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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

** **

#### **FORM 10-Q**

 

**x****        QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

 

##### **Forthe quarterly period ended June 29, 2008**

 

**or**

 

** ̈****        TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**

** **

**For the transition period from           to**

 

**CommissionFile Number: 0-24746**

# *** ***

# ***TESSCOTECHNOLOGIES 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 mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

Yes  x   No  o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany.  See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act.  Largeaccelerated filer o  Accelerated filer o  Non-accelerated filer o  Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).

Yes  o   No  x

 

The number of shares of the registrant’s Common Stock, $.01 par valueper share, outstanding as of August 1, 2008, was 4,835,235.

 

 

 

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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 Disclosures About Market Risk.                                 |   |
|             |                      |                                                                                         |   |
|             | Item 4.                   | Controls and  Procedures.                                                                    |   |
|             |                      |                                                                                         |   |
| **Part II** | **OTHER INFORMATION**     | ** **                                                                                   |
|             |                      |                                                                                         |   |
|             | Item 1.                   | Legal Proceedings.                                                                           |   |
|             |                      |                                                                                         |   |
|             | Item 1A.                  | Risk Factors.                                                                                |   |
|             |                      |                                                                                         |   |
|             | Item 2.                   | Unregistered  Sales of Equity Securities and Use of Proceeds.                                |   |
|             |                      |                                                                                         |   |
|             | Item 3.                   | Defaults  Upon Senior Securities.                                                            |   |
|             |                      |                                                                                         |   |
|             | Item 4.                   | Submission  of Matters to a Vote of Security Holders.                                        |   |
|             |                      |                                                                                         |   |
|             | Item 5.                   | Other Information.                                                                           |   |
|             |                      |                                                                                         |   |
|             | Item 6.                   | Exhibits.                                                                                    |   |
|             |                      |                                                                                         |   |
|             | Signature                 |                                                                                         |   |
|                  |                           |                                                                                              |  |  |

 

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###### **PART I.  FINANCIAL INFORMATION**

 

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

 

**TESSCOTECHNOLOGIES INCORPORATED**

**ConsolidatedBalance Sheets**

 
| ** **                                       | ** ** | **June 29,  2008** | ** **  | **March 30,  2008** | ** ** |
|--------------------------------------------------|------------|-------------------------|-------------|--------------------------|------------|
| ** **                                       | ** ** | **(unaudited)**         | ** **  | ** **               | ** ** |
| **ASSETS**                                       |       |                    |        |                     |       |
|                                             |       |                    |        |                     |       |
| Current assets:                                  |       |                    |        |                     |       |
| Cash and cash equivalents                        |       | $                       | 5,017,800   |                     | $          | 2,086,200 |   |
| Trade accounts receivable, net                   |       | 51,207,900              |        | 55,698,600               |       |
| Product inventory, net                           |       | 50,038,100              |        | 49,057,300               |       |
| Deferred tax assets                              |       | 4,048,800               |        | 4,048,800                |       |
| Prepaid expenses and other current assets        |       | 2,842,200               |        | 1,827,500                |       |
| Total current assets                             |       | 113,154,800             |        | 112,718,400              |       |
|                                             |       |                    |        |                     |       |
| Property and equipment, net                      |       | 21,540,000              |        | 22,233,600               |       |
| Goodwill, net                                    |       | 6,450,700               |        | 6,310,100                |       |
| Other long-term assets                           |       | 2,522,900               |        | 2,536,500                |       |
| Total assets                                     |       | $                       | 143,668,400 |                     | $          | 143,798,600 |   |
|                                             |       |                    |        |                     |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**   |       |                    |        |                     |       |
| Current liabilities:                             |       |                    |        |                     |       |
| Trade accounts payable                           |       | $                       | 61,755,600  |                     | $          | 64,433,400 |   |
| Payroll, benefits and taxes                      |       | 5,902,700               |        | 3,014,400                |       |
| Income and sales tax liabilities                 |       | 4,029,500               |        | 3,588,700                |       |
| Accrued expenses and other current liabilities   |       | 1,411,300               |        | 1,253,600                |       |
| Revolving line of credit                         |       | —                  |        | 3,353,500                |       |
| Current portion of long-term debt                |       | 361,400                 |        | 360,400                  |       |
| Total current liabilities                        |       | 73,460,500              |        | 76,004,000               |       |
|                                             |       |                    |        |                     |       |
| Deferred tax liabilities                         |       | 2,189,300               |        | 2,189,300                |       |
| Long-term debt, net of current portion           |       | 3,752,200               |        | 3,842,600                |       |
| Other long-term liabilities                      |       | 1,595,600               |        | 1,611,100                |       |
| Total liabilities                                |       | 80,997,600              |        | 83,647,000               |       |
|                                             |       |                    |        |                     |       |
| Commitments and contingencies                    |       |                    |        |                     |       |
|                                             |       |                    |        |                     |       |
| Shareholders’ equity:                       |       |                    |        |                     |       |
| Preferred stock                                  |       | —                  |        | —                   |       |
| Common stock                                     |       | 79,500                  |        | 78,200                   |       |
| Additional paid-in capital                       |       | 32,711,800              |        | 32,087,400               |       |
| Treasury stock                                   |       | (33,684,500             | )           | (33,454,300              | )          |
| Retained earnings                                |       | 63,615,600              |        | 61,552,900               |       |
| Accumulated other comprehensive loss, net of tax |       | (51,600                 | )           | (112,600                 | )          |
| Total shareholders’ equity                  |       | 62,670,800              |        | 60,151,600               |       |
| Total liabilities and shareholders’ equity  |       | $                       | 143,668,400 |                     | $          | 143,798,600 |   |

 

Seeaccompanying notes.

 

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**TESSCOTECHNOLOGIES INCORPORATED**

**ConsolidatedStatements of Income**

 
| ** **                                   | ** ** | **Three Months Ended** | ** **  |
|----------------------------------------------|------------|----------------------------------|-------------|
| ** **                                   | ** ** | **June 29, 2008**      | ** **  | **July 1, 2007** | ** ** |
| ** **                                   | ** ** | **(unaudited)**                  | ** **  | **(unaudited)** | ** ** |
|                                         |       |                             |        |   |   |
| Revenues                                     |       | $                                | 122,068,300 |   | $ | 124,430,100 |   |
| Cost of goods sold                           |       | 91,055,400                       |        | 96,269,100 |   |
| Gross profit                                 |       | 31,012,900                       |        | 28,161,000 |   |
|                                         |       |                             |        |   |   |
| Selling, general and administrative expenses |       | 27,494,600                       |        | 26,668,800 |   |
| Income from operations                       |       | 3,518,300                        |        | 1,492,200 |   |
| Interest expense, net                        |       | 136,800                          |        | 60,900 |   |
| Income before provision for income taxes     |       | 3,381,500                        |        | 1,431,300 |   |
| Provision for income taxes                   |       | 1,318,800                        |        | 565,300 |   |
| Net income                                   |       | $                                | 2,062,700   |   | $ | 866,000 |   |
| Basic earnings per share                     |       | $                                | 0.39        |   | $ | 0.16 |   |
| Diluted earnings per share                   |       | $                                | 0.38        |   | $ | 0.15 |   |
|                                         |       |                             |        |   |   |
| Basic weighted average shares outstanding    |       | 5,270,800                        |        | 5,419,300 |   |
|                                         |       |                             |        |   |   |
| Diluted weighted average shares outstanding  |       | 5,389,800                        |        | 5,694,400 |   |

 

See accompanying notes.

 

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**TESSCOTECHNOLOGIES INCORPORATED**

**Consolidated Statements of Cash Flows**

 
| ** **                                                                                               | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                               | ** ** | **June 29, 2008**      | ** ** | **July 1, 2007** | ** ** |
| ** **                                                                                               | ** ** | **(unaudited)**                  | ** ** | **(unaudited)** | ** ** |
| Cash flows from operating activities:                                                                    |       |                             |       |   |   |
| Net income                                                                                               |       | $                                | 2,062,700  |   | $ | 866,000 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities:                       |       |                             |       |   |   |
| Depreciation and amortization                                                                            |       | 1,098,900                        |       | 1,229,900 |   |
| Non-cash stock compensation expense                                                                      |       | 508,500                          |       | 576,800 |   |
| Deferred income taxes and other                                                                          |       | 4,200                            |       | (36,300 | ) |
| Change in trade accounts receivable                                                                      |       | 4,490,700                        |       | (11,696,300 | ) |
| Change in product inventory                                                                              |       | (980,800                         | )          | (6,370,500 | ) |
| Change in prepaid expenses and other current assets                                                      |       | (131,600                         | )          | (489,800 | ) |
| Change in trade accounts payable                                                                         |       | (1,509,400                       | )          | 20,677,400 |   |
| Change in payroll, benefits and taxes                                                                    |       | 2,888,300                        |       | (3,141,000 | ) |
| Change in income and sales tax liabilities                                                               |       | (442,300                         | )          | (390,200 | ) |
| Change in accrued expenses and other current liabilities                                                 |       | 220,700                          |       | (166,900 | ) |
| Net cash provided by operating activities                                                                |       | 8,209,900                        |       | 1,059,100 |   |
|                                                                                                     |       |                             |       |   |   |
| Cash flows from investing activities:                                                                    |       |                             |       |   |   |
| Purchases of property and equipment                                                                      |       | (350,400                         | )          | (637,900 | ) |
| Acquisition of business in purchase transaction and additional  earn-out payments on acquired businesses |       | (1,309,000                       | )          | (1,670,500 | ) |
| Net cash used in investing activities                                                                    |       | (1,659,400                       | )          | (2,308,400 | ) |
|                                                                                                     |       |                             |       |   |   |
| Cash flows from financing activities:                                                                    |       |                             |       |   |   |
| Net repayments on revolving line of credit                                                               |       | (3,353,500                       | )          | — |   |
| Payments on long-term debt                                                                               |       | (89,400                          | )          | (88,700 | ) |
| Proceeds from issuance of stock                                                                          |       | —                           |       | 393,100 |   |
| Purchase of treasury stock                                                                               |       | (230,200                         | )          | (1,405,400 | ) |
| Excess tax benefit from stock-based compensation                                                         |       | 54,200                           |       | 1,103,500 |   |
| Net cash (used in) provided by financing activities                                                      |       | (3,618,900                       | )          | 2,500 |   |
|                                                                                                     |       |                             |       |   |   |
| Net increase (decrease) in cash and cash equivalents                                                     |       | 2,931,600                        |       | (1,246,800 | ) |
|                                                                                                     |       |                             |       |   |   |
| Cash and cash equivalents, beginning of period                                                           |       | 2,086,200                        |       | 4,176,300 |   |
|                                                                                                     |       |                             |       |   |   |
| Cash and cash equivalents, end of period                                                                 |       | $                                | 5,017,800  |   | $ | 2,929,500 |   |

 

Seeaccompanying notes.

 

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**TESSCO Technologies Incorporated**

**Notes to Consolidated FinancialStatements**

**June 29, 2008**

(Unaudited)

 

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

 

TESSCOTechnologies Incorporated, a Delaware corporation (TESSCO or the Company), is aleading 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.  Approximately 95% of the Company’s sales aremade to customers in the United States. The Company takes orders in several ways, including phone, fax, onlineand through electronic data interchange.

 

In management’s opinion, the accompanying interimfinancial statements of the Company include all adjustments, consisting only ofnormal, recurring adjustments, necessary for a fair presentation of the Company’sfinancial position for the interim periods presented.  These statements are presented in accordancewith the rules and regulations of the United States Securities andExchange Commission (SEC).  Certaininformation and footnote disclosures normally included in the Company’s annualfinancial statements have been omitted from these statements, as permittedunder the applicable rules and regulations.  The results of operations presented in theaccompanying interim financial statements are not necessarily representative ofoperations for an entire year.  Theinformation included in this Form 10-Q should be read in conjunction withthe financial statements and notes thereto included in the Company’s Form 10-Kfor the fiscal year ended March 30, 2008.

 

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

 

In September 2006, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”)No. 157, “Fair Value Measurements,” which provides guidance for using fairvalue to measure assets and liabilities. The standard also responds to investors’ requests for expandedinformation about the extent to which companies measure assets and liabilitiesat fair value, the information used to measure fair value, and the effect offair value measurements on earnings.  Thestandard applies whenever other standards require (or permit) assets or liabilitiesto be measured at fair value.  Thestandard does not expand the use of fair value in any new circumstances.  In February 2008, the FASB partiallydeferred the effective date of SFAS No. 157 for certain non-financialassets and liabilities that are recognized or disclosed at fair value in thefinancial statements on a nonrecurring basis until fiscal years beginning afterNovember 15, 2008 or in the Company’s case, the fiscal year beginning March 29,2009.  The Company adopted SFAS No. 157effective as of March 31, 2008.  Theadoption of SFAS No. 157 did not have a material impact on the Company’sconsolidated financial statements (see Note 4).

 

In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities –Including an Amendment of FASB Statement No. 115.”  SFAS No. 159 permits an entity tomeasure many financial instruments and certain other items at fair value thatare not currently required to be measured at fair value.  Entities that elect the fair value optionwill report unrealized gains and losses in earnings at each subsequentreporting date.  SFAS No. 159 iseffective for fiscal years beginning after November 15, 2007.  The Company adopted SFAS No. 159effective as of March 31, 2008.  Asthe Company did not elect to apply the fair value option as described underSFAS No. 159 to any of its financial assets or liabilities which were notcurrently required to be measured at fair value, the adoption of SFAS No. 159did not have an impact on the Company’s financial statements.

 

In December 2007, the FASB issued SFAS No. 141(R),“Business Combinations,” which replaces SFAS No. 141.  The standard retains the fundamentalrequirements of SFAS No. 141 that the acquisition method of accounting(labeled the purchase method under SFAS No. 141) be used for all businesscombinations and that an acquirer be identified for each businesscombination.  SFAS No. 141(R) requiresthe assets, liabilities, noncontrolling interests, certain acquiredcontingencies and contingent consideration acquired during a businesscombination to be measured at their fair value as of the acquisition date.  SFAS No. 141(R) is effective forfiscal years beginning on or after December 15, 2008.  The Company will adopt SFAS No. 141(R) forany acquisition after March 29, 2009.

 

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In March 2008, the FASB issued SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities – an amendmentof FASB Statement No. 133.”  UnderSFAS No. 161, entities are required to provide enhanced disclosures about (a) howand why an entity uses derivative instruments, (b) how derivativeinstruments and related hedged items are accounted for under FASB Statement No. 133and its related interpretations, and (c) how derivative instruments andrelated hedged items affect an entity’s financial position, financialperformance and cash flows.  Theprovisions of this statement are effective for periods beginning after November 15,2008, and both early application and comparative disclosures areencouraged.  The Company is currentlyreviewing SFAS No. 161 to determine the impact of adoption on itsfinancial statements.

 

InJune 2008, the FASB issued FASB Staff Position EITF No. 03-6-1, “DeterminingWhether Instruments Granted in Share-Based Payment Transactions AreParticipating Securities.” FSP No. 03-6-1 requires companies to treatunvested share-based payment awards that have non-forfeitable rights todividend or dividend equivalents as participating securities. Therefore, thesefinancial instruments must be included in calculating basic and dilutedearnings per share under the two-class method described in SFAS No. 128, “EarningsPer Share.” All prior period EPS data presented should be adjustedretrospectively upon adoption. FSP No. 03-6-1 will be effective for fiscalyears beginning after December 15, 2008. Therefore, the Company isrequired to adopt FSP No. 03-6-1 on March 30, 2009. The Company iscurrently evaluating the requirements of FSP No. 03-6-1 and the potentialimpact on the Company’s basic and diluted earnings per share calculations.

 

# ***Note 3. Stock Compensation***

 

TheCompany’s selling, general and administrative expenses for the three monthsended June 29, 2008 and July 1, 2007 includes $508,500 and $576,800,respectively, of stock compensation expense. Stock compensation expense is primarily related to our Performance StockUnit (PSU) Program.  In addition, theCompany recorded an excess tax benefit directly to shareholders’ equity of$54,200 and $1,103,500, primarily related to the PSUs which vested during thethree months ended June 29, 2008 and July 1, 2007, respectively.

 

**PerformanceStock Units: **The following table summarizes the activityunder the Company’s PSU program for the first three months of fiscal year 2009:

 
| ** **                                                                         | ** ** | **Three Months Ended  June 29, 2008** | ** ** | **Weighted Average  Fair Value at Grant** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| Shares available  for issue under outstanding PSUs, non-vested beginning of period |       | 439,031                                                   |       | $                                                             | 16.79      |   |
| Granted                                                                            |       | 275,000                                                   |       | 11.71                                                         |       |
| Vested                                                                             |       | (147,593                                                  | )          | 10.42                                                         |       |
| Forfeited/cancelled                                                                |       | (188,020                                                  | )          | 23.95                                                         |       |
| Shares available  for issue under outstanding PSUs, non-vested end of period       |       | 378,418                                                   |       | $                                                             | 12.03      |   |

 

Of the 378,418 shares availablefor issuance under outstanding PSUs but not yet vested as of June 29,2008, 103,418 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 on or about May 1 of 2009 and 2010.

 

The vast majority of the PSUs cancelledduring fiscal year 2009 related to the fiscal year 2008 grant of PSUs which hada 1-year measurement period (fiscal year 2008).  During that period,actual earnings per share did not reach the threshold level, and thus, theunderlying shares from those PSUs were cancelled accordingly.  Per theprovisions of the Amended and Restated 1994 Stock and Incentive Plan (the “1994Plan”), the shares related to these PSUs were added back to the 1994 Plan andbecame available for future issuance.

 

Duringfiscal year 2009, 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 275,000 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 have only one measurement year(fiscal year 2009), with any shares earned at the end of fiscal year 2009 tovest and be issued 25% on or about May 1 of 2009, 2010, 2011 and 2012,respectively, provided that the participant remains employed by or associatedwith the Company on each such date.

 

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Ifthe maximum target of PSUs outstanding is assumed to be earned, totalunrecognized compensation costs would be approximately $3.2 million as of June29, 2008 and would be expensed through fiscal year 2012.

 

**Stock Options:**  Inaccordance with SFAS No. 123R, the fair value of the Company’s stockoptions have been determined using the Black-Scholes-Merton option pricingmodel, based upon facts and assumptions existing at the date of grant.  Stock options granted have exercise pricesequal to the market price of the Company’s common stock on the grant date.

 

Thevalue of each option at the date of grant is amortized as compensation expenseover the option service period.  Thisoccurs without regard to subsequent changes in stock price, volatility orinterest rates over time, provided that the option remains outstanding.  As of June 29, 2008, all outstandingstock options are fully vested. The following table summarizes the pertinentoption information for outstanding options for the three months ended June 29,2008:

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

 

**Restricted Stock:**  In fiscalyear 2007, the Company granted 150,000 shares of the Company’s common stock toits Chairman and Chief Executive Officer as a restricted stock award under the1994 Plan.  These shares vest ratablyover ten fiscal years based on service, beginning on the last day of fiscalyear 2007 and ending on the last day of fiscal year 2016, subject, however, tothe terms applicable to the award, including terms providing for possibleacceleration of vesting upon death, disability, change in control or certainother events.  The weighted average fairvalue for these shares at the grant date was $15.84.  No other shares of restricted stock arecurrently issued as awards under the 1994 Plan. As of June 29, 2008, 120,000 shares remain unvested and there wasno activity related to these restricted shares during the first quarter offiscal year 2009.  As of June 29,2008, there was approximately $1.8 million of total unrecognized compensationcosts related to restricted stock. Unrecognized compensation costs are expected to be recognized ratablyover a period of approximately eight years.

 

# ***Note 4. Fair Value of Financial Instruments***

 

InSeptember 2006, the FASB issued Statement of Financial AccountingStandards No. 157, “Fair Value Measurements.”  SFAS No. 157 defines fair value, establishesa framework for measuring fair value, and expands disclosures about fair valuemeasurements.  In February 2008, theFASB partially deferred the effective date of SFAS No. 157, until fiscalyears beginning after November 15, 2008 or in the Company’s case, thefiscal year beginning March 29, 2009, as it relates to certainnon-financial assets and liabilities that are recognized or disclosed at fairvalue in the financial statements on a nonrecurring basis.  Effective March 31, 2008, the Companyadopted the remaining portion of SFAS No. 157.  The adoption of SFAS No. 157 did nothave a material impact on the Company’s financial statements.

 

SFASNo. 157 requires that assets and liabilities carried at fair value beclassified and disclosed in one of the following three categories:

 

·                  Level1: Quoted prices (unadjusted) in active markets for identical assets orliabilities.

·                  Level2: Inputs other than quoted prices included within Level 1 that are observablefor the asset or liability, either directly or indirectly.  These include quoted prices for similarassets or liabilities in active markets, and quoted prices for identical orsimilar assets or liabilities in markets that are not active.

·                  Level3: Unobservable inputs for the asset or liability that reflect the reportingentity’s own assumptions about the inputs used in pricing the asset orliability.

 

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

 
| ** **                    | ** ** | **Balance at  June 29, 2008** | ** ** | **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 |       | (51,600                                      | )          | —                                                                                          |       | (51,600                                                    | )          | —                                                |       |
| Total assets at  fair value   |       | $                                            | (51,600    | )                                                                                               | $          | —                                                     |       | $                                                     | (51,600    | ) | $ | — |   |
|                               |            |                                              |            |                                                                                                 |            |                                                            |            |                                                       |            |  |  |  |  |

 

Theinterest rate swap agreement is included in prepaid expenses and other currentassets on the Company’s Consolidated Balance Sheets.  The Company’s fair value of its interest rateswap is derived from valuation models commonly used for derivatives. Valuationmodels require a variety of inputs, including contractual terms, market fixedprices, inputs from forward price yield curves, notional quantities, measuresof volatility and correlations of such inputs. The Company’s derivatives tradein liquid markets, and as such, model inputs can generally be verified and donot involve significant management judgment.

 

# ***Note 5. Earnings Per Share***

# * *

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

 
| ** **                                              | ** ** | **Fiscal Quarters Ended** | ** ** |
|---------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                              | ** ** | **June 29, 2008**         | ** ** | **July 1, 2007** | ** ** |
|                                                    |       |                                |       |   |   |
| Basic weighted average common shares outstanding        |       | 5,270,800                           |       | 5,419,300 |   |
| Effect of dilutive common stock equivalents outstanding |       | 119,000                             |       | 275,100 |   |
| Diluted weighted average common shares outstanding      |       | 5,389,800                           |       | 5,694,400 |   |

 

Asof June 29, 2008, stock options with respect to 135,000 shares of commonstock were outstanding. All outstanding options, restricted stock grants andearned but unvested PSUs were included in the computation of diluted earningsper share because all such instruments were dilutive.

 

# ***Note 6. Business Segments***

# * *

TheCompany evaluates revenue, gross profit and inventory in three businesssegments:  (1) Networkinfrastructure products, which are used to build, repair and upgrade wirelesstelecommunications, computing and Internet networks, and generally complementradio frequency transmitting and switching equipment provided directly byoriginal equipment manufacturers (OEMs); (2) Mobile devices and accessoryproducts, which include data devices, pagers and two-way radios and relatedaccessories such as replacement batteries, cases, speakers, mobile amplifiers,power supplies, headsets, mounts, car antennas and various wireless datadevices; and (3) Installation, test and maintenance products, which areused to install, tune, maintain and repair wireless communicationsequipment.  Within the mobile devices andaccessories line of business, the Company sells to both commercial and consumermarkets.  The network infrastructure andinstallation, test and maintenance lines of business sell primarily tocommercial markets.  The Company alsoregularly reviews its results of operations in three commercial customercategories and the consumer customer category, as described further below:

 

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

 

·                  Commercial Resellers.  Resellersinclude dealers and resellers that sell, install and service cellular telephone, paging and two-way radiocommunications equipment primarily for the consumer and small businessmarkets.  These resellers include localand national proprietorships and retailers, as well as sales and installationcenters operated by cellular and paging carriers.

 

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·                  Commercial Self-Maintained Users and Governments. Self-maintained user (SMU) and government customers include commercialentities such as major utilities and transportation companies,  federal agencies and state and local governments,including public safety organizations.

 

·                  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 segment operations develop their productoffering, pricing and strategies, which are collaborative with one another andthe centralized sales and marketing function. Therefore, the Company does not segregate assets, other than inventory,for internal reporting, evaluating performance or allocating capital.  Product delivery revenue and certain cost ofsales expenses have been allocated to each segment based on a percentage ofrevenues and/or gross profit, as applicable. The Company’s goodwill at June 29, 2008 relates to acquisitionswithin its network infrastructure line of business.

 

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Segmentactivity for the first quarter of fiscal years 2009 and 2008 is as follows:

 
| *(Amounts in thousands)*          | ** ** | **Network  Infrastructure** | ** ** | **Mobile Devices  and Accessories** | ** ** | **Installation, Test  and Maintenance** | ** ** | **Total** | ** ** |
|---------------------------------------------|------------|-----------------------------|------------|-----------------------------------------------|------------|---------------------------------------------------|------------|-----------|------------|
| Fiscal Quarter  ended June 29, 2008    |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial Revenues:                        |       |                        |       |                                          |       |                                              |       |      |       |
| Public Carriers  and Network Operators      |       | $                           | 11,542     |                                          | $          | 684                                               |       | $         | 3,660      |   | $ | 15,886 |   |
| Resellers                                   |       | 18,550                      |       | 50,794                                        |       | 2,718                                             |       | 72,062    |       |
| SMUs and  Governments                       |       | 12,856                      |       | 3,812                                         |       | 14,787                                            |       | 31,455    |       |
| Total Commercial  Revenues                  |       | 42,948                      |       | 55,290                                        |       | 21,165                                            |       | 119,403   |       |
| Consumer  Revenues                          |       | —                      |       | 2,665                                         |       | —                                            |       | 2,665     |       |
| Total Revenues                              |       | $                           | 42,948     |                                          | $          | 57,955                                            |       | $         | 21,165     |   | $ | 122,068 |   |
|                                        |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial Gross  Profit:                   |       |                        |       |                                          |       |                                              |       |      |       |
| Public Carriers  and Network Operators      |       | $                           | 3,060      |                                          | $          | 206                                               |       | $         | 898        |   | $ | 4,164 |   |
| Resellers                                   |       | 4,986                       |       | 12,112                                        |       | 754                                               |       | 17,852    |       |
| SMUs and  Governments                       |       | 3,635                       |       | 1,275                                         |       | 3,089                                             |       | 7,999     |       |
| Total Commercial  Gross Profit              |       | 11,681                      |       | 13,593                                        |       | 4,741                                             |       | 30,015    |       |
| Consumer Gross  Profit                      |       | —                      |       | 998                                           |       | —                                            |       | 998       |       |
| Total Gross  Profit                         |       | $                           | 11,681     |                                          | $          | 14,591                                            |       | $         | 4,741      |   | $ | 31,013 |   |
|                                        |       |                        |       |                                          |       |                                              |       |      |       |
| Product  Inventory                          |       | $                           | 24,129     |                                          | $          | 21,049                                            |       | $         | 4,860      |   | $ | 50,038 |   |
|                                        |       |                        |       |                                          |       |                                              |       |      |       |
| **Fiscal  Quarter ended July 1, 2007** |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial  Revenues:                       |       |                        |       |                                          |       |                                              |       |      |       |
| Public Carriers  and Network Operators      |       | $                           | 11,425     |                                          | $          | 581                                               |       | $         | 2,606      |   | $ | 14,612 |   |
| Resellers                                   |       | 17,567                      |       | 57,048                                        |       | 2,383                                             |       | 76,998    |       |
| SMUs and  Governments                       |       | 10,943                      |       | 3,243                                         |       | 16,439                                            |       | 30,625    |       |
| Total Commercial  Revenues                  |       | 39,935                      |       | 60,872                                        |       | 21,428                                            |       | 122,235   |       |
| Consumer  Revenues                          |       | —                      |       | 2,195                                         |       | —                                            |       | 2,195     |       |
| Total Revenues                              |       | $                           | 39,935     |                                          | $          | 63,067                                            |       | $         | 21,428     |   | $ | 124,430 |   |
|                                        |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial Gross  Profit:                   |       |                        |       |                                          |       |                                              |       |      |       |
| Public Carriers  and Network Operators      |       | $                           | 2,677      |                                          | $          | 164                                               |       | $         | 677        |   | $ | 3,518 |   |
| Resellers                                   |       | 4,205                       |       | 11,409                                        |       | 800                                               |       | 16,414    |       |
| SMUs and  Governments                       |       | 2,820                       |       | 1,061                                         |       | 3,475                                             |       | 7,356     |       |
| Total Commercial  Gross Profit              |       | 9,702                       |       | 12,634                                        |       | 4,952                                             |       | 27,288    |       |
| Consumer Gross  Profit                      |       | —                      |       | 873                                           |       | —                                            |       | 873       |       |
| Total Gross  Profit                         |       | $                           | 9,702      |                                          | $          | 13,507                                            |       | $         | 4,952      |   | $ | 28,161 |   |
|                                        |       |                        |       |                                          |       |                                              |       |      |       |
| Product  Inventory                          |       | $                           | 17,099     |                                          | $          | 23,133                                            |       | $         | 3,587      |   | $ | 43,819 |   |

 

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# ***Note 7. Comprehensive Income***

 

The components of totalcomprehensive income were as follows:

 
| ** **                            | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|
| ** **                            | ** ** | **June 29, 2008**      | ** ** | **July 1, 2007** | ** ** |
|                                  |       |                             |       |   |   |
| Net Income                            |       | $                                | 2,062,700  |   | $ | 866,000 |   |
| Change in value of interest rate swap |       | 61,000                           |       | 31,000 |   |
| Total comprehensive income            |       | $                                | 2,123,700  |   | $ | 897,000 |   |

 

Accumulatedother comprehensive loss, net of tax, at the end of each period was comprisedentirely of the interest rate swap.

 

# ***Note 8. Stock Buyback***

 

On April 28, 2003,the Company’s Board of Directors approved a stock buyback program.  As of June 29, 2008, the Board ofDirectors has authorized the purchase of 2,395,567 shares of outstanding commonstock under the stock buyback program.  Shares may be purchasedfrom time to time in the open market, by block purchase, or through negotiatedtransactions, or possibly other transactions managed by broker-dealers.  No time limit has been set for completion orexpiration of the program.  As of June 29,2008, the Company had purchased 2,140,974 shares for approximately $28.3million, or an average of $13.20 per share. Of the total shares repurchased, no shares were repurchased in the firstthree months of fiscal year 2009.  As of June 29,2008, 254,593 shares remained available for repurchase under this program.

 

# ***Note 9. Customer Concentration***

 

TheCompany’s future results could be negatively impacted by the loss of certaincustomer and/or vendor relationships. For the fiscal quarters ended June 29, 2008 and July 1, 2007,sales of products to the Company’s top customer relationship, AT&TMobility, accounted for 20% and 26% oftotal revenues, respectively.  Forthe fiscal quarters ended June 29, 2008 and July 1, 2007, sales ofproducts to the Company’s Nokia Inc. (Nokia) repair and replacement componentrelationship accounted for 7% and 9% oftotal revenues, respectively.  TheNokia relationship is a complete supply chain relationship and, therefore, theCompany has no alternative sources of supply, and the Company’s purchases, andultimately its resale of these products, is dependent upon the continuation ofthe Nokia relationship.  The Company alsosells products other than Nokia repair and replacement materials to many ofthese customers.  Absent this arrangementwith Nokia, the Company would maintain the ability to sell these other productsto these customers.

 

# ***Note 10. Subsequent Events***

 

OnJuly 1, 2008, the Company repurchased all 470,000 shares of its commonstock held by Brightpoint, Inc. (“Brightpoint”) in a privately negotiatedtransaction.  Pursuant to an agreemententered into between the Company and Brightpoint, the Company purchasedBrightpoint’s share holdings, comprising approximately 9% of the Company’s totalthen outstanding common stock, for $13.64 per share, or a total of$6,410,800.  The price per share wasdetermined based on the seven trading day trailing average closing price of theCompany’s common stock on the NASDAQ Global Market determined as of the closeof trading on June 30, 2008. The purchase was funded through availablecash and borrowings under the Company’s revolving credit facility.  This transaction does not affect the numberof shares available for repurchase under the Company’s stock buyback program(see Note 8).  In connection with thistransaction, the Company and certain of its subsidiaries entered into a FirstModification Agreementwith SunTrust Bank and Wachovia Bank, National Association to amend a negativecovenant included in the Credit Agreement for the Company’s existing $50million unsecured revolving credit facility, to increase the amount of commonstock permitted to be repurchased by the Company from $10 million to $15million, during the term of the credit facility.

 

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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’s Form 10-Kfor the fiscal year ended March 30, 2008.

 

**Business Overview and Environment**

 

TESSCOTechnologies Incorporated (TESSCO 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-buildingsystems.  Although we sell products tocustomers in over 100 countries, approximately 95% of our sales are made tocustomers in the United States.  We haveoperations and office facilities in Hunt Valley, Maryland, Reno, Nevada and SanAntonio, Texas.  Due to the diversity ofour business, we are not significantly affected by seasonality.  However, sales to our retailers generallypeak in our second and third quarters in preparation for the winter holidayseason.  Also, our network infrastructuresales are typically affected by weather conditions in the United States,especially in our fourth quarter.

 

We offer a wide range of products that are classified intothree business segments: (1) network infrastructure; (2) mobiledevices and accessories; and (3) installation, test and maintenance.  These segments are described further below:

 

·                  NetworkInfrastructure Products. Network infrastructure products, which are sold to our commercialcustomers, are used to build, repair and upgrade wireless telecommunications,computing and Internet networks. Sales of traditional network infrastructureproducts, such as cable, transmission lines and antennas are in part dependenton capital spending in the wireless communications industry.  However, we have also been growing ouroffering of wireless broadband and network equipment products, which are not asdependent on the overall capital spending of the industry.

 

·                  MobileDevice and Accessory Products. Mobile devices and accessory products include cellular phone and datadevice accessories, as well as two-way radios and related accessories.  Mobile devices and accessory products arewidely sold to commercial customers and consumers.  These commercial customers include retailstores, value-added resellers and dealers, as well as self-maintainedusers.  These consumers are primarilyreached through our affinity partnerships, where we offer services includingcustomized order fulfillment, outsourced call centers, and building andmaintaining private label Internet sites. Approximately 42% of all of ourmobile devices and accessory product sales for the fiscal quarter ended June 29,2008 were generated from sales to AT&T Mobility (AT&T).

 

·                  Installation,Test and Maintenance Products. Installation, test and maintenance products, which are sold to ourcommercial customers, are used to install, tune, maintain and repair wirelesscommunications equipment.  Approximately43% of all of our installation, test and maintenance sales for the fiscalquarter ended June 29, 2008 were generated from the sales of repair andreplacement parts and materials for original equipment manufacturers, primarilyNokia, Inc. (Nokia).  The remainderof this segment is made up of sophisticated analysis equipment and variousfrequency-, voltage- and power-measuring devices, as well as an assortment oftools, hardware and supplies required by service technicians.

 

Bothour repair and replacement parts sales and consumer mobile devices andaccessory sales through affinity partnerships, are reliant on relationshipswith a small number of vendors.

 

We regularly review four categories within each business segment: (1) commercialpublic carriers and network operators; (2) commercial resellers; (3) commercialself-maintained users and governments; and (4) consumers.  These categories are described further below:

 

·                  CommercialPublic Carriers and Network Operators. Public carriers and networkoperators include systems operators that are generally responsible for buildingand maintaining the infrastructure system and provide airtime service toindividual subscribers.

 

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·                  CommercialResellers. Resellers include dealers and resellers that sell, install andservice cellular telephone, paging and two-way radio communications equipmentprimarily for the consumer and small business markets.  These resellers include local and nationalproprietorships and retailers, as well as sales and installation centersoperated by cellular and paging carriers.

 

·                  CommercialSelf-Maintained Users (SMUs) and Governments.  SMUs and government customers includecommercial entities such as major utilities and transportation companies,federal agencies and state and local governments, including public safetyorganizations.

 

·                  Consumers.  Consumers are customers buying through any ofour affinity-partner relationships or directly from our consumer website,YourWirelessSource.comTM.

 

The wirelesscommunications distribution industry is competitive and fragmented, and is comprisedof several national distributors. In addition, many manufacturers sell direct.Barriers to entry for distributors are relatively low, particularly in themobile devices and accessories market, and the risk of new competitors enteringthe market is high.  Consolidation oflarger wireless carriers has and will most likely continue to impact ourcurrent and potential customer base.  Inaddition, the agreements or arrangements with our customers or vendors lookingto us for product and supply chain solutions are typically of limited durationand are terminable by either party upon several months or otherwise relativelyshort notice.  Our ability to maintainthese relationships is subject to competitive pressures and challenges.  We believe, however, that our strength inservice, the breadth and depth of our product offering, our informationtechnology system, and our large customer base and purchasing relationshipswith approximately 360 manufacturers, provide us with a significant competitiveadvantage over new entrants to the market.

 

Our first quarterrevenues decreased by 1.9% compared to the first quarter of last year; however,our gross profits increased by 10.1%. Revenues increased in our network infrastructure commercial line ofbusiness, but as more fully described below, such increase was more than offsetby a decline in our mobile devices and accessories commercial line of businessas well as a decline in revenues from our installation, test and maintenancecommercial line of business.  Gross profitsincreased in our network infrastructure commercial line of business, as well asin our mobile devices and accessories commercial line of business as comparedwith the first quarter of last year. These increases in gross profit were partially offset by a decline ingross profits in our installation, test and maintenance commercial line ofbusiness.  This overall increase in grossprofit, offset slightly by an increase in operating expenses to support ourgrowth initiatives and increased order volume, resulted in a 138.2% increase innet income and a 153.3% increase in diluted earnings per share over theprior-year quarter.

 

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**Resultsof Operations**

 

The followingtable summarizes the unaudited results of our operations for the fiscal quarterended June 29, 2008 and July 1, 2007:

 
| ** **                                                                    | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------|------------|
| *(Amounts in thousands, except per share data)* | ** ** | **June 29, 2008**      | ** ** | **July 1, 2007** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Commercial  Revenues                                                          |       |                             |       |   |   |   |   |   |   |
| Network  Infrastructure:                                                      |       |                             |       |   |   |   |   |   |   |
| Public Carriers  and Network Operators                                        |       | $                                | 11,542     |   | $ | 11,425 |   | $ | 117 |   | 1.0 | % |
| Resellers                                                                     |       | 18,550                           |       | 17,567 |   | 983 |   | 5.6 | % |
| SMUs and  Governments                                                         |       | 12,856                           |       | 10,943 |   | 1,913 |   | 17.5 | % |
| Total Network  Infrastructure                                                 |       | 42,948                           |       | 39,935 |   | 3,013 |   | 7.5 | % |
| Mobile Devices  and Accessories:                                              |       |                             |       |   |   |   |   |   |   |
| Public Carriers  and Network Operators                                        |       | 684                              |       | 581 |   | 103 |   | 17.7 | % |
| Resellers                                                                     |       | 50,794                           |       | 57,048 |   | (6,254 | ) | (11.0 | )% |
| SMUs and  Governments                                                         |       | 3,812                            |       | 3,243 |   | 569 |   | 17.5 | % |
| Total Mobile  Devices and Accessories                                         |       | 55,290                           |       | 60,872 |   | (5,582 | ) | (9.2 | )% |
| Installation,  Test and Maintenance:                                          |       |                             |       |   |   |   |   |   |   |
| Public Carriers  and Network Operators                                        |       | 3,660                            |       | 2,606 |   | 1,054 |   | 40.4 | % |
| Resellers                                                                     |       | 2,718                            |       | 2,383 |   | 335 |   | 14.1 | % |
| SMUs and  Governments                                                         |       | 14,787                           |       | 16,439 |   | (1,652 | ) | (10.0 | )% |
| Total  Installation, Test and Maintenance                                     |       | 21,165                           |       | 21,428 |   | (263 | ) | (1.2 | )% |
| Total Commercial  Revenues                                                    |       | 119,403                          |       | 122,235 |   | (2,832 | ) | (2.3 | )% |
| Consumer  Revenues - Mobile Devices and Accessories                           |       | 2,665                            |       | 2,195 |   | 470 |   | 21.4 | % |
| Total Revenues                                                                |       | $                                | 122,068    |   | $ | 124,430 |   | $ | (2,362 | ) | (1.9 | )% |
|                                                                          |       |                             |       |   |   |   |   |   |   |
| Commercial Gross  Profit                                                      |       |                             |       |   |   |   |   |   |   |
| Network  Infrastructure:                                                      |       |                             |       |   |   |   |   |   |   |
| Public Carriers  and Network Operators                                        |       | $                                | 3,060      |   | $ | 2,677 |   | $ | 383 |   | 14.3 | % |
| Resellers                                                                     |       | 4,986                            |       | 4,205 |   | 781 |   | 18.6 | % |
| SMUs and  Governments                                                         |       | 3,635                            |       | 2,820 |   | 815 |   | 28.9 | % |
| Total Network  Infrastructure                                                 |       | 11,681                           |       | 9,702 |   | 1,979 |   | 20.4 | % |
| Mobile Devices  and Accessories:                                              |       |                             |       |   |   |   |   |   |   |
| Public Carriers  and Network Operators                                        |       | 206                              |       | 164 |   | 42 |   | 25.6 | % |
| Resellers                                                                     |       | 12,112                           |       | 11,409 |   | 703 |   | 6.2 | % |
| SMUs and  Governments                                                         |       | 1,275                            |       | 1,061 |   | 214 |   | 20.2 | % |
| Total Mobile  Devices and Accessories                                         |       | 13,593                           |       | 12,634 |   | 959 |   | 7.6 | % |
| Installation,  Test and Maintenance:                                          |       |                             |       |   |   |   |   |   |   |
| Public Carriers  and Network Operators                                        |       | 898                              |       | 677 |   | 221 |   | 32.6 | % |
| Resellers                                                                     |       | 754                              |       | 800 |   | (46 | ) | (5.8 | )% |
| SMUs and  Governments                                                         |       | 3,089                            |       | 3,475 |   | (386 | ) | (11.1 | )% |
| Total  Installation, Test and Maintenance                                     |       | 4,741                            |       | 4,952 |   | (211 | ) | (4.3 | )% |
| Total Commercial  Gross Profit                                                |       | 30,015                           |       | 27,288 |   | 2,727 |   | 10.0 | % |
| Consumer Gross  Profit - Mobile Devices and Accessories                       |       | 998                              |       | 873 |   | 125 |   | 14.3 | % |
| Total Gross  Profit                                                           |       | 31,013                           |       | 28,161 |   | 2,852 |   | 10.1 | % |
|                                                                          |       |                             |       |   |   |   |   |   |   |
| Selling, general  and administrative expenses                                 |       | 27,494                           |       | 26,669 |   | 825 |   | 3.1 | % |
| Income from  operations                                                       |       | 3,519                            |       | 1,492 |   | 2,027 |   | 135.9 | % |
| Interest  expense, net                                                        |       | 137                              |       | 61 |   | 76 |   | 124.6 | % |
| Income before  provision for income taxes                                     |       | 3,382                            |       | 1,431 |   | 1,951 |   | 136.3 | % |
| Provision for  income taxes                                                   |       | 1,319                            |       | 565 |   | 754 |   | 133.5 | % |
| Net income                                                                    |       | $                                | 2,063      |   | $ | 866 |   | $ | 1,197 |   | 138.2 | % |
| Diluted earnings  per share                                                   |       | $                                | 0.38       |   | $ | 0.15 |   | $ | 0.23 |   | 153.3 | % |

 

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###### **First Quarter of Fiscal Year 2009 Compared withFirst Quarter of Fiscal Year 2008**

 

**Revenues. **Revenues for the first quarter of fiscal year 2009decreased 1.9% as compared with the first quarter of fiscal year 2008,primarily due to a 2.3% decline in commercial revenues, partially offset by a21.4% increase in consumer revenues. While sales in our mobile devices and accessories and installation,test, and maintenance lines of business declined, sales in our networkinfrastructure line of business grew.

 

Networkinfrastructure sales increased 7.5% as compared with the first quarter offiscal year 2008, as a result of higher sales of radio frequency propagationand site support products across all of our market categories, partially offsetby lower sales of broadband products across all of our market categories.  Our overall increase in sales of networkinfrastructure products was in sales to public carriers, resellers and SMUs andgovernments.

 

Sales in themobile devices and accessories line of business decreased 8.1% in the firstquarter of fiscal year 2009, as compared with the same period last year.  The decrease was due to a 9.2% decrease incommercial sales, partially offset by a 21.4% increase in consumer sales.  The decrease in commercial revenues formobile devices and accessories, which are sold primarily to resellers, but alsoto SMUs and governments and public carriers and network operators, wasprimarily due to decreased sales to our resellers and users.  Sales to a large national tier-one carrierdeclined by 23.1%, largely a result of a change in product mix.  In previous periods, this customer purchaseda higher percentage of Bluetooth headsets which have a higher sales price but alower gross margin than traditional cell phone accessories.  As a result of the change in product mix, overallsales to this customer declined during the first quarter of fiscal year 2009,while gross margin from those sales increased.

 

Revenues from ourinstallation, test and maintenance line of business had a 1.2% decrease fromthe prior-year quarter, primarily due to a decrease in the sale of repaircomponents related to our major repair components relationship with Nokia.

 

**GrossProfit. **Gross profit for the first quarter of fiscal year 2009increased 10.1% as compared with the first quarter of fiscal year 2008. Totalcommercial gross profit increased 10.0%, while consumer gross profit increased14.3%.  Gross profit margin increased to25.4% in the first quarter of fiscal year 2009 from 22.6% in first quarter offiscal year 2008.  Gross profit margin inour network infrastructure segment increased from 24.3% in the first quarter offiscal year 2008 to 27.2% in the first quarter of fiscal year 2009.  This increase in gross profit margin was aresult of the change in product mix described above, as radio frequency andsite support products typically have a higher gross margin than broadbandproducts.  Gross profit margin in ourmobile devices and accessories segment increased to 25.2% in the first quarterof this fiscal year from 21.4% in the first quarter of last fiscal year.  This increase was primarily attributable tothe commercial gross profit margin for our mobile devices and accessories,which increased to 24.6% in the first quarter of fiscal year 2009 from 20.8%for the first quarter of fiscal year 2008, principally due to product mix insales to a large tier-one carrier and other retail customers.  Consumer gross profit margin for our mobiledevices and accessories decreased to 37.4% in the first quarter of this fiscalyear from 39.8% for the first quarter of last fiscal year.  Gross profit margin in our installation, testand maintenance line of business decreased slightly from 23.1% in the firstquarter of fiscal year 2008 to 22.4% in the first quarter of fiscal year 2009.Generally, our gross margins by product within these segments have beensustained, except as noted above, and generally these variations are related tosales mix within the segment product offerings. We account for inventory at the lower of cost or market, and as a result,write-offs/write-downs occur due to damage, deterioration, obsolescence,changes in prices and other causes.

 

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

 

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As total revenuesand gross profits from larger customer and vendor relationships, includingAT&T, increase, we occasionally experience and expect to continue toexperience 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 growrevenues and gross profits from other customer and vendor relationships.

 

**Selling,General and Administrative Expenses.** Total selling,general and administrative expenses increased by 3.1% in the first quarter offiscal year 2009 as compared with the first quarter of fiscal year 2008.  Selling, general and administrative expensesas a percentage of revenues increased to 22.5% in the first quarter of fiscalyear 2009 from 21.4% in the first quarter of fiscal year 2008.  The largest factors contributing to theincrease in total selling, general and administrative expenses were increasedcompensation expense and bonus accruals, partially offset by decreasedmarketing, sales promotion and freight expense, during the first quarter offiscal year 2009.

 

Compensation expensesrelated to business generation and fulfillment activities increased over theprior-year quarter.  Compensation costshave also increased over the prior-year quarter due to increased accruals relatedto our cash and equity bonus programs. Our bonus programs are performance based and therefore, the increase inbonus accruals is due to better results during the first quarter of fiscal year2009 as well as projected results for the remainder of the fiscal year ascompared to pre-defined performance targets. Total compensation costs, including benefits and bonus expense,increased by approximately $2.3 million from the first quarter of fiscal year2008 to the first quarter of fiscal year 2009.

 

Marketing and salespromotion expenses decreased by approximately $588,700 in the first quarter offiscal year 2009 as compared with the first quarter of fiscal year 2008,primarily due to decreased expense for print and online advertising in thefirst quarter of fiscal year 2009, as well as decreased racks and graphicsexpense associated with our retail business.

 

Freight expense decreasedby approximately $902,300 due to increased productivity in our distributionoperations, partially offset by higher fuel surcharges.

 

We continually evaluate thecredit worthiness of our existing customer receivable portfolio and provide anappropriate reserve based on this evaluation. We also evaluate the credit worthiness of prospective customers and makedecisions regarding extension of credit terms to such prospects based on thisevaluation.  Accordingly, we recorded a provision for bad debts of $266,700 and$92,500 for the first quarter ended June 29, 2008 and July 1, 2007,respectively.

 

**Interest,Net.**  Net interest expense increased from $60,900in the first quarter of fiscal year 2008 to $136,800 in the first quarter offiscal year 2009, primarily due to increased average borrowings on ourrevolving line of credit facility.

 

**IncomeTaxes, Net Income and Diluted Earnings per Share.** The effective tax rate in the first quarter offiscal year 2009 was 39.0% as compared with 39.5% in the first quarter offiscal year 2008.  The decrease in thetax rate is primarily attributable to a decrease in non-deductible expenses asa percentage of income, as well as changes in our state tax effectiverate.  As a result of the factorsdiscussed above, net income and diluted earnings per share for the firstquarter of fiscal year 2009 increased 138.2% and 153.3%, respectively, comparedto the prior-year quarter.

 

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

 
| ** **                                            | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                            | ** ** | **June 29, 2008**      | ** ** | **July 1, 2007** | ** ** |
| Cash flow  provided by operating activities           |       | $                                | 8,209,900  |   | $ | 1,059,100 |   |
| Cash flow used  in investing activities               |       | (1,659,400                       | )          | (2,308,400 | ) |
| Cash flow (used  in) provided by financing activities |       | (3,618,900                       | )          | 2,500 |   |
| Net increase  (decrease) in cash and cash equivalents |       | $                                | 2,931,600  |   | $ | (1,246,800 | ) |

 

We generated $8.2million of net cash from operating activities in the first three months offiscal year 2009 compared with $1.1 million in the first three months of fiscalyear 2008.  In the first three months offiscal year 2009, our cash inflow from operating activities was primarilydriven by net income, net of depreciation and amortization and non-cash stockcompensation expense, as well as by a significant decrease in trade accountsreceivable and an increase in accrued payroll, benefits and taxes, partiallyoffset by a decrease in accounts payable. The decrease in trade accounts receivable is primarily due to the timingof sales and collections largely related to our large tier-one carrier.  The accrual for payroll, benefits and taxesincreased primarily due to an increase in accruals for our bonus programs inthe first three months of fiscal year 2009 as compared to the first threemonths of fiscal year 2008.  The decreasein accounts payable is largely due to the timing and credit terms of inventoryreceipts.

 

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Capitalexpenditures of $350,400 in the first three months of fiscal year 2009 weredown from expenditures of $637,900 in the first three months of fiscal year2008.  In both periods, capitalexpenditures primarily consisted of investment in 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 $3.8 million,and additional cash earn-out payments over a four-year period, contingent onthe achievement of certain minimum earnings thresholds ($1.5 million of the$3.8 million cash amount paid at closing is a non-refundable prepayment againstfuture earn-out payments, if any, amortizable over the four-year period).  To the extent that certain minimum earningsthresholds are not achieved, we will not be able to recover thisprepayment.  The maximum amount ofcontingent future earn-out payments (after subtracting the $1.5 millionprepayment) is $12.0 million.  Contingentpayments made under the terms of the purchase agreement are treated as anadditional cost of the acquired businesses and additional goodwill has been andwill continue to be recorded, if earnings targets are achieved.  For the period ended June 29, 2008, approximately $1.3 million waspaid for additional earn-out based on achievement of certain earningsthresholds in accordance with the terms of the purchase agreement.  As ofJune 29, 2008, there is no accrual for additional earn-out payments,because applicable fiscal year 2009 targets have not been met as of June 29,2008.

 

Net cash used infinancing activities was $3.6 million in the first three months of fiscal year2009 compared with a net cash inflow from financing activities of $2,500 forthe first three months of fiscal year 2008. For fiscal year 2009, our cash outflow from financing activities wasprimarily due to net repayments on our revolving line of credit and treasurystock transactions with employees and directors for minimum tax withholdingsrelated to equity compensation.  Forfiscal year 2008, our cash inflow from financing activities was primarilydriven by tax deductions of stock based compensation in excess of thecompensation costs recognized for those awards and additional proceeds from theissuance of stock, mostly offset by treasury stock transactions with employeesand directors for minimum tax withholdings. During the first three months of fiscal years 2009 and 2008, we did notrepurchase any shares of our outstanding common stock pursuant to our stockbuyback program.  From the beginning ofour stock buyback program (the first quarter of fiscal year 2004), through theend of the first quarter of fiscal year 2009, a total of 2,140,974 shares havebeen purchased under this program for approximately $28.3 million, or anaverage price of $13.20 per share.  TheBoard of Directors has authorized the purchase of up to 2,395,567 shares in theaggregate pursuant to this program, and therefore, 254,593 shares remainedavailable to be purchased as of the end of the first quarter of fiscal year2009.  We expect to fund futurepurchases, if any, from working capital and/or our revolving credit facility.  No timetable has been set for the completionor expiration of this program.

 

We believe that ourexisting cash, payments from customers, and availability under our revolvingline of credit facility will be sufficient to support our operations for atleast the next twelve months.  Tominimize interest expense, our policy is to use excess available cash to paydown any balance on our revolving line of credit facility.  We expect to meet short-term and long-termliquidity needs through operating cash flow, supplemented by our revolvingcredit facility.  In doing so, thebalance on our revolving credit facility could increase depending on ourworking capital and other cash needs.  Ifwe were to undertake an acquisition or other major capital purchases thatrequire funds in excess of its existing sources of liquidity, we would look tosources of funding from additional credit facilities, debt and/or equityissuances.  There can be no assurancesthat such additional future sources of funding would be available on termsacceptable to us, if at all.

 

OnJuly 1, 2008, we repurchased all 470,000 shares of our common stock heldby Brightpoint, Inc. (“Brightpoint”) in a privately negotiatedtransaction.  Pursuant to an agreemententered into between us and Brightpoint, we purchased Brightpoint’s shareholdings, comprising approximately 9% of our total then outstanding commonstock, for $13.64 per share, or a total of $6,410,800.  The price per share was determined based onthe seven trading day trailing average closing price of our common stock on theNASDAQ Global Market determined as of the close of trading on June 30,2008. The purchase was funded through available cash and borrowings under ourrevolving credit facility.  Thistransaction does not affect the number of shares available for repurchase underour stock buyback program.  In connectionwith this transaction, we and certain of our subsidiaries entered into a FirstModification Agreement with SunTrust Bank and Wachovia Bank, NationalAssociation to amend a negative covenant included in the Credit Agreement forour existing $50 million unsecured revolving credit facility, to increase theamount of common stock permitted to be repurchased by us from $10 million to$15 million, during the term of the credit facility.

 

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

###### ** **

InSeptember 2006, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards(“SFAS”) No. 157, “Fair ValueMeasurements.”  SFAS No. 157 definesfair value, establishes a framework for measuring fair value, and expandsdisclosures about fair value measurements. Effective March 31, 2008, we adopted SFAS No. 157.  However, in February 2008, the FASBpartially deferred the effective date of SFAS No. 157, until fiscal yearsbeginning after November 15, 2008 or in our case, the fiscal yearbeginning March 29, 2009, as it relates to certain non-financial assetsand liabilities that are recognized or disclosed at fair value in the financialstatements on a nonrecurring basis.  Theadoption of SFAS No. 157 did not have a material impact on our financialstatements.

 

In February 2007, the FASB issued SFAS No. 159, “The Fair ValueOption for Financial Assets and Financial Liabilities – Including an Amendmentof FASB Statement No. 115.”  SFAS No. 159permits an entity to measure many financial instruments and certain other itemsat fair value that are not currently required to be measured at fairvalue.  Entities that elect the fairvalue option will report unrealized gains and losses in earnings at eachsubsequent reporting date.  SFAS No. 159is effective for fiscal years beginning after November 15, 2007.  We adopted SFAS No. 159 effective as of March 31,2008.  As we did not elect to apply thefair value option as described under SFAS No. 159 to any of our financialassets or liabilities which were not currently required to be measured at fairvalue, the adoption did not have an impact on our financial statements.

 

In December 2007, the FASB issues SFAS No. 141(R),“Business Combinations,” which replaces SFAS No. 141.  The standard retains the fundamentalrequirements of SFAS No. 141 that the acquisition method of accounting(labeled the purchase method under SFAS No. 141) be used for all businesscombinations and that an acquirer be identified for each businesscombination.  SFAS No. 141(R) requiresthe assets, liabilities, noncontrolling interests, certain acquiredcontingencies and contingent consideration acquired during a businesscombination to be measured at their fair value as of the acquisition date.  SFAS No. 141(R) is effective forfiscal years beginning on or after December 15, 2008.  We will adopt SFAS No. 141(R) forany acquisition after March 29, 2009.

 

In March 2008, the FASB issued SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities – an amendmentof FASB Statement No. 133.”  UnderSFAS No. 161, entities are required to provide enhanced disclosures about (a) howand why an entity uses derivative instruments, (b) how derivativeinstruments and related hedged items are accounted for under FASB Statement No. 133and its related interpretations, and (c) how derivative instruments andrelated hedged items affect an entity’s financial position, financialperformance and cash flows.  Theprovisions of this statement are effective for periods beginning after November 15,2008, and both early application and comparative disclosures are encouraged.  We are currently reviewing SFAS No. 161to determine the impact of adoption on our financial statements.

 

InJune 2008, the FASB issued FASB Staff Position EITF No. 03-6-1, “DeterminingWhether Instruments Granted in Share-Based Payment Transactions AreParticipating Securities.” FSP No. 03-6-1 requires companies to treatunvested share-based payment awards that have non-forfeitable rights todividend or dividend equivalents as participating securities. Therefore, thesefinancial instruments need to be included in calculating basic and dilutedearnings per share under the two-class method described in SFAS No. 128, “EarningsPer Share.” All prior period EPS data presented should be adjustedretrospectively upon adoption. FSP No. 03-6-1 will be effective for fiscalyears beginning after December 15, 2008. Therefore, we are required toadopt FSP No. 03-6-1 on March 30, 2009. We are currently evaluatingthe requirements of FSP No. 03-6-1 and the potential impact on our basicand diluted earnings per share calculations.

 

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

###### ** **

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

 

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For a detaileddiscussion on our critical accounting policies, please refer to our AnnualReport on Form 10-K for the fiscal year ended March 30, 2008.

 

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

###### ** **

We have no material off-balance sheet arrangements.

 

## **Forward-LookingStatements**

## ** **

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 contemplated by any such forward-looking statement for a variety of reasons,including those risks identified in our most recent Annual Report on Form 10-Kand other periodic reports filed with the Securities and Exchange Commission,under the heading “Risk Factors” and otherwise. Consequently, the reader iscautioned to consider all forward-looking statements in light of the risks towhich they are subject.

 

We are not able toidentify or control all circumstances that could occur in the future that mayadversely affect our business and operating results. Without limiting the risksthat we describe in our periodic reports and elsewhere, among the risks thatcould lead to a materially adverse impact on our business or operating resultsare the following: termination or non-renewal of limited duration agreements orarrangements with our vendors and affinity partners which are typicallyterminable by either party upon several months notice; loss of significantcustomers or relationships, including affinity relationships; loss of customerseither directly or indirectly as a result of consolidation among large wirelessservice carriers and others within the wireless communications industry; the strengthof the customers’, vendors’ and affinity partners’ business; economicconditions that may impact customers’ ability to fund or pay for the purchaseof our products and services, including credit risk; our dependence on arelatively small number of suppliers and vendors, which could hamper ourability to maintain appropriate inventory levels and meet customer demand;failure of our information technology system or distribution system; technologychanges in the wireless communications industry, which could lead tosignificant inventory obsolescence and/or our inability to offer key productsthat our customers demand; third-party freight carrier interruption; increasedcompetition from competitors, including manufacturers or national and regionaldistributors of the products we sell and the absence of significant barriers toentry which could result in pricing and other pressures on profitability andmarket share; our inability to access capital and obtain 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.

 

## **AvailableInformation**

## ** **

Our Internet Website address is: www.tessco.com. We make available free of charge through ourWeb site, our annual report on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K and amendments to those reports filed 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 our Web site is our Code ofBusiness Conduct and Ethics.

 

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

 

Not Applicable.

 

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###### **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.

 

**PART II.  OTHER INFORMATION**

 

**Item1.  Legal Proceedings.**

 

Lawsuits andclaims are filed against us from time to time in the ordinary course ofbusiness.  We do not believe that anylawsuits or claims currently pending against the Company, individually or inthe aggregate, are material, or will have a material adverse affect on ourfinancial condition or results of operations.

 

**Item1A.  Risk Factors.**

 

Therewere no material changes in the risk factors previously disclosed in theCompany’s Annual Report on Form 10-K for the fiscal year ended March 30,2008.

###### ** **

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###### **Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds.**

###### ** **

On April 28,2003, our Board of Directors announced a stock buyback program.  As of June 29, 2008, the Board ofDirectors has authorized the purchase of 2,395,567 shares of outstanding commonstock under the stock buyback program. During the first quarter of 2009, the Company did not repurchase anyshares of its common stock.  As of June 29,2008, we had purchased an aggregate of 2,140,974 shares of our outstandingcommon stock pursuant to this program for approximately $28.3 million, or anaverage price of $13.20 per share. Accordingly, as of June 29, 2008, 254,593 shares remained availablefor repurchase under this program. Shares may be purchased from time to time under this program in the openmarket, by block purchase, or through negotiated transactions, or possiblyother transactions managed by broker-dealers. No timetable has been set for completion or expiration of the program.

 

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

###### ** **

None.

 

###### **Item 4.  Submission of Matters to a Vote of SecurityHolders.**

###### ** **

TheCompany held its Annual Meeting of Shareholders at the Company’s facilitylocated in Timonium, Maryland on July 24, 2008.  At the meeting, the shareholders were askedto vote on the election of two directors, the extension of the date throughwhich awards may be granted under the Company’s Amended and Restated 1994 Stockand Incentive Plan, an increase in the number of shares available for awardsunder the Amended and Restated 1994 Stock and Incentive Plan, the approval ofthe Amended and Restated 1994 Stock and Incentive Plan and specific performancecriteria applicable thereto, for purposes of Section 162(m) of theInternal Revenue Code of 1986, as amended, and the ratification of theappointment of the Company’s independent registered public accountingfirm.  Each of these proposals wasdescribed in the Company’s Definitive Proxy Statement filed with the Securitiesand Exchange Commission on June 20, 2008.

 

ELECTIONOF DIRECTORS.  At the meeting, theshareholders re-elected Robert B. Barnhill, Jr. and Benn R. Konsynski,Ph.D. to the Board of Directors for a three-year term expiring at the Company’s2011 Annual Meeting of Shareholders and until their successors are duly electedand qualified.  The term of office ofeach of John D. Beletic, Daniel Okrent, Morton F. Zifferer, Jr., DennisShaughnessy and Jay G. Baitler also continued after the meeting.  The votes cast or withheld in respect of theelection of Mr. Barnhill and Dr. Konsynski were as follows:

 
| Robert B.  Barnhill, Jr. |   | 2,499,511 |   | For      |
|-------------------------------|--------|-----------|--------|----------|
|                          |   | 1,989,485 |   | Withheld |
|                          |   |      |   |     |
| Benn R. Konsynski,  Ph.D.     |   | 2,499,511 |   | For      |
|                          |   | 1,989,485 |   | Withheld |

 

AMENDEDAND RESTATED 1994 STOCK AND INCENTIVE PLAN. At the meeting, the shareholders approved the extension of the datethrough which awards may be granted under the 1994 Plan from July 22, 2009to July 22, 2014.  The number of votes “for” was 3,761,120,the number of votes “against” or “withheld” was 118,397, the number of sharesrepresenting abstentions was 3,998 and the number of shares representing brokernon-votes was 605,481.  The shareholdersalso approved the increase in the number of shares of common stock availablefor awards under the 1994 Plan by 150,000, from 1,758,750 to 1,908,750. Thenumber of votes “for” was 2,453,479, the number of votes “against” or “withheld”was 1,429,738, the number of shares representing abstentions was 298 and thenumber of shares representing broker non-votes was 605,481.

 

1994PLAN FOR SECTION 162(m) PURPOSES. At the meeting, the shareholders approved the Amended and Restated 1994Stock and Incentive Plan and specific performance criteria applicable thereto,for purposes of Section 162(m) of the Internal Revenue Code.  The number of votes “for” was 3,785,873, thenumber of votes “against” or “withheld” was 94,694, the number of sharesrepresenting abstentions was 2,948 and the number of shares representing brokernon-votes was 605,481.

 

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INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM.  Atthe meeting, the shareholders ratified the appointment of Ernst &Young LLP to serve as the independent registered public accounting firm of theCompany for the fiscal year ending March 29, 2009.  The number of votes “for” was 4,463,953, thenumber of votes “against” or “withheld” was 24,552 and the number of sharesrepresenting abstentions was 493.

 

###### **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**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|   |                 | TESSCO  TECHNOLOGIES INCORPORATED             |
|--------|----------------------|-----------------------------------------------|
|   |                 |                                          |   |
|   |                 |                                          |   |
| Date:  | August 13, 2008 |                                          | By: | /s/ David M. Young |
|   |                 | David  M. Young                               |
|   |                 | Chief Financial Officer                       |
|   |                 | (principal  financial and accounting officer) |
|        |                      |                                               |  |  |

 

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