**Table of Contents**

 

** **

** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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

 

| **x**      | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE**                                                                                                |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | **SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                   |
| ** ** | ** **                                                                                                                                                            |
| ** ** | **For the quarterly period ended  September 28, 2008**                                                                                                           |
| ** ** | ** **                                                                                                                                                            |
|       | **or**                                                                                                                                                                |
|       |                                                                                                                                                                  |
| **o**      | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                              |
|       |                                                                                                                                                                  |
|       | **For the transition period from             to           ** |

# * *

**CommissionFile Number: 0-24746**

 

# ***TESSCO TECHNOLOGIES INCORPORATED***

(Exact name ofregistrant as specified in its charter)

 

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

 

**(410)229-1000**

(Registrant’s telephone 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 Rule 12b-2of the Exchange Act.  Large acceleratedfiler  o  Accelerated filer  o   Non-accelerated filer  o Smallerreporting 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, $0.01 par valueper share, outstanding as of October 31, 2008, was 4,744,793.

 

 

 

----

Table of Contents

 

**TESSCO TECHNOLOGIESINCORPORATED**

**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. |
|             |                      |   |
|             | Signatures                |   |

 

2

----

###### **Table of Contents**

 

**PART I.  FINANCIAL INFORMATION**

###### ** **

**Item 1.  Financial Statements.**

 

**TESSCOTECHNOLOGIES INCORPORATED**

**ConsolidatedBalance Sheets**

 
| ** **                                       | ** ** | **September 28,  2008** | ** **  | **March 30,  2008** | ** ** |
|--------------------------------------------------|------------|------------------------------|-------------|--------------------------|------------|
| ** **                                       | ** ** | **(unaudited)**              | ** **  | ** **               | ** ** |
| **ASSETS**                                       |       |                         |        |                     |       |
|                                             |       |                         |        |                     |       |
| Current assets:                                  |       |                         |        |                     |       |
| Cash and cash equivalents                        |       | $                            | 1,406,900   |                     | $          | 2,086,200 |   |
| Trade accounts receivable, net                   |       | 53,096,600                   |        | 55,698,600               |       |
| Product inventory, net                           |       | 54,776,400                   |        | 49,057,300               |       |
| Deferred tax assets                              |       | 4,048,800                    |        | 4,048,800                |       |
| Prepaid expenses and other current assets        |       | 2,790,800                    |        | 1,827,500                |       |
| Total current assets                             |       | 116,119,500                  |        | 112,718,400              |       |
|                                             |       |                         |        |                     |       |
| Property and equipment, net                      |       | 21,442,600                   |        | 22,233,600               |       |
| Goodwill, net                                    |       | 6,550,700                    |        | 6,310,100                |       |
| Other long-term assets                           |       | 2,457,100                    |        | 2,536,500                |       |
| Total assets                                     |       | $                            | 146,569,900 |                     | $          | 143,798,600 |   |
|                                             |       |                         |        |                     |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**   |       |                         |        |                     |       |
| Current liabilities:                             |       |                         |        |                     |       |
| Trade accounts payable                           |       | $                            | 66,000,300  |                     | $          | 64,433,400 |   |
| Payroll, benefits and taxes                      |       | 6,657,800                    |        | 3,014,400                |       |
| Income and sales tax liabilities                 |       | 4,347,600                    |        | 3,588,700                |       |
| Accrued expenses and other current liabilities   |       | 1,485,700                    |        | 1,253,600                |       |
| Revolving line of credit                         |       | 2,127,700                    |        | 3,353,500                |       |
| Current portion of long-term debt                |       | 361,400                      |        | 360,400                  |       |
| Total current liabilities                        |       | 80,980,500                   |        | 76,004,000               |       |
|                                             |       |                         |        |                     |       |
| Deferred tax liabilities                         |       | 2,189,300                    |        | 2,189,300                |       |
| Long-term debt, net of current portion           |       | 3,662,300                    |        | 3,842,600                |       |
| Other long-term liabilities                      |       | 1,571,800                    |        | 1,611,100                |       |
| Total liabilities                                |       | 88,403,900                   |        | 83,647,000               |       |
|                                             |       |                         |        |                     |       |
| Shareholders’ equity:                       |       |                         |        |                     |       |
| Preferred stock                                  |       | —                       |        | —                   |       |
| Common stock                                     |       | 79,700                       |        | 78,200                   |       |
| Additional paid-in capital                       |       | 33,402,700                   |        | 32,087,400               |       |
| Treasury stock                                   |       | (41,118,200                  | )           | (33,454,300              | )          |
| Retained earnings                                |       | 65,854,300                   |        | 61,552,900               |       |
| Accumulated other comprehensive loss, net of tax |       | (52,500                      | )           | (112,600                 | )          |
| Total shareholders’ equity                  |       | 58,166,000                   |        | 60,151,600               |       |
| Total liabilities and shareholders’ equity  |       | $                            | 146,569,900 |                     | $          | 143,798,600 |   |

 

See accompanying notes.

 

3

----

Table of Contents

 

**TESSCO TECHNOLOGIES INCORPORATED**

**Consolidated Statements of Income**

 
| ** **                                   | ** ** | **Fiscal Quarters Ended** | ** **  | **Six Months Ended** | ** ** |
|----------------------------------------------|------------|-------------------------------------|-------------|--------------------------------|------------|
| ** **                                   | ** ** | **September 28,  2008**        | ** **  | **September 30,  2007**   | ** ** | **September 28,  2008** | ** ** | **September 30,  2007** | ** ** |
| ** **                                   | ** ** | **(unaudited)**                     | ** **  | **(unaudited)**                | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| ** **                                   | ** ** | ** **                          | ** **  | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                     |       | $                                   | 143,773,700 |                           | $          | 132,518,300 |   | $ | 265,842,000 |   | $ | 256,948,400 |   |
|                                         |       |                                |        |                           |       |   |   |   |   |
| Cost of goods sold                           |       | 109,553,100                         |        | 103,837,700                    |       | 200,608,500 |   | 200,106,800 |   |
|                                         |       |                                |        |                           |       |   |   |   |   |
| Gross profit                                 |       | 34,220,600                          |        | 28,680,600                     |       | 65,233,500 |   | 56,841,600 |   |
|                                         |       |                                |        |                           |       |   |   |   |   |
| Selling, general and administrative expenses |       | 30,298,000                          |        | 27,340,000                     |       | 57,792,600 |   | 54,008,800 |   |
|                                         |       |                                |        |                           |       |   |   |   |   |
| Income from operations                       |       | 3,922,600                           |        | 1,340,600                      |       | 7,440,900 |   | 2,832,800 |   |
|                                         |       |                                |        |                           |       |   |   |   |   |
| Interest expense, net                        |       | 165,900                             |        | 115,900                        |       | 302,700 |   | 176,800 |   |
|                                         |       |                                |        |                           |       |   |   |   |   |
| Income before provision for  income  taxes   |       | 3,756,700                           |        | 1,224,700                      |       | 7,138,200 |   | 2,656,000 |   |
|                                         |       |                                |        |                           |       |   |   |   |   |
| Provision for income taxes                   |       | 1,518,000                           |        | 508,300                        |       | 2,836,800 |   | 1,073,600 |   |
|                                         |       |                                |        |                           |       |   |   |   |   |
| Net income                                   |       | $                                   | 2,238,700   |                           | $          | 716,400 |   | $ | 4,301,400 |   | $ | 1,582,400 |   |
|                                         |       |                                |        |                           |       |   |   |   |   |
| Basic earnings per share                     |       | $                                   | 0.46        |                           | $          | 0.13 |   | $ | 0.85 |   | $ | 0.29 |   |
|                                         |       |                                |        |                           |       |   |   |   |   |
| Diluted earnings per share                   |       | $                                   | 0.45        |                           | $          | 0.13 |   | $ | 0.83 |   | $ | 0.28 |   |
|                                         |       |                                |        |                           |       |   |   |   |   |
| Basic weighted average shares outstanding    |       | 4,821,000                           |        | 5,328,100                      |       | 5,045,600 |   | 5,374,400 |   |
|                                         |       |                                |        |                           |       |   |   |   |   |
| Diluted weighted average shares outstanding  |       | 4,945,600                           |        | 5,538,600                      |       | 5,191,800 |   | 5,616,500 |   |

 

See accompanying notes.

 

4

----

Table of Contents

 

**TESSCOTECHNOLOGIES INCORPORATED**

**Consolidated Statements of Cash Flows**

 
| ** **                                                                                               | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                               | ** ** | **September 28,  2008**   | ** ** | **September 30,  2007** | ** ** |
| ** **                                                                                               | ** ** | **(unaudited)**                | ** ** | **(unaudited)** | ** ** |
| Cash flows from operating activities:                                                                    |       |                           |       |   |   |
| Net income                                                                                               |       | $                              | 4,301,400  |   | $ | 1,582,400 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities:                       |       |                           |       |   |   |
| Depreciation and amortization                                                                            |       | 2,140,600                      |       | 2,433,300 |   |
| Non-cash stock compensation expense                                                                      |       | 1,082,100                      |       | 1,079,700 |   |
| Deferred income taxes and other                                                                          |       | (9,700                         | )          | 37,200 |   |
| Change in trade accounts receivable                                                                      |       | 2,602,000                      |       | (9,741,700 | ) |
| Change in product inventory                                                                              |       | (5,719,100                     | )          | (12,911,600 | ) |
| Change in prepaid expenses and other current assets                                                      |       | 132,400                        |       | (257,000 | ) |
| Change in trade accounts payable                                                                         |       | 2,635,300                      |       | 25,723,800 |   |
| Change in payroll, benefits and taxes                                                                    |       | 3,643,400                      |       | (3,643,900 | ) |
| Change in income and sales tax liabilities                                                               |       | (336,800                       | )          | (1,414,800 | ) |
| Change in accrued expenses and other current liabilities                                                 |       | 353,900                        |       | 22,000 |   |
| Net cash provided by operating activities                                                                |       | 10,825,500                     |       | 2,909,400 |   |
|                                                                                                     |       |                           |       |   |   |
| Cash flows from investing activities:                                                                    |       |                           |       |   |   |
| Purchases of property and equipment                                                                      |       | (1,239,700                     | )          | (1,974,600 | ) |
| Acquisition of business in purchase transaction and additional  earn-out payments on acquired businesses |       | (1,309,000                     | )          | (2,330,000 | ) |
| Net cash used in investing activities                                                                    |       | (2,548,700                     | )          | (4,304,600 | ) |
|                                                                                                     |       |                           |       |   |   |
| Cash flows from financing activities:                                                                    |       |                           |       |   |   |
| Net (repayments) borrowings on revolving line of credit                                                  |       | (1,225,800                     | )          | 4,384,400 |   |
| Payments on long-term debt                                                                               |       | (179,300                       | )          | (177,600 | ) |
| Proceeds from issuance of stock                                                                          |       | 58,700                         |       | 507,000 |   |
| Purchases of treasury stock                                                                              |       | (7,663,900                     | )          | (6,238,100 | ) |
| Excess tax benefit from stock-based compensation                                                         |       | 54,200                         |       | 1,134,000 |   |
| Net cash used in financing activities                                                                    |       | (8,956,100                     | )          | (390,300 | ) |
|                                                                                                     |       |                           |       |   |   |
| Net decrease in cash and cash equivalents                                                                |       | (679,300                       | )          | (1,785,500 | ) |
|                                                                                                     |       |                           |       |   |   |
| Cash and cash equivalents, beginning of period                                                           |       | 2,086,200                      |       | 4,176,300 |   |
|                                                                                                     |       |                           |       |   |   |
| Cash and cash equivalents, end of period                                                                 |       | $                              | 1,406,900  |   | $ | 2,390,800 |   |

 

See accompanying notes.

 

5

----

Table of Contents

 

**TESSCO TECHNOLOGIES INCORPORATED**

**Notes to Consolidated FinancialStatements**

**September 28, 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 96% 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 AnnualReport on Form 10-K for 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 orliabilities to be measured at fair value. The standard does not expand the use of fair value in any newcircumstances.  In February 2008,the FASB partially deferred the effective date of SFAS No. 157 for certainnon-financial assets and liabilities that are recognized or disclosed at fairvalue in the financial statements on a nonrecurring basis until fiscal yearsbeginning after November 15, 2008 or in the Company’s case, the fiscalyear beginning March 30, 2009.  TheCompany adopted SFAS No. 157 for its financial assets and liabilitieseffective as of March 31, 2008, and has deferred its adoption fornon-financial assets and liabilities. The adoption of SFAS No. 157 did not have a material impact on theCompany’s consolidated 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 (labeledthe 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) onMarch 30, 2009.

 

6

----

Tableof Contents

 

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.

 

In May 2008, the FASB issued SFAS No. 162,“The Hierarchy of Generally Accepted Accounting Principles.”  This standard identifies the sources ofaccounting principles and the framework for selecting the principles to be usedin the preparation of financial statements of nongovernmental entities that arepresented in conformity with generally accepted accounting principles.  SFAS No. 162 directs the hierarchy tothe entity, rather than the auditors, as the entity is responsible forselecting accounting principles for financial statements that are presented inconformity with generally accepted accounting principles.  SFAS No. 162 is effective 60 daysfollowing the SEC’s September 16, 2008 approval of the Public CompanyAccounting Oversight Board (PCAOB) amendments to remove the hierarchy foraccounting principles generally accepted in the United States from the PCAOB’sauditing standards.  The Company does notexpect SFAS No. 162 to have an impact on its financial statements.

 

In June 2008, the FASB issued FASB StaffPosition No. 03-6-1, “Determining Whether Instruments Granted inShare-Based Payment Transactions Are Participating Securities (FSP No.03-6-1).”  FSP No. 03-6-1 requires companies totreat unvested share-based payment awards that have non-forfeitable rights todividend or dividend equivalents as participating securities.  Therefore, these financial instruments mustbe included in calculating basic and diluted earnings per share under thetwo-class method described in SFAS No. 128, “Earnings Per Share.”  All prior period EPS data presented should beadjusted retrospectively upon adoption. FSP No. 03-6-1 will be effective for fiscal years beginning after December 15,2008.  Therefore, the Company is requiredto adopt FSP No. 03-6-1 on March 30, 2009.  The Company currently has share based awardsfor 120,000 shares of its common stock that fall under the requirements of FSP No. 03-6-1.Although the adoption of FSP No. 03-6-1 will reduce our earnings pershare, the Company does not expect the adoption to have a material impact onits basic and diluted earnings per share calculations as currently presented.

 

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

# * *

TheCompany’s selling, general and administrative expenses for the fiscal quarterand six months ended September 28, 2008 includes $573,600 and $1,082,100,respectively, of stock compensation expense. The Company’s selling, general and administrative expenses for thefiscal quarter and six months ended September 30, 2007 includes $502,900and $1,079,700, respectively, of stock compensation expense.  Stock compensation expense is primarilyrelated to our Performance Stock Unit (PSU) Program.  In addition, the Company recorded an excesstax benefit directly to shareholders’ equity of $54,200 and $1,134,000,primarily related to the PSUs which vested during the six months ended September 28,2008 and September 30, 2007, respectively.

 

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

 
| ** **                                                                         | ** ** | **Six Months Ended  September 28, 2008** | ** ** | **Weighted Average  Fair Value at Grant  Date** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| 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      |   |

 

7

----

Tableof Contents

 

Of the 378,418 shares availablefor issuance under outstanding PSUs but not yet vested as of September 28,2008, 103,418 shares have been earned, and assuming the respective participantsremain employed by or associated with the Company on these dates, half of theseshares will vest and be issued on or about May 1 of each 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.  Per the provisions ofthe Second Amended and Restated 1994 Stock and Incentive Plan (the “1994 Plan”),the shares related to these PSUs were added back to the 1994 Plan and becameavailable 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 the aggregate,depending upon whether certain threshold or goal earnings per share targets aremet, subject to individual performance for employees (independent directors arenot subject to individual performance factors). These PSUs have only one measurement year (fiscal year 2009), with anyshares earned at the end of fiscal year 2009 to vest and be issued 25% on orabout May 1 of each of 2009, 2010, 2011 and 2012, provided that the respectiveparticipants remain employed by or associated with the Company on each suchdate.

 

Ifthe maximum target of PSUs outstanding is assumed to be earned, totalunrecognized compensation costs would be approximately $2.7 million as of September 28,2008 and would be expensed through fiscal year 2012.

 

**Stock Options:**  In accordancewith SFAS No. 123R, the fair value of the Company’s stock options havebeen determined using the Black-Scholes-Merton option pricing model, based uponfacts and assumptions existing at the date of grant.  Stock options granted have exercise prices equalto 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 September 28, 2008, alloutstanding stock options are fully vested. The following table summarizes thepertinent option information for outstanding options for the six months ended September 28,2008:

 
| ** **                                  | ** ** | **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 September 28, 2008, 120,000 shares remain unvested and therewas no activity related to these restricted shares during the second quarter offiscal year 2009.  As of September 28,2008, 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***

# * *

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.

 

8

----

Table of Contents

 

·                  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 or liability.

 

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

 
| ** **                                | ** ** | **Balance at  September 28,  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, net of tax |       | $                                             | (52,500    | )                                                                                               | $          | —                                                     |       | $                                                     | (52,500    | ) | $ | — |   |
| Total assets at  fair value               |       | $                                             | (52,500    | )                                                                                               | $          | —                                                     |       | $                                                     | (52,500    | ) | $ | — |   |

 

Thefair value of the Company’s interest rate swap agreement is included in prepaidexpenses and other current assets on the Company’s Consolidated BalanceSheets.  The Company’s fair value of itsinterest rate swap is derived from valuation models commonly used for derivatives.Valuation models require a variety of inputs, including contractual terms,market fixed prices, inputs from forward price yield curves, notionalquantities, measures of volatility and correlations of such inputs. The Company’sderivatives trade in liquid markets, and as such, model inputs can generally beverified and do not 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** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------|------------|-------------------------------------|------------|--------------------------------|------------|
| ** **                                              | ** ** | **September 28,  2008**        | ** ** | **September 30,  2007**   | ** ** | **September 28,  2008** | ** ** | **September 30,  2007** | ** ** |
|                                                    |       |                                |       |                           |       |   |   |   |   |
| Basic weighted average common shares outstanding        |       | 4,821,000                           |       | 5,328,100                      |       | 5,045,600 |   | 5,374,400 |   |
| Effect of dilutive common stock equivalents outstanding |       | 124,600                             |       | 210,500                        |       | 146,200 |   | 242,100 |   |
| Diluted weighted average common shares outstanding      |       | 4,945,600                           |       | 5,538,600                      |       | 5,191,800 |   | 5,616,500 |   |

 

Asof September 28, 2008, stock options with respect to 135,000 shares ofcommon stock were outstanding. All outstanding options, restricted stock grantsand earned but unvested PSUs were included in the computation of dilutedearnings per 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 are used toinstall, tune, maintain and repair wireless communications equipment.  Within the mobile devices and accessoriesline of business, the Company sells to both commercial and consumer markets.  The network infrastructure and installation,test and maintenance lines of business sell primarily to commercialmarkets.  The Company also regularly

 

9

----

Table of Contents

 

reviewsits results of operations in three commercial customer categories and theconsumer 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.

 

·                  Commercial Self-Maintained Users and Governments. Self-maintained user (SMU) and government customers include commercialentities such as major utilities and transportation companies, federal agenciesand 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 September 28, 2008 relates toacquisitions within its network infrastructure line of business.

 

10

----

Table of Contents

 

Segmentactivity for the second 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 September 28, 2008** |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial  Revenues:                            |       |                        |       |                                          |       |                                              |       |      |       |
| Public  Carriers and Network Operators           |       | $                           | 12,664     |                                          | $          | 436                                               |       | $         | 3,400      |   | $ | 16,500 |   |
| Resellers                                        |       | 20,541                      |       | 65,959                                        |       | 2,019                                             |       | 88,519    |       |
| SMUs  and Governments                            |       | 14,407                      |       | 3,716                                         |       | 17,501                                            |       | 35,624    |       |
| Total  Commercial Revenues                       |       | 47,612                      |       | 70,111                                        |       | 22,920                                            |       | 140,643   |       |
| Consumer  Revenues                               |       | —                      |       | 3,131                                         |       | —                                            |       | 3,131     |       |
| Total  Revenues                                  |       | $                           | 47,612     |                                          | $          | 73,242                                            |       | $         | 22,920     |   | $ | 143,774 |   |
|                                             |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial  Gross Profit:                        |       |                        |       |                                          |       |                                              |       |      |       |
| Public  Carriers and Network Operators           |       | $                           | 3,249      |                                          | $          | 124                                               |       | $         | 726        |   | $ | 4,099 |   |
| Resellers                                        |       | 5,761                       |       | 13,974                                        |       | 477                                               |       | 20,212    |       |
| SMUs  and Governments                            |       | 3,931                       |       | 1,205                                         |       | 3,735                                             |       | 8,871     |       |
| Total  Commercial Gross Profit                   |       | 12,941                      |       | 15,303                                        |       | 4,938                                             |       | 33,182    |       |
| Consumer  Gross Profit                           |       | —                      |       | 1,039                                         |       | —                                            |       | 1,039     |       |
| Total  Gross Profit                              |       | $                           | 12,941     |                                          | $          | 16,342                                            |       | $         | 4,938      |   | $ | 34,221 |   |
|                                             |       |                        |       |                                          |       |                                              |       |      |       |
| Product  Inventory                               |       | $                           | 24,835     |                                          | $          | 24,888                                            |       | $         | 5,053      |   | $ | 54,776 |   |
|                                             |       |                        |       |                                          |       |                                              |       |      |       |
| **Fiscal Quarter ended September 30, 2007** |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial  Revenues:                            |       |                        |       |                                          |       |                                              |       |      |       |
| Public  Carriers and Network Operators           |       | $                           | 11,471     |                                          | $          | 568                                               |       | $         | 3,420      |   | $ | 15,459 |   |
| Resellers                                        |       | 18,289                      |       | 60,878                                        |       | 2,281                                             |       | 81,448    |       |
| SMUs  and Governments                            |       | 12,494                      |       | 3,520                                         |       | 16,626                                            |       | 32,640    |       |
| Total  Commercial Revenues                       |       | 42,254                      |       | 64,966                                        |       | 22,327                                            |       | 129,547   |       |
| Consumer  Revenues                               |       | —                      |       | 2,971                                         |       | —                                            |       | 2,971     |       |
| Total  Revenues                                  |       | $                           | 42,254     |                                          | $          | 67,937                                            |       | $         | 22,327     |   | $ | 132,518 |   |
|                                             |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial  Gross Profit:                        |       |                        |       |                                          |       |                                              |       |      |       |
| Public  Carriers and Network Operators           |       | $                           | 2,801      |                                          | $          | 160                                               |       | $         | 834        |   | $ | 3,795 |   |
| Resellers                                        |       | 4,513                       |       | 11,040                                        |       | 663                                               |       | 16,216    |       |
| SMUs  and Governments                            |       | 3,214                       |       | 1,103                                         |       | 3,313                                             |       | 7,630     |       |
| Total  Commercial Gross Profit                   |       | 10,528                      |       | 12,303                                        |       | 4,810                                             |       | 27,641    |       |
| Consumer  Gross Profit                           |       | —                      |       | 1,040                                         |       | —                                            |       | 1,040     |       |
| Total  Gross Profit                              |       | $                           | 10,528     |                                          | $          | 13,343                                            |       | $         | 4,810      |   | $ | 28,681 |   |
|                                             |       |                        |       |                                          |       |                                              |       |      |       |
| Product  Inventory                               |       | $                           | 19,326     |                                          | $          | 27,236                                            |       | $         | 3,798      |   | $ | 50,360 |   |

 

11

----

Table of Contents

 

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

** **
| **(Amounts in thousands)**         | ** ** | **Network  Infrastructure** | ** ** | **Mobile Devices  and Accessories** | ** ** | **Installation, Test  and Maintenance** | ** ** | **Total** | ** ** |
|----------------------------------------------|------------|-----------------------------|------------|-----------------------------------------------|------------|---------------------------------------------------|------------|-----------|------------|
| **Six Months ended September 28, 2008** |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial  Revenues:                        |       |                        |       |                                          |       |                                              |       |      |       |
| Public  Carriers and Network Operators       |       | $                           | 24,206     |                                          | $          | 1,119                                             |       | $         | 7,060      |   | $ | 32,385 |   |
| Resellers                                    |       | 39,091                      |       | 116,754                                       |       | 4,737                                             |       | 160,582   |       |
| SMUs  and Governments                        |       | 27,263                      |       | 7,529                                         |       | 32,287                                            |       | 67,079    |       |
| Total  Commercial Revenues                   |       | 90,560                      |       | 125,402                                       |       | 44,084                                            |       | 260,046   |       |
| Consumer  Revenues                           |       | —                      |       | 5,796                                         |       | —                                            |       | 5,796     |       |
| Total  Revenues                              |       | $                           | 90,560     |                                          | $          | 131,198                                           |       | $         | 44,084     |   | $ | 265,842 |   |
|                                         |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial  Gross Profit:                    |       |                        |       |                                          |       |                                              |       |      |       |
| Public  Carriers and Network Operators       |       | $                           | 6,309      |                                          | $          | 330                                               |       | $         | 1,624      |   | $ | 8,263 |   |
| Resellers                                    |       | 10,747                      |       | 26,086                                        |       | 1,231                                             |       | 38,064    |       |
| SMUs  and Governments                        |       | 7,566                       |       | 2,480                                         |       | 6,824                                             |       | 16,870    |       |
| Total  Commercial Gross Profit               |       | 24,622                      |       | 28,896                                        |       | 9,679                                             |       | 63,197    |       |
| Consumer  Gross Profit                       |       | —                      |       | 2,037                                         |       | —                                            |       | 2,037     |       |
| Total  Gross Profit                          |       | $                           | 24,622     |                                          | $          | 30,933                                            |       | $         | 9,679      |   | $ | 65,234 |   |
|                                         |       |                        |       |                                          |       |                                              |       |      |       |
| Product  Inventory                           |       | $                           | 24,835     |                                          | $          | 24,888                                            |       | $         | 5,053      |   | $ | 54,776 |   |
|                                         |       |                        |       |                                          |       |                                              |       |      |       |
| **Six Months ended September 30, 2007** |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial  Revenues:                        |       |                        |       |                                          |       |                                              |       |      |       |
| Public  Carriers and Network Operators       |       | $                           | 22,896     |                                          | $          | 1,149                                             |       | $         | 6,026      |   | $ | 30,071 |   |
| Resellers                                    |       | 35,856                      |       | 117,926                                       |       | 4,664                                             |       | 158,446   |       |
| SMUs  and Governments                        |       | 23,437                      |       | 6,763                                         |       | 33,065                                            |       | 63,265    |       |
| Total  Commercial Revenues                   |       | 82,189                      |       | 125,838                                       |       | 43,755                                            |       | 251,782   |       |
| Consumer  Revenues                           |       | —                      |       | 5,166                                         |       | —                                            |       | 5,166     |       |
| Total  Revenues                              |       | $                           | 82,189     |                                          | $          | 131,004                                           |       | $         | 43,755     |   | $ | 256,948 |   |
|                                         |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial  Gross Profit:                    |       |                        |       |                                          |       |                                              |       |      |       |
| Public  Carriers and Network Operators       |       | $                           | 5,478      |                                          | $          | 324                                               |       | $         | 1,511      |   | $ | 7,313 |   |
| Resellers                                    |       | 8,718                       |       | 22,449                                        |       | 1,463                                             |       | 32,630    |       |
| SMUs  and Governments                        |       | 6,034                       |       | 2,164                                         |       | 6,788                                             |       | 14,986    |       |
| Total  Commercial Gross Profit               |       | 20,230                      |       | 24,937                                        |       | 9,762                                             |       | 54,929    |       |
| Consumer  Gross Profit                       |       | —                      |       | 1,913                                         |       | —                                            |       | 1,913     |       |
| Total  Gross Profit                          |       | $                           | 20,230     |                                          | $          | 26,850                                            |       | $         | 9,762      |   | $ | 56,842 |   |
|                                         |       |                        |       |                                          |       |                                              |       |      |       |
| Product  Inventory                           |       | $                           | 19,326     |                                          | $          | 27,236                                            |       | $         | 3,798      |   | $ | 50,360 |   |

 

12

----

Table of Contents

 

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

 

The components of totalcomprehensive income were as follows:

 
| ** **                                        | ** ** | **Fiscal Quarter Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------|------------|------------------------------------|------------|--------------------------------|------------|
| ** **                                        | ** ** | **September 28,  2008**       | ** ** | **September 30,  2007**   | ** ** | **September 28,  2008** | ** ** | **September 30,  2007** | ** ** |
|                                              |       |                               |       |                           |       |   |   |   |   |
| Net Income                                        |       | $                                  | 2,238,700  |                           | $          | 716,400 |   | $ | 4,301,400 |   | $ | 1,582,400 |   |
| Change in value of interest rate swap, net of tax |       | (900                               | )          | (50,700                        | )          | 60,100 |   | (19,700 | ) |
| Total comprehensive income                        |       | $                                  | 2,237,800  |                           | $          | 665,700 |   | $ | 4,361,500 |   | $ | 1,562,700 |   |

 

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

 

# ***Note 8.  Stock Buybacks***

# * *

On April 28, 2003,the Company’s Board of Directors approved a stock buyback program.  As of September 28, 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 September 28,2008, the Company had purchased 2,210,366 shares under the stock buybackprogram for approximately $29.3 million, or an average of $13.25 pershare.  Of the total shares repurchasedunder the stock buyback program, 69,392 shares were repurchased in the firstsix months of fiscal year 2009 for approximately $1.0 million.  As of September 28, 2008, 185,201 sharesremained available for repurchase under this program.

 

Inaddition to the shares repurchased in the stock buyback program discussedimmediately above, on July 1, 2008 the Company repurchased all 470,000shares of its common stock held by Brightpoint, Inc. (“Brightpoint”) in aprivately negotiated transaction.  Pursuantto an agreement entered into between the Company and Brightpoint, the Companypurchased Brightpoint’s share holdings, comprising approximately 9% of theCompany’s total then outstanding common stock, for $13.64 per share, or a totalof $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.  Thepurchase price per share approximated the price of the Company’s common stockon the transaction date.  The purchasewas funded through available cash and borrowings under the Company’s $50million unsecured revolving line of credit facility.  This transaction was not made under, nor doesit affect the number of shares available for repurchase under, the Company’sstock buyback program discussed above. In connection with this transaction, the Company and certain of itssubsidiaries entered into a First Modification Agreement with SunTrust Bank and WachoviaBank, N.A. to amend a negative covenant included in the Credit Agreement forthe Company’s existing $50 million unsecured revolving line of credit facility,to increase the amount of common stock permitted to be repurchased by theCompany (beginning on the inception date of the Credit Agreement) from $10million to $15 million, during the term of the credit facility.

 

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

# * *

TheCompany’s future results could be negatively impacted by the loss of certaincustomer and/or vendor relationships. For the fiscal quarter and six months ended September 28, 2008,sales of products to the Company’s top customer relationship, AT&TMobility, accounted for 26% and 24% oftotal revenues, respectively.  Forboth the fiscal quarter and six months ended September 30, 2007, sales ofproducts to the Company’s top customer relationship, AT&T Mobility,accounted for 25% of total revenues.  For both the fiscal quarter and sixmonths ended September 28, 2008, sales of products to the Company’s NokiaInc. (Nokia) repair and replacement component relationship accounted for 7% of total revenues.  For both the fiscal quarter and sixmonths ended September 30, 2007, sales of products to the Company’s Nokiarepair and replacement component relationship accounted for 9% of total revenues.  The Nokia relationship is a completesupply chain relationship and, therefore, the Company has no alternativesources of supply, and the Company’s purchases, and ultimately its resale ofthese products, is dependent upon the continuation of the Nokiarelationship.  The Company also sellsproducts other than Nokia repair and replacement materials to many of thesecustomers.  Absent this arrangement withNokia, the Company would maintain the ability to sell its other products tothese customers.

 

13

----

Table of Contents

 

**Item 2. Management’s Discussionand Analysis of Financial Condition and Results of Operations.**

 

This commentary should be read in conjunctionwith the Management’s Discussion and Analysis of Financial Condition andResults of Operations from the Company’s Annual Report on Form 10-K forthe fiscal year ended March 30, 2008.

 

**Business Overview andEnvironment**

 

TESSCO Technologies Incorporated (TESSCO or theCompany) is a leading provider of integrated product and supply chain solutionsto the professionals that design, build, run, maintain and use wireless mobile,fixed and in-building systems.  Althoughwe sell products to customers in over 100 countries, approximately 96% of oursales are made to customers in the United States.  We have operations and office facilities inHunt Valley, Maryland, Reno, Nevada and San Antonio, Texas.  Due to the diversity of our business, we arenot significantly affected by seasonality. However, sales to our retailers generally peak in our second and thirdquarters in preparation for the winter holiday season.  Also, our network infrastructure sales aretypically affected by weather conditions in the United States, especially inour fourth quarter.

 

We offer a wide range ofproducts that are classified into three business segments: (1) networkinfrastructure; (2) mobile devices and accessories; and (3) installation,test and maintenance.  These segments aredescribed further below:

 

·                                          NetworkInfrastructure Products. Network infrastructure products, which are sold to our commercialcustomers, are used to build, repair and upgrade wireless telecommunications, computingand Internet networks. Sales of traditional network infrastructure products,such as cable, transmission lines and antennas are in part dependent on capitalspending 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 52% of all of ourmobile devices and accessory product sales for the fiscal quarter ended September 28,2008 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.  Approximately44% of all of our installation, test and maintenance sales for the fiscalquarter ended September 28, 2008 were generated from the sales of repairand replacement parts and materials for original equipment manufacturers,primarily Nokia, Inc. (Nokia).  Theremainder of this segment is made up of sophisticated analysis equipment andvarious frequency-, voltage- and power-measuring devices, as well as anassortment of tools, hardware and supplies required by service technicians.

 

Both our repair and replacementparts sales and consumer mobile devices and accessory sales through affinitypartnerships, are reliant on relationships with a small number of vendors.

 

We regularly review four categories withineach business segment: (1) commercial public carriers and networkoperators; (2) commercial resellers; (3) commercial self-maintainedusers and governments; and (4) consumers. These categories are described further below:

 

·                                          Commercial Public Carriers and NetworkOperators. Publiccarriers and network operators include systems operators that are generallyresponsible for building and maintaining the infrastructure system and provideairtime service to individual subscribers.

 

14

----

Tableof Contents

 

·                                          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 iscomprised of several national distributors. In addition, many manufacturerssell direct. Barriers to entry for distributors are relatively low,particularly in the mobile devices and accessories market, and the risk of newcompetitors entering the market is high. Consolidation of larger wireless carriers has and will most likelycontinue to impact our current and potential customer base.  In addition, the agreements or arrangementswith our customers or vendors looking to us for product and supply chain solutionsare typically of limited duration and are terminable by either party uponseveral months or otherwise relatively short notice.  Our ability to maintain these relationshipsis 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, provides us with a significantcompetitive advantage over new entrants to the market.

 

Our second quarterrevenues increased by 8.5% compared to the second quarter of last year.  This growth was driven by growth in each ofour commercial lines of business.  Grossprofits also increased in all of our commercial lines of business as comparedwith the second quarter of last year. This overall increase in gross profit of 19.3%, offset partially by a10.8% increase in operating expenses to support our growth initiatives andincreased order volume, resulted in a 212.7% increase in net income and a 246.2%increase in diluted earnings per share over the prior-year quarter.

 

The current globalfinancial crisis – which has included, among other things, significantreductions in available capital and liquidity from banks and other providers ofcredit, substantial reductions and/or fluctuations in equity and currencyvalues worldwide, significant decreases in consumer confidence and consumer andbusiness spending, and concerns that the worldwide economy may enter into aprolonged recessionary period – may materially adversely affect our customers’access to capital or willingness to spend capital on our products, and/or theirlevels of cash liquidity with which to pay for our products.  Despite our strong results during the firstsix months of the fiscal year, we have seen and continue to see negativeimpacts of the current global financial crisis, including only minimal growthin our average monthly buying customers and longer days to pay from ourcustomers.  We expect the economic crisisto have a larger impact on our operating results during the second half of theyear, especially in our retail business. In addition, the current global financial crisis may materiallyadversely affect our suppliers’ access to capital and liquidity, which may inturn adversely impact their ability to maintain inventories, production levels,and/or product quality, or cause them to raise prices or lower productionlevels, or result in their ceasing operation. The impact of the crisis on our liquidity is further discussed belowunder the heading “Liquidity.”

 

15

----

Table of Contents

** **

**Resultsof Operations**

 

The followingtable summarizes the unaudited results of our operations for the fiscal quarterand six months ended September 28, 2008 and September 30, 2007:

 
| ** **                                                                  | ** ** | **Fiscal  Quarters Ended**   | ** ** | **Six  Months Ended**        | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| **(Amounts in thousands, except per share  data)** | ** ** | **September 28,  2008** | ** ** | **September 30,  2007** | ** ** | **$  Change** | ** ** | **%  Change** | ** ** | **September 28,  2008** | ** ** | **September 30,  2007** | ** ** | **$  Change** | ** ** | **%  Change** | ** ** |
| Commercial  Revenues                                                        |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Network  Infrastructure:                                                    |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public Carriers  and Network Operators                                      |       | $                            | 12,664     |                         | $          | 11,471 |   | $ | 1,193 |   | 10.4 | % | $ | 24,206 |   | $ | 22,896 |   | $ | 1,310 |   | 5.7 | % |
| Resellers                                                                   |       | 20,541                       |       | 18,289                       |       | 2,252 |   | 12.3 | % | 39,091 |   | 35,856 |   | 3,235 |   | 9.0 | % |
| SMUs and  Governments                                                       |       | 14,407                       |       | 12,494                       |       | 1,913 |   | 15.3 | % | 27,263 |   | 23,437 |   | 3,826 |   | 16.3 | % |
| Total Network  Infrastructure                                               |       | 47,612                       |       | 42,254                       |       | 5,358 |   | 12.7 | % | 90,560 |   | 82,189 |   | 8,371 |   | 10.2 | % |
| Mobile Devices  and Accessories:                                            |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public Carriers  and Network Operators                                      |       | 436                          |       | 568                          |       | (132 | ) | (23.2 | )% | 1,119 |   | 1,149 |   | (30 | ) | (2.6 | )% |
| Resellers                                                                   |       | 65,959                       |       | 60,878                       |       | 5,081 |   | 8.3 | % | 116,754 |   | 117,926 |   | (1,172 | ) | (1.0 | )% |
| SMUs and  Governments                                                       |       | 3,716                        |       | 3,520                        |       | 196 |   | 5.6 | % | 7,529 |   | 6,763 |   | 766 |   | 11.3 | % |
| Total Mobile  Devices and Accessories                                       |       | 70,111                       |       | 64,966                       |       | 5,145 |   | 7.9 | % | 125,402 |   | 125,838 |   | (436 | ) | (0.3 | )% |
| Installation,  Test and Maintenance:                                        |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public Carriers  and Network Operators                                      |       | 3,400                        |       | 3,420                        |       | (20 | ) | (0.6 | )% | 7,060 |   | 6,026 |   | 1,034 |   | 17.2 | % |
| Resellers                                                                   |       | 2,019                        |       | 2,281                        |       | (262 | ) | (11.5 | )% | 4,737 |   | 4,664 |   | 73 |   | 1.6 | % |
| SMUs and  Governments                                                       |       | 17,501                       |       | 16,626                       |       | 875 |   | 5.3 | % | 32,287 |   | 33,065 |   | (778 | ) | (2.4 | )% |
| Total  Installation, Test and Maintenance                                   |       | 22,920                       |       | 22,327                       |       | 593 |   | 2.7 | % | 44,084 |   | 43,755 |   | 329 |   | 0.8 | % |
| Total Commercial  Revenues                                                  |       | 140,643                      |       | 129,547                      |       | 11,096 |   | 8.6 | % | 260,046 |   | 251,782 |   | 8,264 |   | 3.3 | % |
| Consumer Revenues  - Mobile Devices and Accessories                         |       | 3,131                        |       | 2,971                        |       | 160 |   | 5.4 | % | 5,796 |   | 5,166 |   | 630 |   | 12.2 | % |
| Total Revenues                                                              |       | $                            | 143,774    |                         | $          | 132,518 |   | $ | 11,256 |   | 8.5 | % | $ | 265,842 |   | $ | 256,948 |   | $ | 8,894 |   | 3.5 | % |
|                                                                        |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial Gross  Profit                                                    |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Network  Infrastructure:                                                    |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public Carriers  and Network Operators                                      |       | $                            | 3,249      |                         | $          | 2,801 |   | $ | 448 |   | 16.0 | % | $ | 6,309 |   | $ | 5,478 |   | $ | 831 |   | 15.2 | % |
| Resellers                                                                   |       | 5,761                        |       | 4,513                        |       | 1,248 |   | 27.7 | % | 10,747 |   | 8,718 |   | 2,029 |   | 23.3 | % |
| SMUs and  Governments                                                       |       | 3,931                        |       | 3,214                        |       | 717 |   | 22.3 | % | 7,566 |   | 6,034 |   | 1,532 |   | 25.4 | % |
| Total Network  Infrastructure                                               |       | 12,941                       |       | 10,528                       |       | 2,413 |   | 22.9 | % | 24,622 |   | 20,230 |   | 4,392 |   | 21.7 | % |
| Mobile Devices  and Accessories:                                            |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public Carriers  and Network Operators                                      |       | 124                          |       | 160                          |       | (36 | ) | (22.5 | )% | 330 |   | 324 |   | 6 |   | 1.9 | % |
| Resellers                                                                   |       | 13,974                       |       | 11,040                       |       | 2,934 |   | 26.6 | % | 26,086 |   | 22,449 |   | 3,637 |   | 16.2 | % |
| SMUs and  Governments                                                       |       | 1,205                        |       | 1,103                        |       | 102 |   | 9.2 | % | 2,480 |   | 2,164 |   | 316 |   | 14.6 | % |
| Total Mobile  Devices and Accessories                                       |       | 15,303                       |       | 12,303                       |       | 3,000 |   | 24.4 | % | 28,896 |   | 24,937 |   | 3,959 |   | 15.9 | % |
| Installation,  Test and Maintenance:                                        |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public Carriers  and Network Operators                                      |       | 726                          |       | 834                          |       | (108 | ) | (12.9 | )% | 1,624 |   | 1,511 |   | 113 |   | 7.5 | % |
| Resellers                                                                   |       | 477                          |       | 663                          |       | (186 | ) | (28.1 | )% | 1,231 |   | 1,463 |   | (232 | ) | (15.9 | )% |
| SMUs and  Governments                                                       |       | 3,735                        |       | 3,313                        |       | 422 |   | 12.7 | % | 6,824 |   | 6,788 |   | 36 |   | 0.5 | % |
| Total  Installation, Test and Maintenance                                   |       | 4,938                        |       | 4,810                        |       | 128 |   | 2.7 | % | 9,679 |   | 9,762 |   | (83 | ) | (0.9 | )% |
| Total Commercial  Gross Profit                                              |       | 33,182                       |       | 27,641                       |       | 5,541 |   | 20.0 | % | 63,197 |   | 54,929 |   | 8,268 |   | 15.1 | % |
| Consumer Gross  Profit - Mobile Devices and Accessories                     |       | 1,039                        |       | 1,040                        |       | (1 | ) | (0.1 | )% | 2,037 |   | 1,913 |   | 124 |   | 6.5 | % |
| Total Gross  Profit                                                         |       | 34,221                       |       | 28,681                       |       | 5,540 |   | 19.3 | % | 65,234 |   | 56,842 |   | 8,392 |   | 14.8 | % |
|                                                                        |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general  and administrative expenses                               |       | 30,298                       |       | 27,340                       |       | 2,958 |   | 10.8 | % | 57,792 |   | 54,009 |   | 3,783 |   | 7.0 | % |
| Income from  operations                                                     |       | 3,923                        |       | 1,341                        |       | 2,582 |   | 192.5 | % | 7,442 |   | 2,833 |   | 4,609 |   | 162.7 | % |
| Interest expense,  net                                                      |       | 166                          |       | 116                          |       | 50 |   | 43.1 | % | 303 |   | 177 |   | 126 |   | 71.2 | % |
| Income before  provision for income taxes                                   |       | 3,757                        |       | 1,225                        |       | 2,532 |   | 206.7 | % | 7,139 |   | 2,656 |   | 4,483 |   | 168.8 | % |
| Provision for  income taxes                                                 |       | 1,518                        |       | 509                          |       | 1,009 |   | 198.2 | % | 2,837 |   | 1,074 |   | 1,763 |   | 164.2 | % |
| Net income                                                                  |       | $                            | 2,239      |                         | $          | 716 |   | $ | 1,523 |   | 212.7 | % | $ | 4,302 |   | $ | 1,582 |   | $ | 2,720 |   | 171.9 | % |
| Diluted earnings  per share                                                 |       | $                            | 0.45       |                         | $          | 0.13 |   | $ | 0.32 |   | 246.2 | % | $ | 0.83 |   | $ | 0.28 |   | $ | 0.55 |   | 196.4 | % |

 

16

----

Table of Contents

** **

**Second Quarter of Fiscal Year 2009Compared with Second Quarter of Fiscal Year 2008**

** **

**Revenues. **Revenues for the secondquarter of fiscal year 2009 increased 8.5% as compared with the second quarterof fiscal year 2008, primarily due to a 8.6% increase in commercial revenues,and to a much lesser extent, a 5.4% increase in consumer revenues.  Sales increased across all commercial andconsumer lines of business.

 

Networkinfrastructure sales increased 12.7% as compared with the second quarter offiscal year 2008, as a result of higher sales of radio frequency propagationand site support products across all of our market categories.  Also, our overall increase in sales ofnetwork infrastructure products was due to increases among all of our customercategories.

 

Sales in themobile devices and accessories line of business increased 7.8% in the secondquarter of fiscal year 2009, as compared with the same period last year.  The increase was due to a 7.9% increase incommercial sales, and to a much lesser extent, a 5.4% increase in consumersales.  The increase in commercialrevenues for mobile devices and accessories, which are sold primarily toresellers, but also to SMUs and governments and public carriers and networkoperators, was primarily due to increased sales to a large national tier-onecarrier, as well as other smaller resellers and users and SMUs and governments,despite a small decrease in sales to public carriers and network operators.

 

Revenues from ourinstallation, test and maintenance line of business increased 2.7% from theprior-year quarter, primarily due to an increase in the sale of test equipment,supplies and safety products to our SMUs and governments market category,despite a decrease in sales to resellers.

 

**GrossProfit. **Gross profitfor the second quarter of fiscal year 2009 increased 19.3% as compared with thesecond quarter of fiscal year 2008. Total commercial gross profit increased20.0%, while consumer gross profit remained essentially flat.  Gross profit margin increased to 23.8% in thesecond quarter of fiscal year 2009 from 21.6% in second quarter of fiscal year2008.  Gross profit margin in our networkinfrastructure segment increased from 24.9% in the second quarter of fiscalyear 2008 to 27.2% in the second 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, which had a small decline in sales. Gross profit margin in our mobile devices and accessories segmentincreased to 22.3% in the second quarter of this fiscal year from 19.6% in thesecond quarter of last fiscal year.  Thisincrease was primarily attributable to the commercial gross profit margin forour mobile devices and accessories, which increased to 21.8% in the secondquarter of fiscal year 2009 from 18.9% for the second quarter of fiscal year2008, principally due to product mix in sales to a large tier-one carrier andother retail customers.  Consumer grossprofit margin for our mobile devices and accessories decreased to 33.2% in thesecond quarter of this fiscal year from 35.0% for the second quarter of lastfiscal year.  Gross profit margin in ourinstallation, test and maintenance line of business remained flat at 21.5% fromthe second quarter of fiscal year 2008 to the second quarter of fiscal year2009.  Generally, our gross margins byproduct within these segments have been sustained, except as noted above, andgenerally these variations are related to sales mix within the segment productofferings.  We account for inventory atthe lower of cost or market, and as a result, write-offs/write-downs occur dueto damage, deterioration, obsolescence, changes in prices and other causes.

 

Our ongoing ability to earn revenues and gross profits from customersand vendors looking to us for product and supply chain solutions is dependentupon a number of factors.  The terms, andaccordingly the factors, applicable to each affinity relationship oftendiffer.  Among these factors are thestrength of the customer’s or vendor’s business, the supply and demand for theproduct or service, including price stability, changing customer or vendorrequirements, and our ability to support the customer or vendor and tocontinually demonstrate that we can improve the way they do business.  In addition, the agreements or arrangementson which our affinity relationships are based are typically of limitedduration, and are terminable by either party upon several months or otherwiserelatively short notice.  These affinityrelationships could also be affected by wireless carrier consolidation or theglobal financial crisis.

 

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 these consistentchallenges, we are focused on our continuing efforts to grow revenues and grossprofits from other customer and vendor relationships.

 

17

----

Table ofContents

 

**Selling,General and Administrative Expenses.** Total selling, general and administrativeexpenses increased by 10.8% in the second quarter of fiscal year 2009 ascompared with the second quarter of fiscal year 2008.  Selling, general and administrative expensesas a percentage of revenues increased to 21.1% in the second quarter of fiscalyear 2009 from 20.6% in the second quarter of fiscal year 2008.  The largest factors contributing to theincrease in total selling, general and administrative expenses were increasedcompensation expense including amounts recorded under our bonus plans,partially offset by decreased marketing and sales promotion expense during thesecond quarter of fiscal year 2009.

 

Compensation expensesrelated to business generation and fulfillment activities increased in thesecond fiscal quarter of 2009 as compared to the same period last year.  Compensation costs have also increased overthe prior-year quarter due to increased expenses related to our cash and equitybonus programs.  Our bonus programs areperformance based and therefore, the increase in bonus expenses is due toimproved results during the second quarter and first six months of fiscal year2009, as well as projected results for the remainder of the fiscal year, whenapplied to pre-defined performance targets. Total compensation costs, including benefits and bonus expense,increased approximately $3.9 million in the second quarter of fiscal year 2009,as compared to the second quarter of fiscal year 2008.

 

Marketing and salespromotion expenses decreased by approximately $628,000 in the second quarter offiscal year 2009 as compared with the second quarter of fiscal year 2008,primarily due to decreased expenses incurred for name branding initiatives andmarket research in the second quarter of fiscal year 2009 as compared to theprior year.

 

We continually evaluatethe credit worthiness of our existing customer receivable portfolio and providean appropriate reserve based on this evaluation.  We also evaluate the credit worthiness ofprospective customers and make decisions regarding extension of credit terms tosuch prospects based on this evaluation. Accordingly, we recorded a provision for bad debts of$226,500 and $215,600 for the second quarter ended September 28, 2008 and September 30,2007, respectively.

 

**InterestExpense, Net.**  Netinterest expense increased from $115,900 in the second quarter of fiscal year2008 to $165,900 in the second quarter of fiscal year 2009, primarily due toincreased average borrowings on our revolving line of credit facility.

 

**IncomeTaxes, Net Income and Diluted Earnings per Share.** The effective tax rate in the second quarterof fiscal year 2009 was 40.4% as compared with 41.5% in the second 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 effective rate.  As a result of the factors discussed above,net income and diluted earnings per share for the second quarter of fiscal year2009 increased 212.7% and 246.2%, respectively, compared to the prior-yearquarter.

 

**First Six Months of Fiscal Year 2009Compared with First Six Months of Fiscal Year 2008**

 

**Revenues. **Revenues for the first sixmonths of fiscal year 2009 increased 3.5% as compared with the first six monthsof fiscal year 2008, primarily due to a 3.3% growth in commercial revenues and,to a lesser extent, a 12.2% increase in consumer revenues.  Revenue growth was primarily driven byincreased sales in our network infrastructure line of business, while sales inour mobile devices and accessories and test and maintenance lines of businessremained essentially flat.

 

Sales in thenetwork infrastructure line of business increased 10.2% in the first six monthsof fiscal year 2009, as compared with the prior-year period. The increase wasprimarily the result of higher sales of radio frequency propagation and sitesupport products across all of our market categories, partially offset by lowersales of broadband products across all of our market categories.  Our overall increase in sales of networkinfrastructure products was in sales to public carriers and network operators,resellers and SMUs and governments.

 

Mobile devices andaccessories sales remained flat as compared with the first six months of fiscalyear 2008, primarily due to a slight decrease in commercial sales, partiallyoffset by a 12.2% increase in consumer sales. Sales in the commercial mobile devices and accessories line of businessincreased in our SMUs and governments market category, offset by a decline insales to our public carriers and network operators and resellers marketcategories.

 

18

----

Tableof Contents

 

Revenues from ourinstallation, test and maintenance line of business had a 0.8% increase fromthe prior year, primarily due to an increase in the sale of test equipment,tools, supplies and safety products to our public carriers and networkoperators and resellers market categories.

 

**GrossProfit. **Gross profit for the first six months of fiscal year2009 increased 14.8% as compared with the first six months of fiscal year 2008.Total commercial gross profit increased 15.1%, while consumer gross profitincreased 6.5% over the prior year. Gross profit margin increased to 24.5% in the first six months of fiscalyear 2009 from 22.1% in the first six months of fiscal year 2008.  Gross profit margin in our networkinfrastructure segment increased from 24.6% in the first six months of fiscalyear 2008 to 27.2% in the first six months of 2009.  In our installation, test and maintenancesegment, gross profit margin decreased to 22.0% in the first six months offiscal year 2009 from 22.3% in the first six months of fiscal year 2008.  Gross profit margin in our mobile devices andaccessories segment increased to 23.6% in the first six months of this fiscalyear from 20.5% in the first six months of last fiscal year primarily due toproduct mix in sales to a large tier-one carrier.  Commercial gross profit margin for our mobiledevices and accessories increased to 23.0% in the first six months of thisfiscal year from 19.8% for the first six months of last fiscal year.  Consumer gross profit margin for our mobiledevices and accessories decreased to 35.1% in the first six months of thisfiscal year from 37.0% for the first six months of last fiscal year.  Generally, our gross margins by productwithin these segments have been sustained, except as noted above for grossprofits attributable to our relationships with a large tier-one carrier, andgenerally these variations are related to sales mix within the segment productofferings.  We account for inventory atthe lower of cost or market, and as a result, write-offs/write-downs occur dueto damage, deterioration, obsolescence, changes in prices and other causes.

 

**Selling,General and Administrative Expenses.  **Total selling, general and administrativeexpenses increased by 7.0% in the first six months of fiscal year 2009 ascompared with the first six months of fiscal year 2008.  Selling, general and administrative expensesas a percentage of revenues increased to 21.7% in the first six months offiscal year 2009 from 21.0% in the first six months of fiscal year 2008.  The largest factors contributing to theincrease in total selling, general and administrative expenses were increasedcompensation expense, bonus expense, and occupancy costs, partially offset bydecreased marketing, sales promotion, and freight expense during the first sixmonths of fiscal year 2009.

 

Compensation expensesrelated to business generation and fulfillment activities increased in thefirst six months of fiscal year 2009 as compared to the same period last fiscalyear.  Compensation costs have alsoincreased over the first six months of last fiscal year due to increasedaccruals related to our cash and equity bonus programs.  Our bonus programs are performance based, andtherefore, the increase in bonus accruals is due to improved results during thefirst six months of fiscal year 2009, as well as projected results for theremainder of the fiscal year, as applied to pre-defined performancetargets.  Total compensation costs,including benefits and bonus expense, increased by approximately $6.2 millionfrom the first six months of fiscal year 2008 to the first six months of fiscalyear 2009.

 

Occupancy costsincreased by approximately $563,300 in the first six months of fiscal year 2009as compared with the first six months of fiscal year 2008, primarily due toincreased utilities costs as well as rent and building maintenance costsrelated to our lease arrangement for additional office and warehouse space in HuntValley, Maryland beginning in the second quarter of fiscal year 2008.

 

Marketing and salespromotion expenses decreased by approximately $1.2 million in the first sixmonths of fiscal year 2009 as compared with the first six months of fiscal year2008. This decrease is primarily due to decreased expenses incurred related toa name branding initiative preformed in the prior fiscal year, decreases inmarket research expenses, and print and online advertising, as well asdecreased racks and graphics expense associated with our retail business.

 

Freight expense decreasedby approximately $1.2 million in the first six months of fiscal year 2009 ascompared to the same period last year, due to increased productivity in ourdistribution operations, partially offset by higher fuel surcharges.

 

We continually evaluatethe credit worthiness of our existing customer receivable portfolio and providean appropriate reserve based on this evaluation.  We also evaluate the credit worthiness ofprospective customers and make decisions regarding extension of credit terms tosuch prospects based on this evaluation. Accordingly, we recorded a provision for bad debts of $493,200 and $308,100 for the first sixmonths of fiscal year 2009 and fiscal year 2008, respectively.

 

**InterestExpense, Net. **Net interest expense increased from$176,800 in the first six months of fiscal year 2008 to $302,700 in the firstsix months of fiscal year 2009, primarily due to increased average borrowingson our revolving line of credit facility.

 

19

----

Table ofContents

 

**IncomeTaxes, Net Income and Diluted Earnings per Share.  **The effective tax rate in the first six months of fiscalyear 2009 was 39.7% as compared with 40.4% in the first six months of fiscalyear 2008.  The decrease in the tax rateis primarily attributable to changes in our state tax effective rate.  As a result of the factors discussed above,net income and diluted earnings per share for the first six months of fiscalyear 2009 increased 171.9% and 196.4%, respectively, compared to the prioryear.

 

**Liquidityand Capital Resources**

 
| ** **                                   | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------|------------|--------------------------------|------------|
| ** **                                   | ** ** | **September 28,  2008**   | ** ** | **September 30,  2007** | ** ** |
| Cash flows provided  by operating activities |       | $                              | 10,825,500 |   | $ | 2,909,400 |   |
| Cash flows used  in investing activities     |       | (2,548,700                     | )          | (4,304,600 | ) |
| Cash flows used  in financing activities     |       | (8,956,100                     | )          | (390,300 | ) |
| Net decrease in  cash and cash equivalents   |       | $                              | (679,300   | ) | $ | (1,785,500 | ) |

 

We generated $10.8million of net cash from operating activities in the first six months of fiscalyear 2009 compared with $2.9 million in the first six months of fiscal year2008.  In the first six months of fiscal year2009, our cash inflow from operating activities was primarily driven by netincome, net of depreciation and amortization and non-cash stock compensationexpense, as well as by a significant decrease in trade accounts receivable andan increase in accrued payroll, benefits and taxes, and accounts payablepartially offset by a increase in product inventory.  The decrease in trade accounts receivable isprimarily due to the timing of sales and collections largely related to ourlarge tier-one carrier.  The accrual forpayroll, benefits and taxes increased primarily due to an increase in accrualsfor our bonus programs in the first six months of fiscal year 2009 as comparedto the first six months of fiscal year 2008. The increase in accounts payable is largely due to the timing and creditterms of inventory receipts as well as the increase in product inventory.  The increased inventory levels are to supportour holiday retail business as well as in order to improve our inventoryavailability for our customers.

 

Capitalexpenditures of $1.2 million in the first six months of fiscal year 2009 weredown from expenditures of $2.0 million in the first six months of fiscal year2008.  In both periods, capitalexpenditures primarily consisted of investments in information technology.

 

We are party to a$50 million unsecured revolving line of credit facility with SunTrust Bank andWachovia Bank, N.A., with a term expiring May 2010 and interest payablemonthly at the LIBOR rate plus an applicable margin, which ranges from 1.25% to2.75%.  Borrowing availability under thisfacility is determined in accordance with a borrowing base and the applicablecredit agreement includes financial covenants, including a minimum tangible networth, minimum cash flow coverage of debt service, and a maximum funded debt toEBITDA ratio.  These financial covenantsalso apply to a separate but related term loan secured by our Hunt Valley,Maryland facility.  The terms applicableto our revolving line of credit facility and term loan also limit our abilityto engage in certain transactions or activities, including (but not limited to)investments and acquisitions, sales of assets, payment of dividends, issuanceof additional debt and other matters.  Asof September 28, 2008, we had $2.1 million outstanding on our $50 millionrevolving line of credit facility; therefore, we had $47.9 million available onour revolving line of credit facility subject to the limitations imposed by theborrowing base and our continued compliance with the other applicable terms,including the covenants discussed above. In addition to the revolving line of credit facility, at September 28,2008, the principal balance of the outstanding term loan secured by our HuntValley, Maryland facility was $3,562,500.

 

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 $11.9 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 

 

20

----

Table of Contents

 

continueto be recorded, if earnings targets are achieved.  For the six month period ended September 28, 2008, approximately$1.3 million was paid for additional earn-out based on achievement of certainearnings thresholds in accordance with the terms of the purchase agreement.  As ofSeptember 28, 2008, an additional earn-out of $100,000 has been accruedand is anticipated to be paid, along with any additional amounts earned overthe remaining six months of fiscal year 2009, in the first quarter of fiscalyear 2010.

 

Net cash used infinancing activities was $9.0 million in the first six months of fiscal year2009 compared with a net cash outflow from financing activities of $390,300 forthe first six 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 purchases.  For fiscal year 2008,our cash outflow from financing activities was primarily driven by treasurystock purchases, mostly offset by borrowings on our revolving line ofcredit.  During the first six months offiscal years 2009, we repurchased 69,392 shares of our outstanding common stockfor approximately $1.0 million pursuant to our stock buyback program, comparedwith 346,107 shares purchased during the first six months of fiscal year 2008.From the beginning of our stock buyback program (the first quarter of fiscalyear 2004), through the end of the second quarter of fiscal year 2009, a totalof 2,210,366 shares have been purchased under this program for approximately$29.3 million, or an average price of $13.25 per share.  The Board of Directors has authorized thepurchase of up to 2,395,567 shares in the aggregate pursuant to this program,and therefore, 185,201 shares remained available to be purchased as of the endof the second quarter of fiscal year 2009. We expect to fund future purchases, if any, from working capital and/orour revolving credit facility.  Notimetable has been set for the completion or expiration of this program.

 

OnJuly 1, 2008, separate from, and in addition to, our stock buybackprogram, we repurchased all 470,000 shares of our common stock then held byBrightpoint, 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 price per shareapproximated the price of our common stock on the transaction date.  The purchase was funded through availablecash and borrowings under our revolving credit facility.  This transaction does not affect the number ofshares available for repurchase under our stock buyback program.  In connection with this transaction, we andcertain of our subsidiaries entered into a First Modification Agreement withSunTrust Bank and Wachovia Bank, N.A. to amend a negative covenant included inthe Credit Agreement for our existing $50 million unsecured revolving creditfacility, to increase the amount of common stock permitted to be repurchased byus (beginning on the inception date of the Credit Agreement) from $10 millionto $15 million, during the term of the credit facility.

 

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 pay downany 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 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.

 

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

 

As noted above, weare party to an existing $50 million unsecured revolving credit facility withSunTrust Bank and Wachovia Bank, N.A., as administrative agent.  Under the terms of the applicable creditagreement, SunTrust is a 70% participant and Wachovia is a 30% participant,with each committed to fund draws accordingly. The recent global financial crisis has resulted in the bankruptcy oracquisition of, or government assistance to, several major domestic andinternational financial institutions.  OnOctober 3, 2008, Wells Fargo & Company announced a merger withWachovia Corporation, and we currently anticipate that our $50 millionrevolving credit facility with SunTrust Bank and Wachovia Bank, N.A. willremain in effect and fully accessible for the duration of its term,notwithstanding that merger. Nevertheless, if this merger is not consummated, or if either or bothlenders under the credit facility are for any reason unable to fulfill theirfunding commitments in any material respect, our access to capital may beimpaired.  In addition, the 

 

21

----

Table ofContents

 

term of ourrevolving credit facility currently expires in May 2010 and we areuncertain as to what the impact of the financial crisis will be on our abilityto extend or replace the facility on or prior to that date.  While we are not heavily dependent onborrowing to fund our core operations, should our access to borrowings beimpaired, it could have a material adverse effect on our business.

 

**RecentAccounting 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 for ourfinancial assets and liabilities. However, in February 2008, the FASB partially deferred theeffective date of SFAS No. 157, until fiscal years beginning after November 15,2008 or in our case, the fiscal year beginning March 30, 2009, as itrelates to certain non-financial assets and liabilities that are recognized ordisclosed at fair value in the financial statements on a nonrecurringbasis.  The adoption of SFAS No. 157did not have a material impact on our consolidated financial statements.

 

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 consolidated financialstatements.

 

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) on March 30,2009.

 

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 areencouraged.  We are currently reviewingSFAS No. 161 to determine the impact of adoption on our consolidatedfinancial statements.

 

In May 2008, the FASB issued SFAS No. 162,“The Hierarchy of Generally Accepted Accounting Principles.”  This standard identifies the sources ofaccounting principles and the framework for selecting the principles to be usedin the preparation of financial statements of nongovernmental entities that arepresented in conformity with generally accepted accounting principles.  SFAS No. 162 directs the hierarchy tothe entity, rather than the auditors, as the entity is responsible forselecting accounting principles for financial statements that are presented inconformity with generally accepted accounting principles.  SFAS No. 162 is effective 60 daysfollowing the SEC’s September 16, 2008 approval of the Public CompanyAccounting Oversight Board (PCAOB) amendments to remove the hierarchy foraccounting principles generally accepted in the United States from the PCAOB’sauditing standards.  We do not expectSFAS No. 162 to have an impact on our consolidated financial statements.

 

In June 2008, the FASB issued FASB StaffPosition No. 03-6-1, “Determining Whether Instruments Granted inShare-Based Payment Transactions Are Participating Securities (FSP No. 03-6-1).”  FSP No. 03-6-1 requires companies totreat 

 

22

----

Table ofContents

 

unvested share-based payment awards that havenon-forfeitable rights to dividend or dividend equivalents as participatingsecurities.  Therefore, these financialinstruments must be included in calculating basic and diluted earnings per shareunder the two-class method described in SFAS No. 128, “Earnings Per Share.”  All prior period EPS data presented should beadjusted retrospectively upon adoption. FSP No. 03-6-1 will be effective for fiscal years beginning after December 15,2008.  Therefore, we are required toadopt FSP No. 03-6-1 on March 30, 2009.  We currently have 120,000 awards that fallunder the requirements of FSP No. 03-6-1, but we do not expect theadoption to have a material impact on our basic and diluted earnings per sharecalculations.

 

**CriticalAccounting Policies and Estimates**

** **

Our discussion andanalysis of our financial condition and results of operations are based on ourunaudited consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the 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.

 

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-BalanceSheet 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; thestrength of our customers’, vendors’ and affinity partners’ businesses;increasingly negative or prolonged adverse economic conditions, including thoseadversely affecting consumer confidence or consumer or business spending, orotherwise adversely affecting our vendors or customers, including their accessto capital or liquidity or our customers’ demand for or ability to fund or payfor the purchase of our products and services; our dependence on a relativelysmall number of suppliers and vendors, which could hamper our ability tomaintain appropriate inventory levels and meet customer demand; failure of ourinformation technology system or distribution system; technology changes in thewireless communications industry, which could lead to significant inventoryobsolescence and/or our inability to offer key products that our customersdemand; third-party freight carrier interruption; increased competition fromcompetitors, including manufacturers or national and regional distributors ofthe products we sell and the absence of significant barriers to entry whichcould result in pricing and other pressures on profitability and market share;our inability to access capital and obtain financing as and when needed;transitional and other risks associated with acquisitions of companies that wemay undertake in an effort to expand our business; the possibility that, forunforeseen reasons, we may be delayed in entering into or performing, or mayfail 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.

 

23

----

Tableof Contents

 

**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 Qualitative Disclosures About MarketRisk.**

 

Not Applicable.

 

###### **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.  OTHERINFORMATION**

 

**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.**

 

As a result ofdevelopments in the financial markets since the filing of our 2008 AnnualReport on Form 10-K, we are providing the following update to our riskfactors.

 

***The current global financial crisis may have significanteffects on our customers and suppliers that could result in material adverseeffects on our business, operating results, and stock price.***

 

The current globalfinancial crisis – which has included, among other things, significant reductionsin available capital and liquidity from banks and other providers of credit,substantial reductions and/or fluctuations in equity and currency valuesworldwide, significant decreases in consumer confidence and consumer andbusiness spending, and concerns that the worldwide economy may enter into aprolonged recessionary period – may materially adversely affect our customers’access to capital or willingness to spend capital on our products, and/or theirlevels of cash liquidity with which to pay for our products.  In addition, the current global financialcrisis may materially adversely affect our suppliers’ access to capital andliquidity, which may in turn adversely impact their ability to maintaininventories, production levels, and/or product quality, or cause them to raiseprices or lower production levels, or result in their ceasing operation.  Further, with respect to our $50 millionunsecured revolving credit facility discussed under “Liquidity and CapitalResources” in Item 2 of this Form 10-Q, if the global financial crisisadversely affects SunTrust Bank, Wachovia Bank, N.A., its acquisition by 

 

24

----

Table ofContents

 

Wells Fargo, or,following such acquisition, Wells Fargo itself, or if the global financialcrisis should be prolonged and affect our ability to extend or replace our $50million revolving credit facility upon expiration in May 2010, our accessto borrowings, and accordingly our business, could be materially adverselyaffected.

 

These potentialeffects of the current global financial crisis are difficult to forecast andmitigate. As a consequence, our operating results for a particular period maybe more difficult to predict. Any of the foregoing effects could have amaterial adverse effect on our business, results of operations, and financialcondition and could adversely affect our stock price.

 

There have been noother material changes from the risk factors as previously disclosed in theCompany’s Annual Report on Form 10-K for the fiscal year ended March 30,2008.

 

###### **Item 2. Unregistered Sales of EquitySecurities and Use of Proceeds.**

###### ** **

The followingtable sets forth information with respect to purchases of TESSCO common stockby the Company or any affiliated purchasers during the second quarter of fiscalyear 2009.

 
| **Period (1)**                                     | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average  Price  Paid per  Share** | ** ** | **Total Number of  Shares Purchased  as Part of Publicly  Announced Plans  or Programs** | ** ** | **Maximum Number  of Shares that May  Yet Be Purchased  Under the Plans or  Programs (2)** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|------------|
| June 30,  2008 through July 27, 2008          |       | 470,000                                      |       | $                                        | 13.64      |                                                                                                                             | —     |                                                                                                                                         | 254,593    |   |
| July 28,  2008 through August 31, 2008        |       | 40,246                                       |       | 14.73                                    |       | 40,246                                                                                                                           |       | 214,347                                                                                                                                      |       |
| September 1,  2008 through September 28, 2008 |       | 29,146                                       |       | 14.76                                    |       | 29,146                                                                                                                           |       | 185,201                                                                                                                                      |       |
| Total                                                   |       | 539,392                                      |       | $                                        | 13.78      |                                                                                                                             | 69,392     |                                                                                                                                         | 185,201    |   |

 

----

(1)   Periodsindicated are fiscal accounting months for the second quarter of fiscal year2009.

(2)   Values areas of the end of the fiscal accounting month or quarter, as applicable.

 

On April 28,2003, our Board of Directors announced a stock buyback program.  As of September 28, 2008, the Board ofDirectors has authorized the purchase of 2,395,567 shares of outstanding commonstock under the stock buyback program. During the second quarter of 2009, the Company repurchased 69,392 sharesof its common stock for approximately $1.0 million pursuant to this program.  As of September 28, 2008, we hadpurchased an aggregate of 2,210,366 shares of our outstanding common stockpursuant to this program for approximately $29.3 million, or an average priceof $13.25 per share.  Accordingly, as of September 28,2008, 185,201 shares remained available for repurchase under this program.  Shares may be purchased from time to timeunder this program in the open market, by block purchase, or through negotiatedtransactions, or possibly other transactions managed by broker-dealers.  No timetable has been set for completion orexpiration of the program.

 

OnJuly 1, 2008, separate from, and in addition to, our stock buybackprogram, we repurchased all 470,000 shares of our common stock held byBrightpoint in a privately negotiated transaction.  Pursuant to an agreement entered into betweenus and Brightpoint, we purchased Brightpoint’s share holdings, comprisingapproximately 9% of our total then outstanding common stock, for $13.64 pershare, or a total of $6,410,800.  Theprice per share was determined based on the seven trading day trailing averageclosing price of our common stock on the NASDAQ Global Market determined as ofthe close of trading on June 30, 2008. The purchase was funded throughavailable cash and borrowings under our revolving credit facility.  This transaction does not affect the numberof shares available for repurchase under our stock buyback program.

 

###### **Item 3. Defaults Upon SeniorSecurities.**

###### ** **

None.

 

25

----

Table of Contents

 

###### **Item 4. Submission of Matters to aVote of Security Holders.**

 

The information regardingthe submission of matters to a vote of security holders, set forth on page 22and page 23 of the Company’s quarterly report on Form 10-Q for thefiscal quarter ended June 29, 2008, filed with the SEC on August 13,2008, is incorporated herein by reference.

 

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

###### ** **

None.

 

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

###### ** **

(a)                EXHIBITS:

 
| 10.1   |   | Stock Repurchase  Agreement, dated as of July 1, 2008, between the Registrant and Brightpoint, Inc.  (incorporated herein by reference to Exhibit 10.1 to the Current Report  on Form 8-K as filed by the Registrant with the Securities and Exchange  Commission on July 7, 2008).                                                                                                                                                    |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.2   |   | First Modification  Agreement, made effective as of June 30, 2008, to Credit Agreement dated  as of May 31, 2007, by and among the Registrant and its primary  operating subsidiaries as borrowers, and SunTrust Bank and Wachovia Bank,  N.A., as lenders (incorporated herein by reference to Exhibit 10.2 to the  Current Report on Form 8-K filed by the Registrant with the Securities  and Exchange Commission on July 7, 2008). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.3   |   | Second Amended and Restated 1994 Stock and Incentive  Plan of the Company, dated as of July 24, 2008 (incorporated herein by  reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the  Registrant with the Securities and Exchange Commission on July 29, 2008).                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 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.                                                                                                                                                                                                                                                                                                                                                                                    |

 

26

----

Table of Contents

 

**Signature**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|                          | TESSCO  TECHNOLOGIES INCORPORATED             |
|-------------------------------|-----------------------------------------------|
|                          |                                          |   |   |
|                          |                                          |   |   |
| Date: November 12,  2008 | By:                                           | /s/ David M. Young |
|                          | David  M. Young                               |
|                          | Chief Financial Officer                       |
|                          | (principal  financial and accounting officer) |

 

27

----