscal year 2009 grant of PSUs, which had a 1-yearmeasurement period (fiscal year 2009). During that period, actual earnings pershare exceeded the minimum threshold level, but did not reach the goal level(which would have equated to a maximum payout), and thus, the underlying sharesnot earned from those PSUs were cancelled. Per the provisions of the SecondAmended and Restated 1994 Stock and Incentive Plan (the “1994 Plan”), theshares related to these PSUs were added back to the 1994 Plan and becameavailable for future issuance.

 

Duringfiscal year 2010, the Compensation Committee of the Board of Directors, withthe concurrence of the full Board of Directors, granted additional PSUs toselect key individuals and directors, providing them with the opportunity toearn up to 264,000 additional shares of the Company’s common stock in theaggregate, depending upon whether certain threshold or goal earnings per sharetargets are met, subject to individual performance for employees (independentdirectors are not subject to individual performance factors). These PSUs haveonly one measurement year (fiscal year 2010), with any shares earned at the endof fiscal year 2010 to vest and be issued 25% on or about May 1 of each of2010, 2011, 2012 and 2013, provided that the respective participants remainemployed by or associated with the Company on each such date.

 

Ifthe maximum target of PSUs granted in fiscal year 2010 is assumed to be earned,total unrecognized compensation costs on these and all other earned butunvested PSU’s would be approximately $1.9 million as of December 27, 2009and would be expensed through fiscal year 2013.

 

**Stock Options:** In accordance with the FASB standard regardingstock compensation and share-based payments, the fair value of the Company’sstock options has been determined using the Black-Scholes-Merton option pricingmodel, based upon facts and assumptions existing at the date of grant.Outstanding stock options have exercise prices equal to the market price of theCompany’s common stock on the grant date.

 

Thefair value of each option at the date of grant is amortized as compensationexpense over the option service or vesting period. This occurs without regardto subsequent changes in stock price, volatility or interest rates over time,provided that the option remains outstanding. As of December 27, 2009, alloutstanding stock options are fully vested. The following table summarizes thepertinent option information for outstanding options for the nine months ended December 27,2009:

 
| ** **                                  | ** ** | **Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** |
|---------------------------------------------|------------|------------|------------|--------------------------------------|------------|
| Outstanding,  beginning of period           |       | 135,000    |       | $                                    | 8.35       |   |
| Granted                                     |       | —     |       | —                               |       |
| Exercised                                   |       | (15,000    | )          | 11.92                                |       |
| Cancelled                                   |       | —     |       | —                               |       |
| Outstanding  and exercisable, end of period |       | 120,000    |       | 7.89                                 |       |
|                                             |            |            |            |                                      |            |  |

 

**Restricted Stock:** In fiscal year 2007, the Company granted 150,000shares of the Company’s common stock to its Chairman and Chief ExecutiveOfficer as a restricted stock award under the 1994 Plan. These shares vestratably over ten fiscal years based on service, beginning on the last day offiscal year 2007 and ending on the last day of fiscal year 2016, 

 

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subject, however, to the terms applicable to theaward, including terms providing for possible acceleration of vesting upondeath, disability, change in control or certain other events. The weightedaverage fair value for these shares at the grant date was $15.84. No othershares of restricted stock are currently issued as awards under the 1994 Plan.As of December 27, 2009, 105,000 shares remain unvested and there was noactivity related to these restricted shares during the first nine months offiscal year 2010. As of December 27, 2009, there was approximately $1.5million of total unrecognized compensation costs related to restricted stock.Unrecognized compensation costs are expected to be recognized ratably over aperiod of approximately six years.

 

# ***Note 5. Fair Value of Financial Instruments***

 

TheCompany complies with the FASB standard regarding fair value measurement anddisclosure requirements for assets and liabilities carried at fair value.  Accordingly, assets and liabilities carriedat fair value are classified and disclosed in one of the following threecategories:

 

·                  Level 1: Quoted prices (unadjusted) in activemarkets for identical assets or liabilities.

·                  Level 2: Inputs other than quoted pricesincluded within Level 1 that are observable for the asset or liability, eitherdirectly or indirectly. These include quoted prices for similar assets orliabilities in active markets, and quoted prices for identical or similarassets or liabilities in markets that are not active.

·                  Level 3: Unobservable inputs for the asset orliability that reflect the reporting entity’s own assumptions about the inputsused in pricing the asset or liability.

 

Thefollowing table presents information about assets and liabilities recorded atfair value on the accompanying Consolidated Balance Sheet:

 
| ** **                                | ** ** | **Balance at  December 27,  2009** | ** ** | **Quoted Prices  in Active  Markets for  Identical Assets********(Level 1)** | ** ** | **Significant  Other  Observable  Inputs********(Level 2)** | ** ** | **Significant  Unobservable  Inputs********(Level 3)** | ** ** |
|-------------------------------------------|------------|-----------------------------------------|------------|------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                |       |                                    |       |                                                                         |       |                                                        |       |                                                   |       |
| **Assets:**                               |       |                                    |       |                                                                         |       |                                                        |       |                                                   |       |
| Interest  rate swap agreement, net of tax |       | $                                       | (109,800   | )                                                                            | $          | —                                                      |       | $                                                      | (109,800   | ) | $ | — |   |
| Total  assets at fair value               |       | $                                       | (109,800   | )                                                                            | $          | —                                                      |       | $                                                      | (109,800   | ) | $ | — |   |

 

On October 1, 2005, the Company entered into areceive variable/pay fixed interest rate swap on a total notional amount of$4.2 million with Wachovia Bank, National Association to avoid the risksassociated with fluctuating interest rates on the Company’s existing term loan,which bears interest at a floating rate of LIBOR plus 1.75%, and to eliminatethe variability in the cash outflow for interest payments. The interest rateswap agreement locks the interest rate for the outstanding principal balance ofthe loan at 6.38% through June 30, 2011. The Company anticipates retainingat least some portion of the interest rate swap agreement throughout the periodof the term loan. As such, no amount of the loss on the agreement, currentlyrecorded in other comprehensive income (loss), has been, or is anticipated tobe reclassified into earnings. There was no payment due or received atinception of the swap. No hedge ineffectiveness will be recognized as theinterest rate swap’s provisions match the applicable provisions of the termbank loan. This cash flow hedge qualified for hedge accounting using theshort-cut method since the swap terms match the critical terms of the hedgeddebt. The Company’s fair value of its interest rate swap is derived fromvaluation models commonly used for derivatives. Valuation models require avariety of inputs, including contractual terms, market fixed prices, inputsfrom forward price yield curves, notional quantities, measures of volatilityand correlations of such inputs. The Company’s derivatives trade in liquidmarkets, and as such, model inputs can generally be verified and do not involvesignificant management judgment.

 

Thecarrying amounts of cash and cash equivalents, trade accounts receivable,product inventory, trade accounts payable, accrued expenses and other currentliabilities approximate their fair values as of December 27, 2009 and March 29,2009 due to their short term nature.

 

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Fairvalue of long-term debt, calculated using current interest rates and futureprincipal payments, as of December 27, 2009 and March 29, 2009 isestimated as follows:

 
| ** **                                                   | ** ** | **December 27, 2009** | ** ** | **March 29, 2009** | ** ** |
|--------------------------------------------------------------|------------|----------------------------|------------|-------------------------|------------|
| ** **                                                   | ** ** | **Carrying  Amount**       | ** ** | **Fair********Value**   | ** ** | **Carrying  Amount** | ** ** | **Fair********Value** | ** ** |
| Note payable to a Bank                                       |       | $                          | 3,281,300  |                    | $          | 3,113,200 |   | $ | 3,450,000 |   | $ | 3,228,500 |   |
| Note payable to the Maryland EconomicDevelopment Corporation |       | $                          | 298,100    |                    | $          | 285,400 |   | $ | 393,100 |   | $ | 391,100 |   |
| Note payable to Baltimore County                             |       | $                          | 234,800    |                    | $          | 202,100 |   | $ | — |   | $ | — |   |

 

# ***Note 6. Earnings Per Share***

 

Effective March 30, 2009, the Company compliedwith the FASB standard regarding the accounting for participating securities.The standard requires the Company to use the two-class method to calculateearnings per share. Under the two-class method, earnings per common share arecomputed by dividing the sum of the distributed earnings to common shareholdersand undistributed earnings allocated to common shareholders by the weightedaverage number of common shares outstanding for the period. In applying thetwo-class method, undistributed earnings are allocated to both common sharesand participating securities based on the weighted average shares outstandingduring the period.

 

The following table presents the calculation ofbasic and diluted earnings per common share:

 
| ** **                                                                 | ** ** | **Amounts in thousands, expect per share amounts** | ** ** |
|----------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                 | ** ** | **Fiscal Quarter Ended**                           | ** ** | **Nine Months Ended** | ** ** |
| ** **                                                                 | ** ** | **December 27,  2009**                        | ** ** | **December 28,  2008** | ** ** | **December 27,  2009** | ** ** | **December 28,  2008** | ** ** |
| Earnings per share —  Basic:                                          |       |                                               |       |   |   |   |   |   |   |
| Net earnings                                                               |       | $                                                  | 2,907      |   | $ | 1,241 |   | $ | 7,412 |   | $ | 5,543 |   |
| Less: Distributed and undistributed earnings  allocated to nonvested stock |       | (62                                                | )          | (31 | ) | (159 | ) | (131 | ) |
| Earnings available to common shareholders — Basic                     |       | $                                                  | 2,845      |   | $ | 1,210 |   | $ | 7,253 |   | $ | 5,412 |   |
|                                                                       |       |                                               |       |   |   |   |   |   |   |
| Weighted average common shares outstanding — Basic                    |       | 4,812                                              |       | 4,743 |   | 4,799 |   | 4,945 |   |
|                                                                       |       |                                               |       |   |   |   |   |   |   |
| Earnings per common share — Basic                                     |       | $                                                  | 0.59       |   | $ | 0.26 |   | $ | 1.51 |   | $ | 1.09 |   |
|                                                                       |       |                                               |       |   |   |   |   |   |   |
| Earnings per share —  Diluted:                                        |       |                                               |       |   |   |   |   |   |   |
| Net earnings                                                               |       | $                                                  | 2,907      |   | $ | 1,241 |   | $ | 7,412 |   | $ | 5,543 |   |
| Less: Distributed and undistributed earnings  allocated to nonvested stock |       | (59                                                | )          | (29 | ) | (154 | ) | (128 | ) |
| Earnings available to common shareholders —  Diluted                  |       | $                                                  | 2,848      |   | $ | 1,212 |   | $ | 7,258 |   | $ | 5,415 |   |
|                                                                       |       |                                               |       |   |   |   |   |   |   |
| Weighted average common shares outstanding — Basic                    |       | 4,812                                              |       | 4,743 |   | 4,799 |   | 4,945 |   |
| Effect of dilutive options                                                 |       | 298                                                |       | 129 |   | 196 |   | 140 |   |
| Weighted average common shares outstanding —  Diluted                 |       | 5,110                                              |       | 4,872 |   | 4,995 |   | 5,085 |   |
|                                                                       |       |                                               |       |   |   |   |   |   |   |
| Earnings per common share — Diluted                                   |       | $                                                  | 0.56       |   | $ | 0.25 |   | $ | 1.45 |   | $ | 1.06 |   |
|                                                                       |       |                                               |       |   |   |   |   |   |   |
| Anti-dilutive equity awards not included above                             |       | —                                             |       | 30,000 |   | — |   | — |   |

 

# ***Note 7. Business Segments***

 

The Company evaluates revenue, gross profit andinventory in three business segments: (1) Network infrastructureproducts are used to build, repair and upgrade wireless telecommunications,computing and Internet networks. Products include base station antennas, cableand transmission lines, fixed and mobile broadband equipment, wireless localarea network (WLAN) products, wireless networking, filtering systems, smalltowers, lightning protection devices, connectors, security and surveillanceproducts, power systems and miscellaneous hardware. Our network infrastructureservice offering includes connector installation, custom jumper assembly,filter product tuning, site kitting, logistics integration 

 

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andwireless network training. (2) Mobile devices and accessory productsinclude cellular phone and data device accessories such as replacementbatteries, cases, speakers, mobile amplifiers, power supplies, headsets,mounts, car antennas, music accessories and data and memory cards as well astwo-way radios and related accessories. Retail merchandising displays,promotional programs, customized order fulfillment services andaffinity-marketing programs, including providing outsourced call centers and privatelabel Internet sites, complement our mobile devices and accessory productoffering. (3) Installation, test and maintenance products are used toinstall, tune, maintain and repair wireless communications equipment. Productsinclude sophisticated analysis equipment and various frequency-, voltage- andpower-measuring devices, as well as an assortment of tools, hardware, GPS,safety and replacement and component parts and supplies required by servicetechnicians. Within the mobile devicesand accessories line of business, the Company sells to both commercial andconsumer markets. The network infrastructure and installation, testand maintenance lines of business sell primarily to commercial markets. TheCompany also regularly reviews its results of operations in three commercialcustomer categories and the consumer customer category, as described furtherbelow:

 

·                  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 Resellers. Resellers include dealers and resellers that sell,install and/or service cellular telephone, wireless networking, broadband and two-way radiocommunications equipment primarily for the enterprise market, and to a lesserextent, the consumer market. These resellers include local and nationalvalue-added resellers and retailers, as well as sales and installation centersoperated by cellular and paging carriers.

 

·                  Commercial Self-Maintained Users and Governments. Self-maintained user (SMU) and governmentcustomers include commercial entities such as major utilities andtransportation companies, federal agencies and state and local governments.

 

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

 

TheCompany measures segment performance based on segment gross profit. The segmentoperations develop their product offering, pricing and strategies, which arecollaborative with one another and the centralized sales and marketingfunction. Therefore, the Company does not segregate assets, other thaninventory, for internal reporting, evaluating performance or allocatingcapital. In addition, the Company has allocated all goodwill and indefinitelived intangible assets to the applicable segments (and reporting units withinsegments, where applicable) for purposes of its annual impairment tests. TheCompany’s goodwill at December 27, 2009 relates to acquisitions within itsNetwork Infrastructure line of business. Product delivery revenue and certaincost of sales expenses have been allocated to each segment based on apercentage of revenues and/or gross profit, as applicable.

 

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Segmentactivity for the third quarter of fiscal years 2010 and 2009 is as follows:

 
| **(Amounts in thousands)**                      | ** ** | **Network  Infrastructure** | ** ** | **Mobile Devices  and Accessories** | ** ** | **Installation, Test  and Maintenance** | ** ** | **Total** | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|-------------------------------------|------------|-----------------------------------------|------------|-----------|------------|
| **Fiscal Quarter ended December 27, 2009** |       |                        |       |                                |       |                                    |       |      |       |
| Commercial  revenues:                           |       |                        |       |                                |       |                                    |       |      |       |
| Public  carriers and network operators          |       | $                           | 13,710     |                                | $          | 566                                     |       | $         | 2,884      |   | $ | 17,160 |   |
| Resellers                                       |       | 18,297                      |       | 78,294                              |       | 1,694                                   |       | 98,285    |       |
| SMUs  and governments                           |       | 17,073                      |       | 3,624                               |       | 10,001                                  |       | 30,698    |       |
| Total  commercial revenues                      |       | 49,080                      |       | 82,484                              |       | 14,579                                  |       | 146,143   |       |
| Consumer  revenues                              |       | —                      |       | 3,578                               |       | —                                  |       | 3,578     |       |
| Total  revenues                                 |       | $                           | 49,080     |                                | $          | 86,062                                  |       | $         | 14,579     |   | $ | 149,721 |   |
|                                            |       |                        |       |                                |       |                                    |       |      |       |
| Commercial  gross profit:                       |       |                        |       |                                |       |                                    |       |      |       |
| Public  carriers and network operators          |       | $                           | 3,151      |                                | $          | 142                                     |       | $         | 675        |   | $ | 3,968 |   |
| Resellers                                       |       | 4,733                       |       | 15,185                              |       | 385                                     |       | 20,303    |       |
| SMUs  and governments                           |       | 4,356                       |       | 1,024                               |       | 1,882                                   |       | 7,262     |       |
| Total  commercial gross profit                  |       | 12,240                      |       | 16,351                              |       | 2,942                                   |       | 31,533    |       |
| Consumer  gross profit                          |       | —                      |       | 1,255                               |       | —                                  |       | 1,255     |       |
| Total  gross profit                             |       | $                           | 12,240     |                                | $          | 17,606                                  |       | $         | 2,942      |   | $ | 32,788 |   |
|                                            |       |                        |       |                                |       |                                    |       |      |       |
| Selling,  general and administrative expenses   |       |                        |       |                                |       |                                    |       | 27,939    |       |
| Income  from operations                         |       |                        |       |                                |       |                                    |       | 4,849     |       |
| Interest  expense, net                          |       |                        |       |                                |       |                                    |       | 91        |       |
| Income  before provision for income taxes       |       |                        |       |                                |       |                                    |       | 4,758     |       |
| Provision  for income taxes                     |       |                        |       |                                |       |                                    |       | 1,851     |       |
| Net  income                                     |       |                        |       |                                |       |                                    |       | $         | 2,907      |   |
|                                            |       |                        |       |                                |       |                                    |       |      |       |
| Product  inventory                              |       | $                           | 23,636     |                                | $          | 30,693                                  |       | $         | 4,503      |   | $ | 58,832 |   |
|                                            |       |                        |       |                                |       |                                    |       |      |       |
| **Fiscal Quarter ended December 28, 2008** |       |                        |       |                                |       |                                    |       |      |       |
| Commercial  revenues:                           |       |                        |       |                                |       |                                    |       |      |       |
| Public  carriers and network operators          |       | $                           | 11,340     |                                | $          | 535                                     |       | $         | 3,073      |   | $ | 14,948 |   |
| Resellers                                       |       | 17,981                      |       | 48,432                              |       | 2,491                                   |       | 68,904    |       |
| SMUs  and governments                           |       | 14,300                      |       | 3,747                               |       | 14,389                                  |       | 32,436    |       |
| Total  commercial revenues                      |       | 43,621                      |       | 52,714                              |       | 19,953                                  |       | 116,288   |       |
| Consumer  revenues                              |       | —                      |       | 2,655                               |       | —                                  |       | 2,655     |       |
| Total  revenues                                 |       | $                           | 43,621     |                                | $          | 55,369                                  |       | $         | 19,953     |   | $ | 118,943 |   |
|                                            |       |                        |       |                                |       |                                    |       |      |       |
| Commercial  gross profit:                       |       |                        |       |                                |       |                                    |       |      |       |
| Public  carriers and network operators          |       | $                           | 2,814      |                                | $          | 139                                     |       | $         | 687        |   | $ | 3,640 |   |
| Resellers                                       |       | 4,906                       |       | 10,973                              |       | 656                                     |       | 16,535    |       |
| SMUs  and governments                           |       | 3,736                       |       | 1,076                               |       | 3,427                                   |       | 8,239     |       |
| Total  commercial gross profit                  |       | 11,456                      |       | 12,188                              |       | 4,770                                   |       | 28,414    |       |
| Consumer  gross profit                          |       | —                      |       | 853                                 |       | —                                  |       | 853       |       |
| Total  gross profit                             |       | $                           | 11,456     |                                | $          | 13,041                                  |       | $         | 4,770      |   | $ | 29,267 |   |
|                                            |       |                        |       |                                |       |                                    |       |      |       |
| Selling,  general and administrative expenses   |       |                        |       |                                |       |                                    |       | 26,868    |       |
| Income  from operations                         |       |                        |       |                                |       |                                    |       | 2,399     |       |
| Interest  expense, net                          |       |                        |       |                                |       |                                    |       | 214       |       |
| Income  before provision for income taxes       |       |                        |       |                                |       |                                    |       | 2,185     |       |
| Provision  for income taxes                     |       |                        |       |                                |       |                                    |       | 944       |       |
| Net  income                                     |       |                        |       |                                |       |                                    |       | $         | 1,241      |   |
|                                            |       |                        |       |                                |       |                                    |       |      |       |
| Product  inventory                              |       | $                           | 24,048     |                                | $          | 23,433                                  |       | $         | 4,182      |   | $ | 51,663 |   |

 

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Segmentactivity for the first nine months of fiscal years 2010 and 2009 is as follows:

 
| **(Amounts in thousands)**                    | ** ** | **Network  Infrastructure** | ** ** | **Mobile Devices  and Accessories** | ** ** | **Installation, Test  and Maintenance** | ** ** | **Total** | ** ** |
|-----------------------------------------------|------------|-----------------------------|------------|-------------------------------------|------------|----------------------------------------------|------------|-----------|------------|
| **Nine Months ended December 27, 2009**  |       |                        |       |                                |       |                                         |       |      |       |
| Commercial  revenues:                         |       |                        |       |                                |       |                                         |       |      |       |
| Public  carriers and network operators        |       | $                           | 38,261     |                                | $          | 1,571                                        |       | $         | 7,902      |   | $ | 47,734 |   |
| Resellers                                     |       | 54,684                      |       | 188,625                             |       | 5,520                                        |       | 248,829   |       |
| SMUs  and governments                         |       | 42,984                      |       | 10,347                              |       | 30,820                                       |       | 84,151    |       |
| Total  commercial revenues                    |       | 135,929                     |       | 200,543                             |       | 44,242                                       |       | 380,714   |       |
| Consumer  revenues                            |       | —                      |       | 10,762                              |       | —                                       |       | 10,762    |       |
| Total  revenues                               |       | $                           | 135,929    |                                | $          | 211,305                                      |       | $         | 44,242     |   | $ | 391,476 |   |
|                                          |       |                        |       |                                |       |                                         |       |      |       |
| Commercial  gross profit:                     |       |                        |       |                                |       |                                         |       |      |       |
| Public  carriers and network operators        |       | $                           | 9,224      |                                | $          | 406                                          |       | $         | 1,934      |   | $ | 11,564 |   |
| Resellers                                     |       | 15,054                      |       | 40,912                              |       | 1,304                                        |       | 57,270    |       |
| SMUs  and governments                         |       | 11,704                      |       | 3,060                               |       | 6,475                                        |       | 21,239    |       |
| Total  commercial gross profit                |       | 35,982                      |       | 44,378                              |       | 9,713                                        |       | 90,073    |       |
| Consumer  gross profit                        |       | —                      |       | 3,344                               |       | —                                       |       | 3,344     |       |
| Total  gross profit                           |       | $                           | 35,982     |                                | $          | 47,722                                       |       | $         | 9,713      |   | $ | 93,417 |   |
|                                          |       |                        |       |                                |       |                                         |       |      |       |
| Selling,  general and administrative expenses |       |                        |       |                                |       |                                         |       | 81,023    |       |
| Income  from operations                       |       |                        |       |                                |       |                                         |       | 12,394    |       |
| Interest  expense, net                        |       |                        |       |                                |       |                                         |       | 276       |       |
| Income  before provision for income taxes     |       |                        |       |                                |       |                                         |       | 12,118    |       |
| Provision  for income taxes                   |       |                        |       |                                |       |                                         |       | 4,706     |       |
| Net  income                                   |       |                        |       |                                |       |                                         |       | $         | 7,412      |   |
|                                          |       |                        |       |                                |       |                                         |       |      |       |
| Product  inventory                            |       | $                           | 23,636     |                                | $          | 30,693                                       |       | $         | 4,503      |   | $ | 58,832 |   |
|                                          |       |                        |       |                                |       |                                         |       |      |       |
| **Nine Months ended December 28, 2008**  |       |                        |       |                                |       |                                         |       |      |       |
| Commercial  revenues:                         |       |                        |       |                                |       |                                         |       |      |       |
| Public  carriers and network operators        |       | $                           | 35,545     |                                | $          | 1,655                                        |       | $         | 10,133     |   | $ | 47,333 |   |
| Resellers                                     |       | 57,072                      |       | 165,185                             |       | 7,228                                        |       | 229,485   |       |
| SMUs  and governments                         |       | 41,563                      |       | 11,276                              |       | 46,677                                       |       | 99,516    |       |
| Total  commercial revenues                    |       | 134,180                     |       | 178,116                             |       | 64,038                                       |       | 376,334   |       |
| Consumer  revenues                            |       | —                      |       | 8,451                               |       | —                                       |       | 8,451     |       |
| Total  revenues                               |       | $                           | 134,180    |                                | $          | 186,567                                      |       | $         | 64,038     |   | $ | 384,785 |   |
|                                          |       |                        |       |                                |       |                                         |       |      |       |
| Commercial  gross profit:                     |       |                        |       |                                |       |                                         |       |      |       |
| Public  carriers and network operators        |       | $                           | 9,124      |                                | $          | 468                                          |       | $         | 2,311      |   | $ | 11,903 |   |
| Resellers                                     |       | 15,652                      |       | 37,059                              |       | 1,888                                        |       | 54,599    |       |
| SMUs  and governments                         |       | 11,303                      |       | 3,556                               |       | 10,250                                       |       | 25,109    |       |
| Total  commercial gross profit                |       | 36,079                      |       | 41,083                              |       | 14,449                                       |       | 91,611    |       |
| Consumer  gross profit                        |       | —                      |       | 2,890                               |       | —                                       |       | 2,890     |       |
| Total  gross profit                           |       | $                           | 36,079     |                                | $          | 43,973                                       |       | $         | 14,449     |   | $ | 94,501 |   |
|                                          |       |                        |       |                                |       |                                         |       |      |       |
| Selling,  general and administrative expenses |       |                        |       |                                |       |                                         |       | 84,661    |       |
| Income  from operations                       |       |                        |       |                                |       |                                         |       | 9,840     |       |
| Interest  expense, net                        |       |                        |       |                                |       |                                         |       | 516       |       |
| Income  before provision for income taxes     |       |                        |       |                                |       |                                         |       | 9,324     |       |
| Provision  for income taxes                   |       |                        |       |                                |       |                                         |       | 3,781     |       |
| Net  income                                   |       |                        |       |                                |       |                                         |       | $         | 5,543      |   |
|                                          |       |                        |       |                                |       |                                         |       |      |       |
| Product  inventory                            |       | $                           | 24,048     |                                | $          | 23,433                                       |       | $         | 4,182      |   | $ | 51,663 |   |

 

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# ***Note 8. Comprehensive Income***

 

The components of totalcomprehensive income were as follows:

 
| ** **                                        | ** ** | **Fiscal Quarter Ended**    | ** ** | **Nine Months Ended**       | ** ** |
|---------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                        | ** ** | **December 27,  2009** | ** ** | **December 28,  2008** | ** ** | **December 27,  2009** | ** ** | **December 28,  2008** | ** ** |
|                                              |       |                        |       |                        |       |   |   |   |   |
| Net income                                        |       | $                           | 2,907,200  |                        | $          | 1,241,400 |   | $ | 7,411,800 |   | $ | 5,542,800 |   |
| Change in value of interest rate swap, net of tax |       | 12,200                      |       | (101,700                    | )          | 33,000 |   | (41,600 | ) |
| Total comprehensive income                        |       | $                           | 2,919,400  |                        | $          | 1,139,700 |   | $ | 7,444,800 |   | $ | 5,501,200 |   |

 

# ***Note 9. Borrowings Under Revolving CreditFacility and Long-Term Debt***

 

On March 31, 2009, the Company entered into a term loanwith the Baltimore County Economic Development Revolving Loan Fund for anaggregate principal amount of $250,000. The term loan is payable in equalmonthly installments of principal and interest of $2,300, with the balance dueat maturity on April 1, 2019. The term loan bears interest at 2.00% perannum and is secured by a subordinate position on Company-owned real propertylocated in Hunt Valley, Maryland.

 

In addition, on July 23, 2009, the Companyand its primary operating subsidiaries, as borrowers, executed and delivered aThird Modification Agreement (the “Third Modification Agreement”), dated as of July 22,2009, with SunTrust Bank and Wachovia Bank, National Association, amending theCredit Agreement and related promissory note for the Company’s existingunsecured revolving credit facility.

 

Pursuant to and in connection with the ThirdModification Agreement, the maximum available principal amount under theunsecured revolving credit facility was reduced to $35 million from $50million, and the term of the revolving credit facility, as so modified, wasextended to May 31, 2012. The Third Modification Agreement also providesfor the modification of certain financial covenants applicable to the borrowerson a going forward basis, including the “tangible net worth” and “maximumfunded debt to EBITDA” covenants. In addition, the amount of allowable dividendpayments under the Credit Facility was increased from $2.0 million to $2.5million in any 12 month period, assuming continued compliance with theotherwise applicable terms.

 

Pursuant to the relevant documents, the financial covenants included inthe Credit Agreement for the unsecured revolving credit facility are alsoapplicable to the Company’s existing Term Loan with the same lenders, having anoriginal principal amount of $5.5 million. Accordingly, the Third ModificationAgreement also had the effect of amending the financial covenants applicable tothe Term Loan.

 

The Company is also party to an existing note payableoutstanding to the Maryland Economic Development Corporation, which is payablein equal quarterly installments of principal and interest of $37,400, with thebalance due at maturity on October 10, 2011. The note bears interest at3.00% per annum and is secured by a subordinate position on Company-owned realproperty location in Hunt Valley, Maryland.

 

# ***Note 10. Stock Buyback***

# * *

On April 28, 2003,the Company’s Board of Directors approved a stock buyback program. As of December 27,2009, the Board of Directors had authorized the purchase of up to 2,395,567shares of outstanding common stock under the stock buyback program.Shares may be purchased from time to timein the open market, by block purchase, or through negotiated transactions, orpossibly other transactions managed by broker-dealers. No time limit has beenset for completion or expiration of the program. As of December 27, 2009,the Company had purchased 2,335,258 shares under the stock buyback program forapproximately $30.7 million, or an average of $13.14 per share. Of the totalshares repurchased under the stock buyback program, 24,130 shares wererepurchased in the first nine months of fiscal year 2010 for approximately $0.4million. As of December 27, 2009, 60,309 shares remained available forrepurchase under this program.

 

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Inaddition to the shares repurchased in the stock buyback program discussedimmediately above, on July 1, 2008 the Company repurchased all 470,000shares of its common stock held by Brightpoint, Inc. (“Brightpoint”) in aprivately negotiated transaction. Pursuant to an agreement entered into betweenthe Company and Brightpoint, the Company purchased Brightpoint’s shareholdings, comprising approximately 9% of the Company’s total then outstandingcommon stock, for $13.64 per share, or a total of $6,410,800. The price pershare was determined based on the seven trading day trailing average closingprice of the Company’s common stock on the NASDAQ Global Market determined asof the close of trading on June 30, 2008. The purchase price per shareapproximated the price of the Company’s common stock on the transaction date.The purchase was funded through available cash and borrowings under the Company’sunsecured revolving line of credit facility. This transaction was not madeunder, nor does it affect the number of shares available for repurchase under,the Company’s stock buyback program discussed above.

 

The Company alsowithholds shares from its employees and directors, at their request, equal tothe minimum federal and state tax withholdings related to vested performancestock units, stock option exercises and restricted stock awards. For the ninemonths ended December 27, 2009 and December 28, 2008 the allocatedvalue of the shares withheld totaled $126,500 and $230,200, respectively.

 

# ***Note 11. Customer Concentration***

 

TheCompany’s future results could be negatively impacted by the loss of certaincustomer and/or vendor relationships. For the fiscal quarter and nine monthsended December 27, 2009, sales of products to the Company’s top customerrelationship, AT&T Mobility, accounted for 34% and 29% of total revenues, respectively. For the fiscalquarter and nine months ended December 28, 2008, sales of products to theCompany’s top customer relationship, AT&T Mobility, accounted for 20% and 23% of total revenues, respectively.

 

# ***Note 12. Subsequent Events***

 

The Company has evaluated all subsequent events from the fiscal quarterended December 27, 2009 through February 10, 2010, the date thefinancial statements were issued.

 

On January 13, 2010, the Company declared a quarterly cashdividend of ten cents ($0.10) per share of common stock, par value $0.01 pershare, of the Company, payable on March 1, 2010, to shareholders of recordas of February 15, 2010. Any future declaration of dividends and theestablishment of any corresponding record and payment dates remains subject tofurther determination from time to time by the Board of Directors.

 

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**Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

 

Thiscommentary should be read in conjunction with the Management’s Discussion andAnalysis of Financial Condition and Results of Operations from the Company’sAnnual Report on Form 10-K for the fiscal year ended March 29, 2009.

 

**Business Overview and Environment**

 

TESSCOTechnologies Incorporated (TESSCO, we, or the Company) is a leading provider ofintegrated product and 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 in many countries, approximately 97% ofour sales are made to customers in the United States. We have operations andoffice facilities in Hunt Valley, Maryland, Reno, Nevada and San Antonio,Texas.

 

Our third quarterrevenues increased by 25.9% compared to the third quarter of last year. Thisincrease was driven by growth in our network infrastructure and mobile devicesand accessories commercial lines of business, partially offset by a decline inour installation, test and maintenance commercial line of business. Grossprofits also increased in our network infrastructure and mobile devices andaccessories commercial lines of business, and were partially offset by adecline in our installation, test and maintenance commercial line of business.This overall increase in gross profit, offset slightly by a modest increase inoperating expenses to support our growth initiatives and increased order volume,resulted in a 134.2% increase in net income and a 124.0% increase in dilutedearnings per share over the prior-year quarter.

 

The current globalfinancial crisis — which has included, among other things, significantreductions in available capital and liquidity from banks and other providers ofcredit, substantial reductions and/or fluctuations in equity and currencyvalues worldwide, significant decreases in consumer confidence and consumer andbusiness spending, rising unemployment and concerns that the worldwide economymay experience a prolonged recessionary period — may materially adverselyaffect our customers’ access to capital or willingness to spend capital on ourproducts, and/or their levels of cash liquidity with which to pay for our products.Our strong third quarter performance led to a slight growth in the averagenumber of monthly buying customers and in the average dollars purchased foreach buying customer for the first nine months of fiscal year 2010 as comparedto the same period of fiscal year 2009. Accordingly, we believe that theeconomy is beginning to show signs of improvement, but we still believe thatour customers are continuing to experience difficultly in the current economicenvironment. In addition, the current global financial crisis may materiallyadversely affect our suppliers’ access to capital and liquidity, which may inturn adversely impact their ability to maintain inventories, production levels,and/or product quality, or cause them to raise prices or lower productionlevels, or result in their ceasing operation. The impact of the crisis on ourliquidity is further discussed below under the heading “Liquidity and CapitalResources.”

 

Nokia,Inc. (Nokia) has recently notified us of their intent to terminate our repairand replacement parts arrangement effective July 31, 2010 upon payment tous of a small early termination fee. Accordingly, revenues and gross profitsfrom this relationship will cease on that date. In January 2009, we had extendedour relationship with Nokia. As part of this extension, Nokia has played alarger, and we a smaller, role in servicing a group of larger customers. Wehave continued to earn fees from Nokia to fulfill product, but as a result ofour reduced role in these transactions, we receive a smaller fee and accountfor these sales on a net basis. Because of the evolution of our relationshipwith Nokia, it has become less material to our consolidated financialstatements. During the third quarter and first nine months of fiscal year 2010,sales of Nokia product pursuant to this relationship accounted forapproximately 3% and 4% of total sales, respectively.

 

The wireless communications distribution industry is competitive andfragmented, and is comprised of several national distributors. In addition,many manufacturers sell direct. Barriers to entry for distributors arerelatively low, particularly in the mobile devices and accessories market, andthe risk of new competitors entering the market is high. Consolidation oflarger wireless carriers has and will most likely continue to impact ourcurrent and potential customer base. In addition, the agreements orarrangements with our customers or vendors looking to us for product and supplychain solutions are typically of limited duration and are terminable by eitherparty upon several months, or otherwise short notice. Our ability to maintainthese relationships is subject to competitive pressures and challenges. Webelieve, however, that our strength in service, the breadth and depth of our productoffering, our information technology system, and our large customer base andpurchasing relationships with approximately 360 manufacturers, provide us witha significant competitive advantage over new entrants to the market.

 

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**Resultsof Operations**

 

The followingtable summarizes the unaudited results of our operations for the fiscal quarterand nine months ended December 27, 2009 and December 28, 2008:

 
| ** **                                              | ** ** | **Fiscal  Quarters Ended**  | ** ** | **Nine  Months Ended**      | ** ** |
|---------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **(Amounts in  thousands, except per share  data)**     | ** ** | **December 27,  2009** | ** ** | **December 28,  2008** | ** ** | **$  Change** | ** ** | **%  Change** | ** ** | **December 27,  2009** | ** ** | **December 28,  2008** | ** ** | **$  Change** | ** ** | **%  Change** | ** ** |
| Commercial revenues                                     |       |                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Network infrastructure:                                 |       |                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public  carriers and network operators                  |       | $                           | 13,710     |                        | $          | 11,340 |   | $ | 2,370 |   | 20.9 | % | $ | 38,261 |   | $ | 35,545 |   | $ | 2,716 |   | 7.6 | % |
| Resellers                                               |       | 18,297                      |       | 17,981                      |       | 316 |   | 1.8 | % | 54,684 |   | 57,072 |   | (2,388 | ) | (4.2 | )% |
| SMUs  and governments                                   |       | 17,073                      |       | 14,300                      |       | 2,773 |   | 19.4 | % | 42,984 |   | 41,563 |   | 1,421 |   | 3.4 | % |
| Total network  infrastructure                           |       | 49,080                      |       | 43,621                      |       | 5,459 |   | 12.5 | % | 135,929 |   | 134,180 |   | 1,749 |   | 1.3 | % |
| Mobile devices and  accessories:                        |       |                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public carriers and  network operators                  |       | 566                         |       | 535                         |       | 31 |   | 5.8 | % | 1,571 |   | 1,655 |   | (84 | ) | (5.1 | )% |
| Resellers                                               |       | 78,294                      |       | 48,432                      |       | 29,862 |   | 61.7 | % | 188,625 |   | 165,185 |   | 23,440 |   | 14.2 | % |
| SMUs and governments                                    |       | 3,624                       |       | 3,747                       |       | (123 | ) | (3.3 | )% | 10,347 |   | 11,276 |   | (929 | ) | (8.2 | )% |
| Total mobile devices and  accessories                   |       | 82,484                      |       | 52,714                      |       | 29,770 |   | 56.5 | % | 200,543 |   | 178,116 |   | 22,427 |   | 12.6 | % |
| Installation, test and  maintenance:                    |       |                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public carriers and  network operators                  |       | 2,884                       |       | 3,073                       |       | (189 | ) | (6.2 | )% | 7,902 |   | 10,133 |   | (2,231 | ) | (22.0 | )% |
| Resellers                                               |       | 1,694                       |       | 2,491                       |       | (797 | ) | (32.0 | )% | 5,520 |   | 7,228 |   | (1,708 | ) | (23.6 | )% |
| SMUs and governments                                    |       | 10,001                      |       | 14,389                      |       | (4,388 | ) | (30.5 | )% | 30,820 |   | 46,677 |   | (15,857 | ) | (34.0 | )% |
| Total installation, test  and maintenance               |       | 14,579                      |       | 19,953                      |       | (5,374 | ) | (26.9 | )% | 44,242 |   | 64,038 |   | (19,796 | ) | (30.9 | )% |
| Total commercial  revenues                              |       | 146,143                     |       | 116,288                     |       | 29,855 |   | 25.7 | % | 380,714 |   | 376,334 |   | 4,380 |   | 1.2 | % |
| Consumer revenues -  mobile devices and accessories     |       | 3,578                       |       | 2,655                       |       | 923 |   | 34.8 | % | 10,762 |   | 8,451 |   | 2,311 |   | 27.3 | % |
| Total revenues                                          |       | $                           | 149,721    |                        | $          | 118,943 |   | $ | 30,778 |   | 25.9 | % | $ | 391,476 |   | $ | 384,785 |   | $ | 6,691 |   | 1.7 | % |
|                                                    |       |                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial gross profit                                 |       |                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Network infrastructure:                                 |       |                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public  carriers and network operators                  |       | $                           | 3,151      |                        | $          | 2,814 |   | $ | 337 |   | 12.0 | % | $ | 9,224 |   | $ | 9,124 |   | $ | 100 |   | 1.1 | % |
| Resellers                                               |       | 4,733                       |       | 4,906                       |       | (173 | ) | (3.5 | )% | 15,054 |   | 15,652 |   | (598 | ) | (3.8 | )% |
| SMUs  and governments                                   |       | 4,356                       |       | 3,736                       |       | 620 |   | 16.6 | % | 11,704 |   | 11,303 |   | 401 |   | 3.5 | % |
| Total network  infrastructure                           |       | 12,240                      |       | 11,456                      |       | 784 |   | 6.8 | % | 35,982 |   | 36,079 |   | (97 | ) | (0.3 | )% |
| Mobile devices and  accessories:                        |       |                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public carriers and  network operators                  |       | 142                         |       | 139                         |       | 3 |   | 2.2 | % | 406 |   | 468 |   | (62 | ) | (13.2 | )% |
| Resellers                                               |       | 15,185                      |       | 10,973                      |       | 4,212 |   | 38.4 | % | 40,912 |   | 37,059 |   | 3,853 |   | 10.4 | % |
| SMUs and governments                                    |       | 1,024                       |       | 1,076                       |       | (52 | ) | (4.8 | )% | 3,060 |   | 3,556 |   | (496 | ) | (13.9 | )% |
| Total mobile devices and  accessories                   |       | 16,351                      |       | 12,188                      |       | 4,163 |   | 34.2 | % | 44,378 |   | 41,083 |   | 3,295 |   | 8.0 | % |
| Installation, test and  maintenance:                    |       |                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public carriers and  network operators                  |       | 675                         |       | 687                         |       | (12 | ) | (1.7 | )% | 1,934 |   | 2,311 |   | (377 | ) | (16.3 | )% |
| Resellers                                               |       | 385                         |       | 656                         |       | (271 | ) | (41.3 | )% | 1,304 |   | 1,888 |   | (584 | ) | (30.9 | )% |
| SMUs and governments                                    |       | 1,882                       |       | 3,427                       |       | (1,545 | ) | (45.1 | )% | 6,475 |   | 10,250 |   | (3,775 | ) | (36.8 | )% |
| Total installation, test  and maintenance               |       | 2,942                       |       | 4,770                       |       | (1,828 | ) | (38.3 | )% | 9,713 |   | 14,449 |   | (4,736 | ) | (32.8 | )% |
| Total commercial gross  profit                          |       | 31,533                      |       | 28,414                      |       | 3,119 |   | 11.0 | % | 90,073 |   | 91,611 |   | (1,538 | ) | (1.7 | )% |
| Consumer gross profit -  mobile devices and accessories |       | 1,255                       |       | 853                         |       | 402 |   | 47.1 | % | 3,344 |   | 2,890 |   | 454 |   | 15.7 | % |
| Total gross profit                                      |       | 32,788                      |       | 29,267                      |       | 3,521 |   | 12.0 | % | 93,417 |   | 94,501 |   | (1,084 | ) | (1.1 | )% |
| Selling, general and  administrative expenses           |       | 27,939                      |       | 26,868                      |       | 1,071 |   | 4.0 | % | 81,023 |   | 84,661 |   | (3,638 | ) | (4.3 | )% |
| Income from operations                                  |       | 4,849                       |       | 2,399                       |       | 2,450 |   | 102.1 | % | 12,394 |   | 9,840 |   | 2,554 |   | 26.0 | % |
| Interest expense, net                                   |       | 91                          |       | 214                         |       | (123 | ) | (57.5 | )% | 276 |   | 516 |   | (240 | ) | (46.5 | )% |
| Income before provision  for income taxes               |       | 4,758                       |       | 2,185                       |       | 2,573 |   | 117.8 | % | 12,118 |   | 9,324 |   | 2,794 |   | 30.0 | % |
| Provision for income  taxes                             |       | 1,851                       |       | 944                         |       | 907 |   | 96.1 | % | 4,706 |   | 3,781 |   | 925 |   | 24.5 | % |
| Net income                                              |       | $                           | 2,907      |                        | $          | 1,241 |   | $ | 1,666 |   | 134.2 | % | $ | 7,412 |   | $ | 5,543 |   | $ | 1,869 |   | 33.7 | % |
| Diluted earnings per  share(1)                          |       | $                           | 0.56       |                        | $          | 0.25 |   | $ | 0.31 |   | 124.0 | % | $ | 1.45 |   | $ | 1.06 |   | $ | 0.39 |   | 36.8 | % |

 

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(1) Effective March 30, 2009, we retrospectively adopted theFASB standard addressing accounting for participating securities under thetwo-class method. See Note 3 to the unaudited consolidated financial statementsfor a discussion of the impact of the change in accounting standards.

 

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**Third Quarter of Fiscal Year 2010 Compared withThird Quarter of Fiscal Year 2009**

 

**Revenues.**Revenues for thethird quarter of fiscal year 2010 increased 25.9% as compared with the thirdquarter of fiscal year 2009, primarily due to a 25.7% increase in commercialrevenues, and to a much lesser extent, a 34.8% increase in consumer revenues.Sales increased in our network infrastructure and mobile devices and accessorieslines of business, but were partially offset by decreased sales in ourinstallation, test and maintenance line of business.

 

Networkinfrastructure sales increased 12.5% as compared with the third quarter offiscal year 2009, as a result of higher sales of broadband products across allof our market categories. Sales of radio frequency propagation and site supportproducts increased to public carriers and network operators and self-maintainedusers, partially offset by decreased sales to resellers.

 

Sales in themobile devices and accessories line of business increased 55.4% in the thirdquarter of fiscal year 2010, as compared with the same period last year. Theincrease was due to a 56.5% increase in commercial sales, and to a much lesserextent, a 34.8% increase in consumer sales. The increase in commercial revenuesfor mobile devices and accessories, which are sold primarily to resellers, wasprimarily due to increased sales to a large national tier-one carrier, AT&TMobility, as well as smaller resellers and users. Sales of mobile devices andaccessories to SMUs and governments decreased, but were partially offset byincreased sales to public carriers and network operators.

 

Revenues from ourinstallation, test and maintenance line of business decreased 26.9% from thecorresponding prior-year quarter, primarily due to a decline in sales of repairparts related to our major repair components relationship with Nokia. Sales oftest equipment products decreased to public carriers and network operators andresellers, but were partially offset by increased sales to self-maintainedusers. Sales of tools and supply products decreased to resellers andself-maintained users, but were partially offset by increased sales to publiccarriers and network operators. As previously discussed, as a result of theevolution of our relationship with Nokia, sales of Nokia product pursuant tothis relationship have become less material to our consolidated financialstatements. Nokia has recently notified us of their intent to terminate ourarrangement effective July 31, 2010, upon payment to us of a small earlytermination fee. Accordingly, revenues and gross profits from this relationshipwill cease on that date.

 

**GrossProfit.**Grossprofit for the third quarter of fiscal year 2010 increased 12.0% as comparedwith the third quarter of fiscal year 2009. Total commercial gross profitincreased 11.0%, while consumer gross profit increased 47.1%. Gross profitmargin decreased to 21.9% in the third quarter of fiscal year 2010 as comparedto 24.6% the third quarter of fiscal year 2009. Gross profit margin in ournetwork infrastructure segment decreased from 26.3% in the third quarter offiscal year 2009 to 24.9% in the third quarter of fiscal year 2010. Thisdecrease in gross profit margin was a result of changes in product mix asdiscussed above. Gross profit margin in our mobile devices and accessoriessegment decreased to 20.5% in the third quarter of this fiscal year from 23.6%in the third quarter of last fiscal year. This decrease was primarilyattributable to the commercial gross profit margin for our mobile devices andaccessories, which decreased to 19.8% in the third quarter of fiscal year 2010from 23.1% for the third quarter of fiscal year 2009, principally due toproduct mix and a significant increase in sales to a large tier-one carrier,AT&T Mobility. Consumer gross profit margin for our mobile devices andaccessories increased to 35.1% in the third quarter of this fiscal year from32.1% for the third quarter of last fiscal year. Gross profit margin in ourinstallation, test and maintenance line of business decreased from 23.9% in thethird quarter of fiscal year 2009 to 20.2% in the third quarter of fiscal year2010. Generally, our gross margins by product within these segments have beensustained, except as noted above, and these variations are related to sales mixwithin the segment product offerings. We account for inventory at the lower ofcost 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 to earn revenues and gross profits from customersand vendors looking to us for product and supply chain solutions is dependentupon a number of factors. The terms, and accordingly the factors, applicable toeach relationship often differ. Among these factors are the strength of thecustomer’s or vendor’s business, the supply and demand for the product orservice, including price stability, changing customer or vendor requirements,and our ability to support the customer or vendor and to continuallydemonstrate that we can improve the way they do business. In addition, theagreements or arrangements on which our customer and vendor relationships arebased are typically of limited duration, and are terminable by either partyupon several months or otherwise relatively short notice. Our customerrelationships could also be affected by wireless carrier consolidation or theglobal financial crisis.

 

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As total revenuesand gross profits from larger customer and vendor relationships, includingAT&T Mobility, increase, we occasionally experience and expect to continueto experience pricing pressures that may adversely affect future results. In aneffort to mitigate the overall effect of these pressures and to meet theseconsistent challenges, we are focused on our continuing efforts to grow revenuesand gross profits from other customer and vendor relationships.

 

**Selling,General and Administrative Expenses.**Total selling, general and administrative expensesincreased by 4.0% in the third quarter of fiscal year 2010 as compared with thethird quarter of fiscal year 2009. Selling, general and administrative expensesas a percentage of revenues decreased to 18.7% in the third quarter of fiscalyear 2010 from 22.6% in the third quarter of fiscal year 2009. The largestfactors contributing to the increase in total selling, general andadministrative expenses were increased compensation and marketing and salespromotion expenses, partially offset by decreased corporate support expensesduring the third quarter of fiscal year 2010.

 

Compensation costsprimarily increased due to higher quarterly and annual bonus expenses relatedto our cash and equity bonus programs as compared to last year’s third quarter.During last year’s third quarter, we began to be impacted by the downturn inthe global economy, resulting in lower quarterly and annual bonus expense.Total compensation costs, including benefits and bonus expense, increasedapproximately $2.2 million, or 14.9%, in the third quarter of fiscal year 2010as compared to the third quarter of fiscal year 2009.

 

Marketing and salespromotion expenses increased by approximately $347,000, or 15.6%, in the thirdquarter of fiscal year 2010 as compared with the third quarter of fiscal year2009, primarily due to increased market development fund expense associatedwith our retail business, partially offset by decreased expenses incurred fortrade shows, travel and entertainment.

 

Corporate supportexpenses decreased by approximately $1.2 million, or 42.8%, primarily due tolower bad debt expenses in the third quarter of fiscal year 2010 as compared tothe third quarter of fiscal year 2009, as discussed below. Professional feesand product development expenses also decreased from the third quarter offiscal year 2009.

 

We continually evaluatethe credit worthiness of our existing customer receivable portfolio and providean appropriate reserve based on this evaluation. We also evaluate the creditworthiness of prospective and current customers and make decisions regardingextension of credit terms to such customers based on this evaluation.Accordingly, we recorded a provision for bad debts of $110,900 and$756,800 for the third quarter ended December 27, 2009 and December 28,2008, respectively. During the third quarter of fiscal year 2010, weexperienced lower than normal bad debt expense in part to recoveries of amountspreviously reserved or written off and lower reserves anticipated due to ourcurrent assessment of our customers’ ability to pay their open balances. Duringlast year’s third quarter, bad expense was higher than normal due to additionalreserves needed largely related to the downturn in the economy.

 

**InterestExpense, Net.** Netinterest expense decreased from $213,700 in the third quarter of fiscal year2009 to $90,600 in the third quarter of fiscal year 2010, primarily due todecreased average borrowings on our revolving line of credit facility.

 

**IncomeTaxes, Net Income and Diluted Earnings per Share.**The effective tax rate in the thirdquarter of fiscal year 2010 was 38.9% as compared with 43.2% in the thirdquarter of fiscal year 2009. The decrease in the tax rate is primarilyattributable to changes in the relationship between non-deductible expenses andtaxable income. These changes were primarily the result of lower projectedannual taxable income in the third quarter of the prior year. As a result ofthe factors discussed above, net income for the third quarter of fiscal year2010 increased 134.2% and diluted earnings per share increased 124.0% comparedto the corresponding prior-year quarter.

 

###### **First Nine Months of Fiscal Year 2010 Compared withFirst Nine Months of Fiscal Year 2009**

 

**Revenues.**Revenues for thefirst nine months of fiscal year 2010 increased 1.7% as compared with the firstnine months of fiscal year 2009, primarily due to a 1.2% increase in commercialrevenues, and to a much lesser extent, a 27.3% increase in consumer revenues.Sales increased in our network infrastructure and mobile devices andaccessories commercial lines of business, but were partially offset bydecreased sales in our installation, test and maintenance commercial line ofbusiness.

 

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Sales in thenetwork infrastructure line of business increased 1.3% in the first nine monthsof fiscal year 2010, as compared with the prior-year period. The increase wasprimarily the result of higher sales of broadband products across all of ourmarket categories. Sales of radio frequency propagation and site supportproducts decreased in our resellers market, partially offset by higher sales topublic carriers and network operators and SMUs and governments. Our overallincrease in sales of network infrastructure products was in sales to publiccarriers and network operators and SMUs and governments, partially offset by adecrease in sales to resellers.

 

Mobile devices andaccessories sales increased as compared with the first nine months of fiscalyear 2009, primarily due to a 12.6% increase in commercial sales, and to a muchlesser extent, a 27.3% increase in consumer sales. Sales in the commercialmobile devices and accessories line of business increased in our resellersmarket, but were partially offset by decreased sales in our public carriers andnetwork operators and SMUs and governments markets.

 

Revenues from ourinstallation, test and maintenance line of business had a 30.9% decrease fromthe prior year, primarily due to a decline in sales of repair parts related toour major repair components relationship with Nokia, as well as decreased salesof test equipment, tools and supply products across all of our marketcategories. As previously discussed, as a result of the evolution of ourrelationship with Nokia, sales of Nokia product pursuant to this relationshiphave become less material to our consolidated financial statements. Nokia hasrecently notified us of their intent to terminate our arrangement effective July 31,2010, upon payment to us of a small early termination fee. Accordingly,revenues and gross profits from this relationship will cease on that date.

 

**GrossProfit.**Grossprofit for the first nine months of fiscal year 2010 decreased 1.1% as comparedwith the first nine months of fiscal year 2009. Total commercial gross profitdecreased 1.7%, while consumer gross profit increased 15.7% over the prioryear. Gross profit margin decreased to 23.9% in the first nine months of fiscalyear 2010 from 24.6% in the first nine months of fiscal year 2009. Gross profitmargin in our network infrastructure segment decreased from 26.9% in the firstnine months of fiscal year 2009 to 26.5% in the first nine months of 2010.Gross profit margin in our mobile devices and accessories segment decreased to22.6% in the first nine months of this fiscal year from 23.6% in the first ninemonths of last fiscal year primarily due to product mix and an increase insales to a large tier-one carrier, AT&T Mobility. Commercial gross profitmargin for our mobile devices and accessories decreased to 22.1% in the firstnine months of this fiscal year from 23.1% for the first nine months of lastfiscal year. Consumer gross profit margin for our mobile devices andaccessories decreased to 31.1% in the first nine months of this fiscal yearfrom 34.2% for the first nine months of last fiscal year. In our installation,test and maintenance segment, gross profit margin decreased to 22.0% in thefirst nine months of fiscal year 2010 from 22.6% in the first nine months offiscal year 2009. Generally, our gross margins by product within these segmentshave been sustained, except as noted above, and these variations are related tosales mix within the segment product offerings. We account for inventory at thelower of cost or market, and as a result, write-offs/write-downs occur due todamage, deterioration, obsolescence, changes in prices and other causes.

 

**Selling,General and Administrative Expenses.**Total selling, general and administrative expensesdecreased by 4.3% in the first nine months of fiscal year 2010 as compared withthe first nine months of fiscal year 2009. Selling, general and administrativeexpenses as a percentage of revenues decreased to 20.7% in the first ninemonths of fiscal year 2010 from 22.0% in the first nine months of fiscal year2009. The largest factors contributing to the decrease in total selling,general and administrative expenses were decreased freight out, marketing andsales promotion and corporate support expenses during the first nine months offiscal year 2010.

 

Freight expense decreasedby approximately $1.5 million, or 14.0%, due to increased efficiencies in ourdistribution operations and reduced rates in the first nine months of fiscalyear 2010 as compared to the first nine months of fiscal year 2009.

 

Marketing and salespromotion expenses decreased by approximately $287,600, or 4.0%, in the firstnine months of fiscal year 2010 as compared with the first nine months offiscal year 2009, primarily due to decreased racks and graphics expenseassociated with our retail business, decreased print and online advertising aswell as decreased expenses incurred for travel and entertainment.

 

Corporate supportexpenses decreased approximately $1.4 million, or 20.1%, over the first ninemonths of the prior year, primarily due to lower recruiting, professional feesand bad debt expenses as well as lower estimated sales tax audit exposure, partiallyoffset by increased consulting services expenses. The decrease in bad debtexpense is discussed in more detail below.

 

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We continually evaluatethe credit worthiness of our existing customer receivable portfolio and providean appropriate reserve based on this evaluation. We also evaluate the creditworthiness of prospective and current customers and make decisions regardingextension of credit terms to such customers based on this evaluation.Accordingly, we recorded a provision for bad debts of $966,800 and $1,250,100for first nine months of fiscal year 2010 and fiscal year 2009, respectively.During the first nine months of fiscal year 2010, we experienced lower thannormal bad debt expense in part to recoveries of amounts previously reserved orwritten off and lower reserves anticipated due to our current assessment of ourcustomers’ ability to pay their open balances. During the first nine months of fiscalyear 2009, bad expense was higher than normal due to additional reserves neededlargely related to the downturn in the economy.

 

**InterestExpense, Net.** Netinterest expense decreased from $516,400 in the first nine months of fiscalyear 2009 to $276,200 in the first nine months of fiscal year 2010, primarilydue to decreased average borrowings on our revolving line of credit facility.

 

**IncomeTaxes, Net Income and Diluted Earnings per Share.**The effective tax rate in the first ninemonths of fiscal year 2010 was 38.8% as compared with 40.6% in the first ninemonths of fiscal year 2009. The decrease in the tax rate is primarilyattributable to changes in the relationship between non-deductible expenses andtaxable income as well as changes in our state tax effective rate. As a resultof the factors discussed above, net income and diluted earnings per share forthe first nine months of fiscal year 2010 increased 33.7% and 36.8%,respectively, compared to the prior year.

 

###### **Liquidity and Capital Resources**

 
| ** **                                            | ** ** | **Nine Months Ended**       | ** ** |
|-------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                            | ** ** | **December 27,  2009** | ** ** | **December 28,  2008** | ** ** |
| Cash  flows provided by operating activities          |       | $                           | 11,422,000 |   | $ | 8,540,500 |   |
| Cash  flows used in investing activities              |       | (4,700,400                  | )          | (3,580,100 | ) |
| Cash  flows used in financing activities              |       | (1,811,000                  | )          | (5,613,400 | ) |
| Net  increase (decrease) in cash and cash equivalents |       | $                           | 4,910,600  |   | $ | (653,000 | ) |

 

We generated $11.4million of net cash from operating activities in the first nine months offiscal year 2010 compared with $8.5 million in the first nine months of fiscalyear 2009. In the first nine months of fiscal year 2010, our cash inflow fromoperating activities was primarily driven by net income, net of depreciationand amortization and non-cash stock compensation expense, as well as by asignificant increase in accounts payable, partially offset by an increase intrade accounts receivable and an increase in product inventory. The increase inaccounts payable is largely due to the timing and credit terms of inventoryreceipts. The increase in trade accounts receivable is primarily due to thetiming of sales and collections largely related to our large tier-one carrier.The increased inventory levels are to improve our inventory availability forour customers.

 

Capitalexpenditures of $2.3 million in the first nine months of fiscal year 2010 weredown from expenditures of $2.5 million in the first nine months of fiscal year2009. In both periods, capital expenditures primarily consisted of investmentsin information technology.

 

OnApril 21, 2006, we acquired substantially all the non-cash net assets ofTerraWave Solutions, Ltd. and its commonly owned affiliate, GigaWaveTechnologies, Ltd. for an initial cash payment of approximately $3.9 million,and potential additional cash earn-out payment obligations of up to $15.5million accruing over a four-year period, contingent on the achievement by theTerraWave/GigaWave business unit post acquisition of certain minimum earningsthresholds. Of the $3.9 million cash amount paid at closing, $1.5 million was anon-refundable prepayment against future earn-out obligations, amortizable overthe four-year period. To the extent that the minimum earnings thresholds arenot achieved over the remainder of the four-year period, we will not be able toapply the remainder of this prepayment ($375,000 as of December 27, 2009).The large majority of the earn-out is calculated and accrued for at the end ofeach of four 12 month periods that end in April of each year through2010.  To date, we have paid $5.9 millionin earn-out payments, thus the maximum amount of contingent future earn-outpayments that could be earned through April 2010 is $9.6 million.Contingent payments made under the terms of the acquisition agreement aretreated as an additional cost of the acquired businesses and additionalgoodwill has been and will continue to be recorded through April 2010, ifearnings targets are achieved. During the nine month periodended December 27, 2009, approximately $2.4 million in earn-out 

 

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paymentswere made, based on achievement of certain earnings thresholds in accordancewith the terms of the purchase agreement. As of December 27,2009, an additional earn-out obligation of $185,000 has been accrued and isanticipated to be paid, along with any additional amounts earned over theremaining three months of fiscal year 2010, in the first quarter of fiscal year2011.

 

Net cash used infinancing activities was $1.8 million in the first nine months of fiscal year2010 compared with a net cash outflow from financing activities of $5.6 millionfor the first nine months of fiscal year 2009. For the first nine months offiscal year 2010, our cash outflow from financing activities was primarily dueto cash dividends paid to shareholders as well as treasury stock purchases andpayments on long-term debt, partially offset by the proceeds from our term loanwith Baltimore County Economic Development Fund. For the first nine months offiscal year 2009, our cash outflow from financing activities was primarily drivenby treasury stock purchases, partially offset by net borrowings on ourrevolving line of credit. During the first nine months of fiscal year 2010, werepurchased 24,130 shares of our outstanding common stock for approximately$0.4 million pursuant to our stock buyback program, compared with 140,523shares purchased during the first nine months of fiscal year 2009 forapproximately $1.8 million. From the beginning of our stock buyback program(the first quarter of fiscal year 2004), through the end of the third quarterof fiscal year 2010, a total of 2,335,258 shares have been purchased under thisprogram for approximately $30.7 million, or an average price of $13.14 pershare. The Board of Directors has authorized the purchase of up to 2,395,567shares in the aggregate pursuant to this program, and therefore, 60,309 sharesremained available to be purchased as of the end of the third quarter of fiscalyear 2010. We expect to fund future purchases, if any, from working capitaland/or our revolving credit facility. No timetable has been set for thecompletion or expiration of this program. On July 1, 2008,separate from, and in addition to, our stock buyback program, we repurchasedall 470,000 shares of our common stock then held by Brightpoint, Inc. (“Brightpoint”)in a privately negotiated transaction for a cost of approximately $6.4 million.See Note 10 to the unaudited consolidated financial statements for additionaldiscussion of the Brightpoint transaction.

 

Weare party to an unsecured revolving credit facility with SunTrust Bank andWachovia Bank, National Association, with interest payable monthly at the LIBORrate plus an applicable margin. Pursuant to a recent Third ModificationAgreement, the term of the facility was extended (from May 2010) to May 31,2012; and the amount of allowable dividend payments was increased from $2.0million (the previous stated amount) to $2.5 million in any 12 month period,assuming continued compliance with the otherwise applicable terms. Also inconnection with the modification, we paid a $175,000 modification fee, andagreed to increases in the applicable margins (from a range of 1.25% to 2.75%to a range of 2.25% to 3.25%) and unused facility fee, both of which are notunusual in the current lending environment. In an effort to offset the impactof the increase in the unused facility fee, we considered our track record ofpositive cash flows and relatively small historical borrowings under thefacility, and in connection with the modification requested and obtained a reductionin the maximum available principal amount to $35 million, from $50 million.Borrowing availability under this facility is determined in accordance with aborrowing base and the applicable credit agreement includes financialcovenants, including a minimum tangible net worth covenant, a minimum cash flowto debt service ratio, and a maximum funded debt to EBITDA ratio. Certain ofthese covenants were modified pursuant to the recent Third ModificationAgreement, on a going forward basis. The applicable terms also limit ourability to engage in certain transactions or activities, including (but notlimited to) investments and acquisitions, sales of assets, issuance ofadditional debt and other matters. As of December 27, 2009, we had a zerobalance outstanding on our revolving credit facility; therefore, we had thefull committed amount ($35 million) available, subject to the limitationsimposed by the borrowing base and continued compliance with the otherapplicable terms, including the covenants discussed above. Pursuant to theterms of this facility, we are permitted to repurchase up to $25 million ofcommon stock from May 31, 2007 forward. As of December 27, 2009, wehad repurchased an aggregate of $13.7 million of common stock since May 31,2007, leaving $11.3 million available for future repurchases, without theconsent of our lenders or a further amendment to the terms of the facility.

 

Pursuant to the relevant documents, thefinancial covenants included in the Credit Agreement for the unsecured revolvingcredit facility are also applicable to our existing Term Loan with the samelenders, having an original principal amount of $5.5 million and secured by ourHunt Valley, Maryland facility. Accordingly, the Third Modification Agreementalso has the effect of amending the financial covenants applicable to the TermLoan. At December 27, 2009, the principal balance of this term loan was$3.3 million.

 

On March 31, 2009, we entered into a term loan with theBaltimore County Economic Development Revolving Loan Fund for an aggregateprincipal amount of $250,000. The term loan is payable in equal monthlyinstallments of principal and interest of $2,300, with the balance due atmaturity on April 1, 2019. The term loan bears interest at 2.00% per annum

 

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and is secured by a subordinate position on our Hunt Valley,Maryland facility. At December 27, 2009, the principal balance of thisterm loan was approximately $234,800.

 

We are also party to an existing note payable outstanding tothe Maryland Economic Development Corporation, which is payable in equalquarterly installments of principal and interest of $37,400, with the balancedue at maturity on October 10, 2011. The note bears interest at 3.00% perannum and is secured by a subordinate position on Company-owned real propertylocation in Hunt Valley, Maryland. At December 27, 2009, the principalbalance of this note was approximately $298,100.

 

On July 28, 2009, we announced that our Board of Directorsdetermined to commence a dividend program and declared an initial quarterlycash dividend of ten cents ($0.10) per share of common stock, par value $0.01per share, of the Company, paid on August 26, 2009, to shareholders ofrecord as of August 12, 2009. On October 20, 2009, we announced acash dividend of ten cents ($0.10) per share of common stock, par value $0.01per share, of the Company, paid on November 25, 2009 to shareholders ofrecord as of November 11, 2009. On January 13, 2010, we announced acash dividend of ten cents ($0.10) per share of common stock, par value $0.01per share, of the Company, payable on March 1, 2010 to shareholders ofrecord as of February 15, 2010. Any future declaration of dividends andthe establishment of any corresponding record and payment dates remains subjectto further determination from time to time by the Board of Directors.

 

We believe that ourexisting cash, payments from customers, and availability under our revolvingcredit facility will be sufficient to support our operations for at least thenext twelve months. To minimize interest expense, our policy is to use excessavailable cash to pay down any balance on our revolving credit facility. Weexpect to meet short-term and long-term liquidity needs through operating cashflow, supplemented by our revolving credit facility. In doing so, the balanceon our revolving credit facility could increase depending on our workingcapital and other cash needs. If we were to undertake an acquisition or othermajor capital purchases that require funds in excess of existing sources ofliquidity, we would look to sources of funding from additional creditfacilities, 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. As of December 27, 2009, we do not have any materialcapital expenditure commitments.

 

In addition, ourliquidity could be negatively impacted by decreasing revenues and profitsresulting from a decrease in demand for our products or a reduction in capitalexpenditures by our customers, or by the weakened financial conditions of ourcustomers or suppliers, in each case as a result of the downturn in the globaleconomy, among other facts.

 

###### **Recent Accounting Pronouncements**

 

In September 2006, the Financial AccountingStandards Board (“FASB”) issued a new standard to provide guidance for usingfair value to measure assets and liabilities. The standard also responds toinvestors’ requests for expanded information about the extent to whichcompanies measure assets and liabilities at fair value, the information used tomeasure fair value, and the effect of fair value measurements on earnings. Thestandard applies whenever other standards require (or permit) assets orliabilities to be measured at fair value. It does not expand the use of fairvalue in any new circumstances. In February 2008, the FASB partiallydeferred the effective date of this standard for certain non-financial assetsand liabilities that are recognized or disclosed at fair value in the financialstatements on a nonrecurring basis until fiscal years beginning after November 15,2008 or in our case, the fiscal year beginning March 30, 2009. We adoptedthis standard for our financial assets and liabilities effective as of March 31,2008, and adopted the standard for non-financial assets and liabilitieseffective March 30, 2009. The adoption of the standard did not have a materialimpact on our consolidated financial statements. See Note 5 to the unauditedconsolidated financial statements for additional disclosures.

 

In December 2007, the FASB issued a newstandard establishing principles and guidance regarding the informationprovided in financial reports about a business combination and its effects. Thestandard requires that the acquisition method of accounting be used for allbusiness combinations and that an acquirer be identified for each businesscombination. The standard requires the assets, liabilities, noncontrollinginterests, certain acquired contingencies and contingent consideration during abusiness combination to be measured at their fair value as of the acquisitiondate. The standard is effective for fiscal years beginning on or after December 15,2008. In April 2009, the FASB issued an amendment to this standard toclarify the initial and subsequent accounting disclosures of contingencies in abusiness combination. We adopted this standard effective March 30, 2009for any acquisitions made subsequent to that date. The

 

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adoption of the standard did not impact theaccounting for acquisitions made by the Company prior to March 30, 2009,however it will impact the accounting treatment of all acquisitions made aftersuch date.

 

In March 2008, the FASB issued a new standardrequiring entities to provide enhanced disclosure of derivative instruments.Under the accounting standard, entities are required to provide enhanceddisclosures about (a) how and why an entity uses derivative instruments, (b) howderivative instruments and related hedged items are accounted for under otheraccounting standards and the related interpretations, and (c) howderivative instruments and related hedged items affect an entity’s financialposition, financial performance and cash flows. The provisions of this standardare effective for periods beginning after November 15, 2008. The adoptionof this standard did not have a material impact on our consolidated financialstatements.

 

In April 2009,the FASB issued a new standard requiring disclosures about the fair value offinancial instruments for interim financial statements in addition to annualfinancial statements. The standard is effective for interim reporting periodsending after June 15, 2009. The Company adopted the standard effective June 28,2009. The adoption of the standard did not have a material impact on ourinterim consolidated financial statements. See Note 5 to the unauditedconsolidated financial statements for additional disclosures.

 

In May 2009, the FASB issued a new standardestablishing general standards of accounting for and disclosures of events thatoccur after the balance sheet date but before the financial statements areissued or are available to be issued. The standard requires disclosure of thedate through which an entity has evaluated subsequent events and the basis forthat date. The standard is effective for interim or annual financial periodsending after June 15, 2009. The adoption of the standard did not have amaterial impact on our consolidated financial statements. See Note 12 to theunaudited consolidated financial statements for additional disclosures.

 

InJuly 2009, the FASB established “TheFASB Accounting Standards Codification” (the “Codification”). TheCodification replaced the United States Generally Accepted AccountingPrinciples (“GAAP”) and became the single source of authoritativenongovernmental U.S. GAAP. All guidance included in the Codification isauthoritative, even guidance that comes from what used to be deemed anon-authoritative section of a standard. All non-grandfathered, non-SECaccounting literature not included in the Codification is non-authoritative.Other than resolving certain minor inconsistencies in current GAAP, theCodification does not change GAAP, but is intended to make it easier to findand research GAAP applicable to particular transactions or specific accountingissues. The Codification is a new structure which takes accounting pronouncementsand organizes them by approximately ninety accounting topics. The Codificationis effective for interim and annual periods ending after September 15,2009. The adoption of the Codification did not have a material impact on ourconsolidated financial statements.

 

###### **Critical Accounting Policies and Estimates**

###### ** **

Our discussion andanalysis of our financial condition and results of operations are based on ourunaudited consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United States.The preparation of these financial statements requires us to make estimates andjudgments that affect the reported amount of assets, liabilities, revenues andexpenses and related disclosure of contingent assets and liabilities. Actualresults may differ from these estimates under different assumptions orconditions.

 

For a detaileddiscussion on our critical accounting policies, please refer to our AnnualReport on Form 10-K for the fiscal year ended March 29, 2009.

 

###### **Off-Balance Sheet Arrangements**

###### ** **

We have no material off-balance sheet arrangements.

 

## **Forward-Looking Statements**

 

This Report maycontain 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 

 

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contemplated by anysuch forward-looking statement for a variety of reasons, including those risksidentified in our most recent Annual Report on Form 10-K and otherperiodic reports filed with the Securities and Exchange Commission, under theheading “Risk Factors” and otherwise. Consequently, the reader is cautioned toconsider all forward-looking statements in light of the risks to which they aresubject.

 

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 our customers’, vendors’ and affinity partners’ businesses;increasingly negative or prolonged adverse economic conditions, including thoseadversely affecting consumer confidence or consumer or business spending, orotherwise adversely affecting our vendors or customers, including their accessto capital or liquidity or our customers’ demand for or ability to fund or payfor the purchase of our products and services; our dependence on a relativelysmall number of suppliers and vendors, which could hamper our ability tomaintain appropriate inventory levels and meet customer demand; failure of ourinformation technology system or distribution system; technology changes in thewireless communications industry, which could lead to significant inventoryobsolescence and/or our inability to offer key products that our customers demand;third-party freight carrier interruption; increased competition fromcompetitors, including manufacturers or national and regional distributors ofthe products we sell and the absence of significant barriers to entry whichcould result in pricing and other pressures on profitability and market share;our inability to access capital and obtain or retain financing as and whenneeded; transitional and other risks associated with acquisitions of companiesthat we may undertake in an effort to expand our business; the possibilitythat, for unforeseen reasons, we may be delayed in entering into or performing,or may fail to enter into or perform, anticipated contracts or may otherwise bedelayed in realizing or fail to realize anticipated revenues or anticipatedsavings; our inability to protect certain intellectual property, includingsystems and technologies on which we rely; and our inability to hire or retainfor any reason our key professionals, management and staff.

 

## **Available Information**

## ** **

Our Internet Websiteaddress is: www.tessco.com. We make available free of charge through ourWebsite, 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 orfurnished pursuant to Section 13 or 15(d) of the Exchange Act as soonas reasonably practicable after such documents are electronically filed with,or furnished to, the Securities and Exchange Commission. Also available on ourWebsite is our Code of Business Conduct and Ethics.

 

###### **Item 3. Quantitative and Qualitative DisclosuresAbout Market Risk.**

###### ** **

NotApplicable.

 

###### **Item 4. 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 SecuritiesExchange Act of 1934, as amended (Exchange Act)) as of the end of the periodcovered by this quarterly report. A control system, no matter how well designedand operated, can provide only reasonable, not absolute, assurance that thecontrol system’s objectives will be met. Based on the evaluation of thesecontrols and procedures required by Rules 13a-15(b) or 15d-15(b) ofthe Exchange Act, the Company’s management, including the CEO and CFO, haveconcluded that, as of the end of the period covered by this quarterly report,the Company’s disclosure controls and procedures were effective to providereasonable assurance that information required to be disclosed by the Companyin reports that it files or submits under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission’s rules and forms and to providereasonable assurance that such information is accumulated and communicated tothe Company’s management, including the Company’s CEO and CFO, as appropriateto allow timely decisions regarding required disclosure. During the periodcovered by this quarterly report, there have been no changes to the Company’sinternal control over financial reporting that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

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**PART II. OTHER INFORMATION**

 

**Item 1.Legal Proceedings.**

 

Lawsuits andclaims are filed against us from time to time in the ordinary course ofbusiness. We do not believe that any lawsuits or claims currently pendingagainst the Company, individually or in the aggregate, are material, or willhave a material adverse affect on our financial condition or results ofoperations. In addition, from time to time, we are also subject to review fromfederal and state taxing authorities in order to validate the amounts ofincome, sales and/or use taxes which have been claimed and remitted. Nofederal, state and local income tax returns are currently under examination.

 

**Item 1A.Risk Factors.**

 

There have been nomaterial changes from the risk factors as previously disclosed in the Company’sAnnual Report on Form 10-K for the fiscal year ended March 29, 2009.Nevertheless, information that we have disclosed or will disclose from time to timein our public filings (including this Quarterly Report on Form 10-Q andother periodic reports filed under the Exchange Act) may provide additionaldata or information relative to our previously disclosed risk factors.

 

###### **Item 2. Unregistered Sales of Equity Securitiesand Use of Proceeds.**

** **
| **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)** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------------|------------|-------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|
| September 28,  2009 through October 25, 2009   |       | —                                  |       | $                                   | N/A        |                                                                                          | —     |                                                                                       | 84,439     |   |
| October 26,  2009 through November 29, 2009(3) |       | 22,699                                  |       | 15.91                               |       | 10,539                                                                                        |       | 73,900                                                                                     |       |
| November 30,  2009 through December 27, 2009   |       | 13,591                                  |       | 14.77                               |       | 13,591                                                                                        |       | 60,309                                                                                     |       |
| Total                                                    |       | 36,290                                  |       | $                                   | 15.49      |                                                                                          | 24,130     |                                                                                       | 60,309     |   |

 

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(1)                        Periods indicated are fiscal accountingmonths for the third quarter of fiscal year 2010.

(2)                        Amounts are as of the end of the fiscalaccounting month or quarter, as applicable.

(3)                        Shares not repurchased as part of theCompany’s publicly announced repurchase plan represents shares either withheldfrom or delivered to the Company by employees or directors upon stock optionexercises or in connection with PSU and restricted stock awards, in order topay related minimum tax liabilities.

 

On April 28,2003, our Board of Directors announced a stock buyback program. As of December 27,2009, the Board of Directors has authorized the purchase of up to 2,395,567shares of outstanding common stock under the stock buyback program. During thethird quarter of fiscal year 2010, the Company repurchased 24,130 shares of itscommon stock for approximately $0.4 million pursuant to this program. As of December 27,2009, we had purchased an aggregate of 2,335,258 shares of our outstandingcommon stock pursuant to this program for approximately $30.7 million, or anaverage price of $13.14 per share. Accordingly, as of December 27, 2009,60,309 shares remained available for repurchase under this program. Shares maybe purchased from time to time under this program in the open market, by blockpurchase, or through negotiated transactions, or possibly other transactionsmanaged by broker-dealers. No timetable has been set for completion orexpiration of the program. On July 1, 2008, separate from, and inaddition to, the stock buyback program, we repurchased all 470,000 shares ofour common stock then held by Brightpoint, Inc. (“Brightpoint”) in aprivately negotiated transaction. See Note 10 to the unaudited consolidatedfinancial statements for additional discussion of the Brightpoint transaction. Our revolving credit facility and termloan with SunTrust Bank and Wachovia Bank, National Association, limit to $25million the aggregate dollar value of shares that may be repurchased from May 31,2007 forward. As of December 27, 2009, we had the ability to purchaseapproximately $11.3 million in additional shares of common stock withoutviolating this covenant.

 

Pursuant to theThird Modification Agreement, related to our unsecured revolving creditfacility with SunTrust Bank and Wachovia Bank, National Association, we arepermitted to make dividend payments of up to $2.5 million in any 12-monthperiod (an increase from the $2.0 million limit previously in effect), assumingcontinued compliance with the otherwise applicable terms.

 

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###### **Item 3. Defaults Upon Senior Securities.**

###### ** **

None.

 

###### **Item 4. Submission of Matters to a Vote ofSecurity Holders.**

###### ** **

None.

 

###### **Item 5. Other Information.**

###### ** **

None.

 

###### **Item 6. Exhibits.**

###### ** **

(a)                EXHIBITS:

 
| 31.1.1 |   | Rule 15d-14(a) Certification  of Robert B. Barnhill, Jr., Chief Executive Officer. |
|--------|--------|---------------------------------------------------------------------------------------------------|
| 31.2.1 |   | Rule 15d-14(a) Certification  of David M. Young, Chief Financial Officer.               |
| 32.1.1 |   | Section 1350 Certification of Robert B.  Barnhill, Jr., Chief Executive Officer.        |
| 32.2.1 |   | Section 1350 Certification of David M. Young,  Chief Financial Officer.                      |

 

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**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:  February 10, 2010 | By:                                           | /s/ David M. Young |
|                               | David M. Young                                |
|                               | Chief Financial Officer                       |
|                               | (principal  financial and accounting officer) |

 

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