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**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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

 
| **x**                                                       | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**  |
|-------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
|                                                        |       |                                                                                                     |
| **For the  quarterly period ended September 27, 2009** |
|                                                        |       |                                                                                                     |
| **or**                                                      |
|                                                        |       |                                                                                                     |
| **o**                                                       | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |

 

**For thetransition period from           to          **

 

**CommissionFile Number: 0-24746**

 

**TESSCOTECHNOLOGIES INCORPORATED**

(Exact name ofregistrant as specified in its charter)

** **

| **Delaware**                                     | ** ** | **52-0729657**       |
|--------------------------------------------------|------------|----------------------|
| (State or other  jurisdiction of                 |       | (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’stelephone number, including area code)

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes x No o

 

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

 

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

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

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes o No x

 

The number of shares ofthe registrant’s Common Stock, $0.01 par value per share, outstanding as of October 30,2009, was 4,817,826.

 

 

 

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**TESSCO TECHNOLOGIES INCORPORATED**

**Index to Form 10-Q**

 
| **Part I**  | **FINANCIAL INFORMATION** | ** **                                                                                   |
|------------------|---------------------------|----------------------------------------------------------------------------------------------|
|             |                      |                                                                                         |   |
|             | Item 1.                   | Financial Statements.                                                                        |   |
|             |                      |                                                                                         |   |
|             | Item 2.                   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations. |   |
|             |                      |                                                                                         |   |
|             | Item 3.                   | Quantitative  and Qualitative Disclosure About Market Risk.                                  |   |
|             |                      |                                                                                         |   |
|             | Item 4.                   | Controls and  Procedures.                                                                    |   |
|             |                      |                                                                                         |   |
| **Part II** | **OTHER INFORMATION**     | ** **                                                                                   |
|             |                      |                                                                                         |   |
|             | Item 1.                   | Legal Proceedings.                                                                           |   |
|             |                      |                                                                                         |   |
|             | Item 1A.                  | Risk Factors.                                                                                |   |
|             |                      |                                                                                         |   |
|             | Item 2.                   | Unregistered  Sales of Equity Securities and Use of Proceeds.                                |   |
|             |                      |                                                                                         |   |
|             | Item 3.                   | Defaults Upon  Senior Securities.                                                            |   |
|             |                      |                                                                                         |   |
|             | Item 4.                   | Submission of  Matters to a Vote of Security Holders.                                        |   |
|             |                      |                                                                                         |   |
|             | Item 5.                   | Other Information.                                                                           |   |
|             |                      |                                                                                         |   |
|             | Item 6.                   | Exhibits.                                                                                    |   |
|             |                      |                                                                                         |   |
|             | Signatures                |                                                                                         |   |

 

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

###### ** **

###### **Item 1. FinancialStatements.**

 

**TESSCOTECHNOLOGIES INCORPORATED**

**UnauditedConsolidated Balance Sheets**

 
| ** **                                       | ** ** | **September 27,  2009** | ** **  | **March 29,********2009** | ** ** |
|--------------------------------------------------|------------|------------------------------|-------------|--------------------------------|------------|
|                                             |       |                         |        |                           |       |
| **ASSETS**                                       |       |                         |        |                           |       |
| Current assets:                                  |       |                         |        |                           |       |
| Cash and cash equivalents                        |       | $                            | 8,393,000   |                           | $          | 599,800 |   |
| Trade accounts receivable, net                   |       | 57,166,200                   |        | 44,601,300                     |       |
| Product inventory, net                           |       | 49,509,600                   |        | 36,540,400                     |       |
| Deferred tax assets                              |       | 4,366,700                    |        | 4,366,700                      |       |
| Prepaid expenses and other current assets        |       | 1,963,400                    |        | 2,168,500                      |       |
| Total current assets                             |       | 121,398,900                  |        | 88,276,700                     |       |
|                                             |       |                         |        |                           |       |
| Property and equipment, net                      |       | 20,531,100                   |        | 21,566,900                     |       |
| Goodwill, net                                    |       | 8,932,700                    |        | 6,550,700                      |       |
| Other long-term assets                           |       | 2,079,100                    |        | 2,258,300                      |       |
| Total assets                                     |       | $                            | 152,941,800 |                           | $          | 118,652,600 |   |
|                                             |       |                         |        |                           |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**    |       |                         |        |                           |       |
| Current liabilities:                             |       |                         |        |                           |       |
| Trade accounts payable                           |       | $                            | 66,877,300  |                           | $          | 40,481,600 |   |
| Payroll, benefits and taxes                      |       | 6,412,900                    |        | 6,494,400                      |       |
| Income and sales tax liabilities                 |       | 3,775,700                    |        | 2,908,400                      |       |
| Accrued expenses and other current liabilities   |       | 2,832,100                    |        | 1,405,900                      |       |
| Current portion of long-term debt                |       | 383,500                      |        | 361,400                        |       |
| Total current liabilities                        |       | 80,281,500                   |        | 51,651,700                     |       |
|                                             |       |                         |        |                           |       |
| Deferred tax liabilities                         |       | 2,416,000                    |        | 2,416,000                      |       |
| Long-term debt, net of current portion           |       | 3,518,500                    |        | 3,481,700                      |       |
| Other long-term liabilities                      |       | 1,639,200                    |        | 937,000                        |       |
| Total liabilities                                |       | 87,855,200                   |        | 58,486,400                     |       |
|                                             |       |                         |        |                           |       |
| Shareholders’ equity:                       |       |                         |        |                           |       |
| Preferred stock                                  |       | —                       |        | —                         |       |
| Common stock                                     |       | 81,200                       |        | 80,100                         |       |
| Additional paid-in capital                       |       | 35,491,200                   |        | 34,503,700                     |       |
| Treasury stock                                   |       | (42,257,500                  | )           | (42,155,700                    | )          |
| Retained earnings                                |       | 71,893,700                   |        | 67,880,900                     |       |
| Accumulated other comprehensive loss, net of tax |       | (122,000                     | )           | (142,800                       | )          |
| Total shareholders’ equity                  |       | 65,086,600                   |        | 60,166,200                     |       |
| Total liabilities and shareholders’ equity  |       | $                            | 152,941,800 |                           | $          | 118,652,600 |   |

 

See accompanying notes.

 

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**TESSCOTECHNOLOGIES INCORPORATED**

**Unaudited Consolidated Statements of Income**

 
| ** **                                   | ** ** | **Fiscal Quarters Ended**          | ** **  | **Six Months Ended**               | ** ** |
|----------------------------------------------|------------|------------------------------------|-------------|------------------------------------|------------|
| ** **                                   | ** ** | **September 27,********2009** | ** **  | **September 28,********2008** | ** ** | **September 27,********2009** | ** ** | **September 28,********2008** | ** ** |
| ** **                                   | ** ** | ** **                         | ** **  | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                     |       | $                                  | 132,953,700 |                               | $          | 143,773,700 |   | $ | 241,755,000 |   | $ | 265,842,000 |   |
| Cost of goods sold                           |       | 101,340,200                        |        | 109,553,100                        |       | 181,125,900 |   | 200,608,500 |   |
| Gross profit                                 |       | 31,613,500                         |        | 34,220,600                         |       | 60,629,100 |   | 65,233,500 |   |
| Selling, general and administrative expenses |       | 27,322,300                         |        | 30,298,000                         |       | 53,083,700 |   | 57,792,600 |   |
| Income from operations                       |       | 4,291,200                          |        | 3,922,600                          |       | 7,545,400 |   | 7,440,900 |   |
| Interest expense, net                        |       | 76,300                             |        | 165,900                            |       | 185,600 |   | 302,700 |   |
| Income before provision for  income taxes    |       | 4,214,900                          |        | 3,756,700                          |       | 7,359,800 |   | 7,138,200 |   |
| Provision for income taxes                   |       | 1,622,400                          |        | 1,518,000                          |       | 2,855,200 |   | 2,836,800 |   |
| Net income                                   |       | $                                  | 2,592,500   |                               | $          | 2,238,700 |   | $ | 4,504,600 |   | $ | 4,301,400 |   |
| Basic earnings per share                     |       | $                                  | 0.53        |                               | $          | 0.45 | * | $ | 0.92 |   | $ | 0.83 | * |
| Diluted earnings per share                   |       | $                                  | 0.51        |                               | $          | 0.44 | * | $ | 0.89 |   | $ | 0.81 | * |
|                                         |       |                               |        |                               |       |   |   |   |   |
| Cash dividends declared per common share     |       | $                                  | 0.10        |                               | $          | — |   | $ | 0.10 |   | $ | — |   |

 

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* Prior year basic and dilutedearnings per share have been adjusted to show the effects of adoption of FASBAccounting Standards Codification 260-10-45-61A, “Earnings Per Share —Participating Securities and the Two-Class Method”, previously referred toas FASB Staff Position No. 03-6-1, “Determining Whether InstrumentsGranted in Share-Based Payment Transactions Are Participating Securities.” SeeNote 3 for further discussion.

 

See accompanying notes.

 

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**TESSCOTECHNOLOGIES INCORPORATED**

**Unaudited Consolidated Statements of Cash Flows**

 
| ** **                                                                                                        | ** ** | **Six Months Ended**         | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                                                        | ** ** | **September 27,  2009** | ** ** | **September 28,  2008** | ** ** |
|                                                                                                              |       |                         |       |   |   |
| Cash flows from operating activities:                                                                             |       |                         |       |   |   |
| Net income                                                                                                        |       | $                            | 4,504,600  |   | $ | 4,301,400 |   |
| Adjustments to reconcile net income to net cash provided  by operating activities:                                |       |                         |       |   |   |
| Depreciation and amortization                                                                                     |       | 2,024,300                    |       | 2,140,600 |   |
| Non-cash stock compensation expense                                                                               |       | 1,151,800                    |       | 1,082,100 |   |
| Deferred income taxes and other                                                                                   |       | 948,200                      |       | (9,700 | ) |
| Change in trade accounts receivable                                                                               |       | (12,564,900                  | )          | 2,602,000 |   |
| Change in product inventory                                                                                       |       | (12,969,200                  | )          | (5,719,100 | ) |
| Change in prepaid expenses and other current assets                                                               |       | 263,400                      |       | 132,400 |   |
| Change in trade accounts payable                                                                                  |       | 26,395,700                   |       | 2,635,300 |   |
| Change in payroll, benefits and taxes                                                                             |       | (81,500                      | )          | 3,643,400 |   |
| Change in income and sales tax liabilities                                                                        |       | 867,300                      |       | (336,800 | ) |
| Change in accrued expenses and other current  liabilities                                                         |       | 1,426,200                    |       | 353,900 |   |
| Net cash provided by operating activities                                                                         |       | 11,965,900                   |       | 10,825,500 |   |
|                                                                                                              |       |                         |       |   |   |
| Cash flows from investing activities:                                                                             |       |                         |       |   |   |
| Purchases of property and equipment                                                                               |       | (917,800                     | )          | (1,239,700 | ) |
| Additional earn-out payments on acquired businesses                                                               |       | (2,382,000                   | )          | (1,309,000 | ) |
| Net cash used in investing activities                                                                             |       | (3,299,800                   | )          | (2,548,700 | ) |
|                                                                                                              |       |                         |       |   |   |
| Cash flows from financing activities:                                                                             |       |                         |       |   |   |
| Net repayments on revolving line of credit                                                                        |       | —                       |       | (1,225,800 | ) |
| Payments on long-term debt                                                                                        |       | (191,100                     | )          | (179,300 | ) |
| Proceeds from debt issuance                                                                                       |       | 250,000                      |       | — |   |
| Proceeds from issuance of stock                                                                                   |       | 57,600                       |       | 58,700 |   |
| Cash dividends paid                                                                                               |       | (491,800                     | )          | — |   |
| Purchases of treasury stock and repurchases of stock  from  employees and directors for minimum tax  withholdings |       | (101,800                     | )          | (7,663,900 | ) |
| Debt issue costs                                                                                                  |       | (175,000                     | )          | — |   |
| Excess tax (loss) benefit from stock-based  compensation                                                          |       | (220,800                     | )          | 54,200 |   |
| Net cash used in financing activities                                                                             |       | (872,900                     | )          | (8,956,100 | ) |
|                                                                                                              |       |                         |       |   |   |
| Net increase (decrease) in cash and cash equivalents                                                              |       | 7,793,200                    |       | (679,300 | ) |
|                                                                                                              |       |                         |       |   |   |
| Cash and cash equivalents, beginning of period                                                                    |       | 599,800                      |       | 2,086,200 |   |
|                                                                                                              |       |                         |       |   |   |
| Cash and cash equivalents, end of period                                                                          |       | $                            | 8,393,000  |   | $ | 1,406,900 |   |

 

Seeaccompanying notes.

 

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**TESSCO TECHNOLOGIES INCORPORATED**

**Notes to Unaudited ConsolidatedFinancial Statements**

**September 27, 2009**

 

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

 

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

 

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

 

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

# * *

In September 2006, the Financial AccountingStandards Board (“FASB”) issued an accounting pronouncement regarding fairvalue measurements, previously referred to as Statement of Financial AccountingStandards (“SFAS”) No. 157, “Fair Value Measurements.” The purpose of thisaccounting pronouncement, found under Accounting Standards Codification Topic820 (“ASC 820”), is to provide guidance for using fair value to measure assetsand liabilities. The pronouncement also responds to investors’ requests forexpanded information about the extent to which companies measure assets andliabilities at fair value, the information used to measure fair value, and theeffect of fair value measurements on earnings. The pronouncement applieswhenever other standards require (or permit) assets or liabilities to bemeasured at fair value. It does not expand the use of fair value in any newcircumstances. In February 2008, the FASB partially deferred the effectivedate of ASC 820 for certain non-financial assets and liabilities that arerecognized or disclosed at fair value in the financial statements on anonrecurring basis until fiscal years beginning after November 15, 2008 orin the Company’s case, the fiscal year beginning March 30, 2009. TheCompany adopted ASC 820 for its financial assets and liabilities effective asof March 31, 2008, and adopted ASC 820 for non-financial assets andliabilities effective March 30, 2009. The adoption of ASC 820 did not havea material impact on the Company’s consolidated financial statements. See Note5 for additional disclosures.

 

In December 2007, the FASB issued an accountingpronouncement regarding business combinations, previously referred to as SFAS No. 141(R),“Business Combinations.” The purpose of this accounting pronouncement, foundunder ASC 805, is to improve the information provided in financial reportsabout a business combination and its effects. The pronouncement requires thatthe acquisition method of accounting be used for all business combinations andthat an acquirer be identified for each business combination. The pronouncementrequires the assets, liabilities, noncontrolling interests, certain acquiredcontingencies and contingent consideration during a business combination to bemeasured at their fair value as of the acquisition date. The pronouncement iseffective for fiscal years beginning on or after December 15, 2008. TheCompany adopted the pronouncement effective March 30, 2009 for anyacquisitions made subsequent to that date. The adoption of the pronouncementdid not impact the accounting for acquisitions made by the Company prior to March 30,2009, however it will impact the accounting treatment of all acquisitions madeafter such date.

 

In March 2008, the FASB issued an accountingpronouncement regarding enhanced disclosure of derivative instruments,previously referred to as SFAS No. 161, “Disclosures about DerivativeInstruments and Hedging Activities — an amendment of FASB Statement No. 133.”Under the accounting pronouncement, found under ASC 815-10, entities are 

 

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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 ASC 815 and itsrelated interpretations, and (c) how derivative instruments and relatedhedged items affect an entity’s financial position, financial performance andcash flows. The provisions of this pronouncement are effective for periodsbeginning after November 15, 2008, and both early application andcomparative disclosures are encouraged. The adoption of this pronouncement didnot have a material impact on the Company’s consolidated financial statements.

 

In April 2009, the FASB issued an accountingpronouncement extending the disclosure requirements for financial instruments,previously referred to as FASB Staff Position (“FSP”) No. 107-1 andAccounting Principles Board Opinion (“ABP”) 28-1, “Interim Disclosures aboutFair Value of Financial Instruments.” The accounting pronouncement, found underASC 825-10-50, extends the disclosure requirements regarding the fair value offinancial instruments to interim financial statements. The pronouncement iseffective for interim reporting periods ending after June 15, 2009, withearly adoption permitted for periods ending after March 15, 2009. TheCompany adopted the pronouncement effective June 28, 2009. The adoption ofthe pronouncement did not have a material impact on the Company’s interimconsolidated financial statements. See Note 5 for additional disclosures.

 

In May 2009, the FASB issued an accountingpronouncement regarding the disclosure of subsequent events, previouslyreferred to as SFAS No. 165, “Subsequent Events.” The accountingpronouncement, found under ASC 855-10, provides guidance to establish generalstandards of accounting for and disclosures of events that occur after thebalance sheet date but before the financial statements are issued or areavailable to be issued. The pronouncement requires disclosure of the datethrough which an entity has evaluated subsequent events and the basis for thatdate. The pronouncement is effective for interim or annual financial periodsending after June 15, 2009. The adoption of the pronouncement did not havea material impact on the Company’s consolidated financial statements. See Note12 for additional disclosures.

 

InJuly 2009, the FASB issued an accounting pronouncement establishing a newsource of authoritative United States Generally Accepted Accounting Principles(“GAAP”), previously referred to as SFAS No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of GenerallyAccepted Accounting Principles — a replacement of FASB SFAS No. 162.” Theaccounting pronouncement, found under ASC 105, established the AccountingStandards Codification (the “Codification”). Other than resolvingcertain minor inconsistencies in current GAAP, the Codification does not changeGAAP, but is intended to make it easier to find and research GAAP applicable toparticular transactions or specific accounting issues. The Codification is anew structure which takes accounting pronouncements and organizes them byapproximately ninety accounting topics. The Codification is the single sourceof authoritative nongovernmental U.S. GAAP. All guidance included in theCodification is authoritative, even guidance that comes from what used to bedeemed a non-authoritative section of a standard. All non-grandfathered,non-SEC accounting literature not included in the Codification isnon-authoritative. The Codification is effective for interim and annual periodsending after September 15, 2009. The adoption of the Codification did nothave a material impact on the Company’s consolidated financial statements.

 

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

 

In June 2008, the FASB issued an accountingpronouncement regarding participating securities, previously referred to as FSPNo. 03-6-1, “Determining Whether Instruments Granted in Share-BasedPayment Transactions Are Participating Securities.” The accountingpronouncement, found under ASC 260-10-45, “Earnings Per Share — ParticipatingSecurities and the Two-Class Method,” provides that unvested share-basedpayment awards that contain non-forfeitable rights to dividends areparticipating securities and shall be included in the computation of earningsper share pursuant to the two-class method under the requirements of paragraphASC 260-10-45-60A. The two-class method of computing earnings per share is anearnings allocation formula that determines earnings per share for common stockand any participating securities according to dividends declared (whether paidor unpaid) and participation rights in undistributed earnings. Restricted stockof the Company of 105,000 shares as of September 27, 2009 are consideredparticipating securities since the award contains a non-forfeitable right todividends irrespective of whether the stock ultimately vests. This pronouncementis effective for financial statements issued for fiscal years beginning after December 15,2008 and interim periods within those years. Upon adoption, the Companyretrospectively adjusted earnings per share data to conform to the provisionsin ASC 260-10-45. Accordingly, the Company adopted the provisions of ASC260-10-45 effective March 30, 2009 and computed earnings per share usingthe two-class method for all periods presented. ASC 260-10-45 reduced fullfiscal year 2009, 2008 and 2007 diluted earnings per common share by $0.03,$0.02 and $0.01, respectively, and reduced second quarter and first six monthsof fiscal year 2009 diluted earnings per common share by $0.01 and $0.02,respectively. See Note 6 for additional disclosures.

 

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

# * *

TheCompany’s selling, general and administrative expenses for the fiscal quarterand six months ended September 27, 2009 includes $596,300 and $1,151,800,respectively, of non-cash stock compensation expense. The Company’s selling,general and administrative expenses for the fiscal quarter and six months endedSeptember 28, 2008 includes $573,600 and $1,082,100, respectively, ofnon-cash stock compensation expense. Stock compensation expense is primarilyrelated to our Performance Stock Unit (PSU) Program. In addition, the Companyrecorded an excess tax (loss) benefit directly to shareholders’ equity of $(220,800)and $54,200, primarily related to the PSUs which vested during the six monthsended September 27, 2009 and September 28, 2008, respectively.

 

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

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

 

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

 

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

 

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

 

Ifthe maximum target of PSUs granted in fiscal year 2010 is assumed to be earned,total unrecognized compensation costs on these and all other earned butunvested PSU’s would be approximately $2.5 million as of September 27,2009 and would be expensed through fiscal year 2013.

 

**Stock Options:** In accordance with ASC 718 – “Compensation - StockCompensation,” previously referred to as SFAS No. 123R, “Share-Based Payments,”the fair value of the Company’s stock options has been determined using theBlack-Scholes-Merton option pricing model, based upon facts and assumptionsexisting at the date of grant. Outstanding stock options have exercise pricesequal to the market price of the Company’s common stock on the grant date.

 

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Thevalue of each option at the date of grant is amortized as compensation expenseover the option service period. This occurs without regard to subsequentchanges in stock price, volatility or interest rates over time, provided thatthe option remains outstanding. As of September 27, 2009, all outstandingstock options are fully vested. The following table summarizes the pertinentoption information for outstanding options for the six months ended September 27,2009:

 
| ** **                                  | ** ** | **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 fiscal year 2007, the Company granted 150,000shares of the Company’s common stock to its Chairman and Chief ExecutiveOfficer as a restricted stock award under the 1994 Plan. These shares vestratably over ten fiscal years based on service, beginning on the last day offiscal year 2007 and ending on the last day of fiscal year 2016, subject,however, to the terms applicable to the award, including terms providing forpossible acceleration of vesting upon death, disability, change in control orcertain other events. The weighted average fair value for these shares at the grantdate was $15.84. No other shares of restricted stock are currently issued asawards under the 1994 Plan. As of September 27, 2009, 105,000 sharesremain unvested and there was no activity related to these restricted sharesduring the first six months of fiscal year 2010. As of September 27, 2009,there was approximately $1.5 million of total unrecognized compensation costsrelated to restricted stock. Unrecognized compensation costs are expected to berecognized ratably over a period of approximately seven years.

 

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

 

TheCompany complies with the provisions of ASC No. 820, Fair ValueMeasurements and Disclosures (“ASC 820”), previously referred to as SFAS No. 157.ASC 820 requires that assets and liabilities carried at fair value beclassified and disclosed in one of the following three categories:

 

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

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

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

 

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

 
| ** **                               | ** ** | **Balance at  September 27,  2009** | ** ** | **Quoted Prices  in Active  Markets for  Identical Assets********(Level 1)** | ** ** | **Significant  Other  Observable  Inputs********(Level 2)** | ** ** | **Significant  Unobservable  Inputs********(Level 3)** | ** ** |
|------------------------------------------|------------|------------------------------------------|------------|------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                               |       |                                     |       |                                                                         |       |                                                        |       |                                                   |       |
| **Assets:**                              |       |                                     |       |                                                                         |       |                                                        |       |                                                   |       |
| Interest rate swap agreement, net of tax |       | $                                        | (122,000   | )                                                                            | $          | —                                                      |       | $                                                      | (122,000   | ) | $ | — |   |
| Total  assets at fair value              |       | $                                        | (122,000   | )                                                                            | $          | —                                                      |       | $                                                      | (122,000   | ) | $ | — |   |

 

On October 1, 2005, the Company entered into areceive variable/pay fixed interest rate swap on a total notional amount of$4.2 million with Wachovia Bank, National Association to avoid the risksassociated with fluctuating interest rates on the Company’s existing term loan,which bears interest at a floating rate of LIBOR plus 1.75%, and to eliminatethe variability in the cash outflow for interest payments. The interest rateswap agreement locks the interest rate for the outstanding principal balance ofthe loan at 6.38% through June 30, 2011. The Company anticipates retainingat least some portion of the interest rate swap agreement throughout the periodof the term loan. As such, no amount of the loss on the agreement, currentlyrecorded in other comprehensive income (loss), has been, or is anticipated tobe reclassified into 

 

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earnings. There was no payment due or received atinception of the swap. No hedge ineffectiveness will be recognized as theinterest rate swaps’ provisions match the applicable provisions of the termbank loan. This cash flow hedge qualified for hedge accounting using theshort-cut method since the swap terms match the critical terms of the hedgeddebt. The Company’s fair value of its interest rate swap is derived fromvaluation models commonly used for derivatives. Valuation models require avariety of inputs, including contractual terms, market fixed prices, inputsfrom forward price yield curves, notional quantities, measures of volatilityand correlations of such inputs. The Company’s derivatives trade in liquidmarkets, and as such, model inputs can generally be verified and do not involvesignificant management judgment.

 

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

 

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

 
| ** **                                                   | ** ** | **September 27, 2009** | ** ** | **March 29, 2009** | ** ** |
|--------------------------------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| ** **                                                   | ** ** | **Carrying  Amount**        | ** ** | **Fair********Value**   | ** ** | **Carrying  Amount** | ** ** | **Fair********Value** | ** ** |
| Note payable to a Bank                                       |       | $                           | 3,337,500  |                    | $          | 3,167,900 |   | $ | 3,450,000 |   | $ | 3,228,500 |   |
| Note payable to the Maryland EconomicDevelopment Corporation |       | $                           | 324,000    |                    | $          | 310,200 |   | $ | 393,100 |   | $ | 391,100 |   |
| Note payable to Baltimore County                             |       | $                           | 240,500    |                    | $          | 207,500 |   | $ | — |   | $ | — |   |

 

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

 

Effective March 30, 2009, the Company adoptedASC 260-10-45-60, “Earnings Per Share — Participating Securities and the Two-Class Method”,previously referred to as FSP 03-6-1, “Determining Whether Instruments Grantedin Share-Based Payment Transactions are Participating Securities,” whichrequired it to use the two-class method to calculate earnings per share. Underthe two-class method, earnings per common share are computed by dividing thesum of the distributed earnings to common shareholders and undistributedearnings allocated to common shareholders by the weighted average number ofcommon shares outstanding for the period. In applying the two-class method,undistributed earnings are allocated to both common shares and participatingsecurities based on the weighted average shares outstanding during the period.

 

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

 
| ** **                                                                 | ** ** | **Fiscal Quarter Ended**     | ** ** | **Six Months Ended**         | ** ** |
|----------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| **Amounts in thousands, expect per  share amounts**                        | ** ** | **September 27,  2009** | ** ** | **September 28,  2008** | ** ** | **September 27,  2009** | ** ** | **September 28,  2008** | ** ** |
| Earnings per share – Basic:                                           |       |                         |       |                         |       |   |   |   |   |
| Net earnings                                                               |       | $                            | 2,593      |                         | $          | 2,239 |   | $ | 4,505 |   | $ | 4,301 |   |
| Less: Distributed and undistributed earnings  allocated to nonvested stock |       | (56                          | )          | (55                          | )          | (97 | ) | (100 | ) |
| Earnings available to common shareholders – Basic                     |       | $                            | 2,537      |                         | $          | 2,184 |   | $ | 4,408 |   | $ | 4,201 |   |
|                                                                       |       |                         |       |                         |       |   |   |   |   |
| Weighted average common shares outstanding – Basic                    |       | 4,807                        |       | 4,821                        |       | 4,792 |   | 5,046 |   |
|                                                                       |       |                         |       |                         |       |   |   |   |   |
| Earnings per common share – Basic                                     |       | $                            | 0.53       |                         | $          | 0.45 |   | $ | 0.92 |   | $ | 0.83 |   |
|                                                                       |       |                         |       |                         |       |   |   |   |   |
| Earnings per share –  Diluted:                                        |       |                         |       |                         |       |   |   |   |   |
| Net earnings                                                               |       | $                            | 2,593      |                         | $          | 2,239 |   | $ | 4,505 |   | $ | 4,301 |   |
| Less: Distributed and undistributed earnings  allocated to nonvested stock |       | (54                          | )          | (53                          | )          | (94 | ) | (97 | ) |
| Earnings available to common shareholders –  Diluted                  |       | $                            | 2,539      |                         | $          | 2,186 |   | $ | 4,411 |   | $ | 4,204 |   |
|                                                                       |       |                         |       |                         |       |   |   |   |   |
| Weighted average common shares outstanding – Basic                    |       | 4,807                        |       | 4,821                        |       | 4,792 |   | 5,046 |   |
| Effect of dilutive options                                                 |       | 172                          |       | 125                          |       | 159 |   | 146 |   |
| Weighted average common shares outstanding –  Diluted                 |       | 4,979                        |       | 4,946                        |       | 4,951 |   | 5,192 |   |
|                                                                       |       |                         |       |                         |       |   |   |   |   |
| Earnings per common share – Diluted                                   |       | $                            | 0.51       |                         | $          | 0.44 |   | $ | 0.89 |   | $ | 0.81 |   |
|                                                                       |       |                         |       |                         |       |   |   |   |   |
| Anti-dilutive equity awards not included above                             |       | —                       |       | —                       |       | — |   | — |   |

 

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

 

The Company evaluates revenue, gross profit andinventory in three business segments: (1) Network infrastructureproducts are used to build, repair and upgrade wireless telecommunications,computing and Internet networks. Products include base station antennas, cableand transmission lines, fixed and mobile broadband equipment, wireless localarea network (WLAN) products, wireless networking, filtering systems, smalltowers, lightning protection devices, connectors, security and surveillanceproducts, power systems and miscellaneous hardware. Our network infrastructureservice offering includes connector installation, custom jumper assembly,filter product tuning, site kitting, logistics integration and wireless networktraining. (2) Mobile devices and accessory products include cellular phoneand data device accessories such as replacement batteries, cases, speakers,mobile amplifiers, power supplies, headsets, mounts, car antennas, musicaccessories and data and memory cards as well as two-way radios and relatedaccessories. Retail merchandising displays, promotional programs, customizedorder fulfillment services and affinity-marketing programs, including providingoutsourced call centers and private label Internet sites, complement our mobiledevices and accessory product offering. (3) Installation, test andmaintenance products are used to install, tune, maintain and repair wirelesscommunications equipment. Products include sophisticated analysis equipment andvarious frequency-, voltage- and power-measuring devices, as well as anassortment of tools, hardware, GPS, safety and replacement and component partsand supplies required by service technicians. Within the mobile devices and accessories line of business, the Companysells to both commercial and consumer markets. The network infrastructureand installation, test and maintenance lines of business sell primarily tocommercial markets. The Company also regularly reviews its results ofoperations in three commercial customer categories and the consumer customercategory, 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. Resellers include dealers and resellers that sell,install and/or service cellular telephone, wireless networking, broadband and two-way radiocommunications equipment primarily for the enterprise market, and to a lesserextent, the consumer market. These resellers include local and nationalvalue-added resellers and retailers, as well as sales and installation centersoperated by cellular and paging carriers.

 

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

 

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

 

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

 

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

 
| **(Amounts  in thousands)**                      | ** ** | **Network  Infrastructure** | ** ** | **Mobile Devices  and Accessories** | ** ** | **Installation, Test  and Maintenance** | ** ** | **Total** | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|-------------------------------------|------------|-----------------------------------------|------------|-----------|------------|
| **Fiscal Quarter ended September 27, 2009** |       |                        |       |                                |       |                                    |       |      |       |
| Commercial  Revenues:                            |       |                        |       |                                |       |                                    |       |      |       |
| Public  Carriers and Network Operators           |       | $                           | 14,001     |                                | $          | 537                                     |       | $         | 2,303      |   | $ | 16,841 |   |
| Resellers                                        |       | 19,596                      |       | 63,707                              |       | 1,946                                   |       | 85,249    |       |
| SMUs  and Governments                            |       | 13,462                      |       | 3,490                               |       | 9,959                                   |       | 26,911    |       |
| Total  Commercial Revenues                       |       | 47,059                      |       | 67,734                              |       | 14,208                                  |       | 129,001   |       |
| Consumer  Revenues                               |       | —                      |       | 3,953                               |       | —                                  |       | 3,953     |       |
| Total  Revenues                                  |       | $                           | 47,059     |                                | $          | 71,687                                  |       | $         | 14,208     |   | $ | 132,954 |   |
|                                             |       |                        |       |                                |       |                                    |       |      |       |
| Commercial  Gross Profit:                        |       |                        |       |                                |       |                                    |       |      |       |
| Public  Carriers and Network Operators           |       | $                           | 3,395      |                                | $          | 142                                     |       | $         | 583        |   | $ | 4,120 |   |
| Resellers                                        |       | 5,408                       |       | 13,404                              |       | 449                                     |       | 19,261    |       |
| SMUs  and Governments                            |       | 3,776                       |       | 1,058                               |       | 2,262                                   |       | 7,096     |       |
| Total  Commercial Gross Profit                   |       | 12,579                      |       | 14,604                              |       | 3,294                                   |       | 30,477    |       |
| Consumer  Gross Profit                           |       | —                      |       | 1,136                               |       | —                                  |       | 1,136     |       |
| Total  Gross Profit                              |       | $                           | 12,579     |                                | $          | 15,740                                  |       | $         | 3,294      |   | $ | 31,613 |   |
|                                             |       |                        |       |                                |       |                                    |       |      |       |
| Selling,  general and administrative expenses    |       |                        |       |                                |       |                                    |       | 27,322    |       |
|  Income  from operations                    |       |                        |       |                                |       |                                    |       | 4,291     |       |
| Interest  expense, net                           |       |                        |       |                                |       |                                    |       | 76        |       |
|  Income  before provision for income taxes  |       |                        |       |                                |       |                                    |       | 4,215     |       |
| Provision  for income taxes                      |       |                        |       |                                |       |                                    |       | 1,622     |       |
|  Net  income                                |       |                        |       |                                |       |                                    |       | $         | 2,593      |   |
|                                             |       |                        |       |                                |       |                                    |       |      |       |
| Product  Inventory                               |       | $                           | 22,538     |                                | $          | 22,319                                  |       | $         | 4,653      |   | $ | 49,510 |   |
|                                             |       |                        |       |                                |       |                                    |       |      |       |
| **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 |   |
|                                             |       |                        |       |                                |       |                                    |       |      |       |
| Selling,  general and administrative expenses    |       |                        |       |                                |       |                                    |       | 30,298    |       |
|  Income  from operations                    |       |                        |       |                                |       |                                    |       | 3,923     |       |
| Interest  expense, net                           |       |                        |       |                                |       |                                    |       | 166       |       |
|  Income  before provision for income taxes  |       |                        |       |                                |       |                                    |       | 3,757     |       |
| Provision  for income taxes                      |       |                        |       |                                |       |                                    |       | 1,518     |       |
|  Net  income                                |       |                        |       |                                |       |                                    |       | $         | 2,239      |   |
|                                             |       |                        |       |                                |       |                                    |       |      |       |
| Product  Inventory                               |       | $                           | 24,835     |                                | $          | 24,888                                  |       | $         | 5,053      |   | $ | 54,776 |   |

 

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

 
| **(Amounts  in thousands)**                     | ** ** | **Network  Infrastructure** | ** ** | **Mobile Devices  and Accessories** | ** ** | **Installation, Test  and Maintenance** | ** ** | **Total** | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|-------------------------------------|------------|-----------------------------------------|------------|-----------|------------|
| **Six Months ended September 27, 2009**    |       |                        |       |                                |       |                                    |       |      |       |
| Commercial  Revenues:                           |       |                        |       |                                |       |                                    |       |      |       |
| Public  Carriers and Network Operators          |       | $                           | 24,551     |                                | $          | 1,004                                   |       | $         | 5,019      |   | $ | 30,574 |   |
| Resellers                                       |       | 36,388                      |       | 110,331                             |       | 3,827                                   |       | 150,546   |       |
| SMUs  and Governments                           |       | 25,910                      |       | 6,724                               |       | 20,818                                  |       | 53,452    |       |
| Total  Commercial Revenues                      |       | 86,849                      |       | 118,059                             |       | 29,664                                  |       | 234,572   |       |
| Consumer  Revenues                              |       | —                      |       | 7,183                               |       | —                                  |       | 7,183     |       |
| Total  Revenues                                 |       | $                           | 86,849     |                                | $          | 125,242                                 |       | $         | 29,664     |   | $ | 241,755 |   |
|                                            |       |                        |       |                                |       |                                    |       |      |       |
| Commercial  Gross Profit:                       |       |                        |       |                                |       |                                    |       |      |       |
| Public  Carriers and Network Operators          |       | $                           | 6,074      |                                | $          | 263                                     |       | $         | 1,259      |   | $ | 7,596 |   |
| Resellers                                       |       | 10,320                      |       | 25,727                              |       | 920                                     |       | 36,967    |       |
| SMUs  and Governments                           |       | 7,348                       |       | 2,036                               |       | 4,593                                   |       | 13,977    |       |
| Total  Commercial Gross Profit                  |       | 23,742                      |       | 28,026                              |       | 6,772                                   |       | 58,540    |       |
| Consumer  Gross Profit                          |       | —                      |       | 2,089                               |       | —                                  |       | 2,089     |       |
| Total  Gross Profit                             |       | $                           | 23,742     |                                | $          | 30,115                                  |       | $         | 6,772      |   | $ | 60,629 |   |
|                                            |       |                        |       |                                |       |                                    |       |      |       |
| Selling,  general and administrative expenses   |       |                        |       |                                |       |                                    |       | 53,084    |       |
|  Income  from operations                   |       |                        |       |                                |       |                                    |       | 7,545     |       |
| Interest  expense, net                          |       |                        |       |                                |       |                                    |       | 185       |       |
|  Income  before provision for income taxes |       |                        |       |                                |       |                                    |       | 7,360     |       |
| Provision  for income taxes                     |       |                        |       |                                |       |                                    |       | 2,855     |       |
|  Net  income                               |       |                        |       |                                |       |                                    |       | $         | 4,505      |   |
|                                            |       |                        |       |                                |       |                                    |       |      |       |
| Product  Inventory                              |       | $                           | 22,538     |                                | $          | 22,319                                  |       | $         | 4,653      |   | $ | 49,510 |   |
|                                            |       |                        |       |                                |       |                                    |       |      |       |
| **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 |   |
|                                            |       |                        |       |                                |       |                                    |       |      |       |
| Selling,  general and administrative expenses   |       |                        |       |                                |       |                                    |       | 57,793    |       |
|  Income  from operations                   |       |                        |       |                                |       |                                    |       | 7,441     |       |
| Interest  expense, net                          |       |                        |       |                                |       |                                    |       | 303       |       |
|  Income  before provision for income taxes |       |                        |       |                                |       |                                    |       | 7,138     |       |
| Provision  for income taxes                     |       |                        |       |                                |       |                                    |       | 2,837     |       |
|  Net  income                               |       |                        |       |                                |       |                                    |       | $         | 4,301      |   |
|                                            |       |                        |       |                                |       |                                    |       |      |       |
| Product  Inventory                              |       | $                           | 24,835     |                                | $          | 24,888                                  |       | $         | 5,053      |   | $ | 54,776 |   |

 

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

 

The components of totalcomprehensive income were as follows:

 
| ** **                                        | ** ** | **Fiscal Quarter Ended**     | ** ** | **Six Months Ended**         | ** ** |
|---------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                        | ** ** | **September 27,  2009** | ** ** | **September 28,  2008** | ** ** | **September 27,  2009** | ** ** | **September 28,  2008** | ** ** |
|                                              |       |                         |       |                         |       |   |   |   |   |
| Net Income                                        |       | $                            | 2,592,500  |                         | $          | 2,238,700 |   | $ | 4,504,600 |   | $ | 4,301,400 |   |
| Change in value of interest rate swap, net of tax |       | 4,000                        |       | (900                         | )          | 20,800 |   | 60,100 |   |
| Total comprehensive income                        |       | $                            | 2,596,500  |                         | $          | 2,237,800 |   | $ | 4,525,400 |   | $ | 4,361,500 |   |

 

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

 

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

 

On July 23, 2009, the Company and itsprimary operating subsidiaries, as borrowers, executed and delivered a ThirdModification Agreement (the “Third Modification Agreement”), dated as of July 22,2009, with SunTrust Bank and Wachovia Bank, National Association, amending theCredit Agreement and related promissory note for the Company’s existingunsecured revolving credit facility.

 

Pursuant to and in connection with the Third ModificationAgreement, the maximum available principal amount under the unsecured revolvingcredit facility was reduced to $35 million from $50 million, and the term ofthe revolving credit facility, as so modified, was extended to May 31,2012. The Third Modification Agreement also provides for the modification ofcertain financial covenants applicable to the borrowers on a going forwardbasis, including the “tangible net worth” and “maximum funded debt to EBITDA”covenants. In addition, the amount of allowable dividend payments under theCredit Facility was increased from $2.0 million to $2.5 million in any 12 monthperiod, assuming continued compliance with the otherwise applicable terms.

 

Pursuant to the relevant documents, the financial covenants included inthe Credit Agreement for the unsecured revolving credit facility are also applicableto the Company’s existing Term Loan with the same lenders, having an originalprincipal amount of $5.5 million. Accordingly, the Third Modification Agreementalso has the effect of amending the financial covenants applicable to the TermLoan.

 

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

 

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

 

On April 28, 2003,the Company’s Board of Directors approved a stock buyback program. As of September 27,2009, the Board of Directors had authorized the purchase of up to 2,395,567shares of outstanding common stock under the stock buyback program.Shares may be purchased from time to timein the open market, by block purchase, or through negotiated transactions, orpossibly other transactions managed by broker-dealers. No time limit has beenset for completion or expiration of the program. As of September 27, 2009,the Company had purchased 2,311,128 shares under the stock buyback program forapproximately $30.3 million, or an average of $13.12 per share. Of the totalshares repurchased under the stock buyback program, no shares were repurchasedin the first six months of fiscal year 2010. As of September 27, 2009,84,439 shares remained available for repurchase under this program.

 

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

 

The Company alsowithholds shares from its employees and directors, at their request, equal tothe minimum federal and state tax withholdings related to vested performancestock units and restricted stock awards. For the six months ended September 27,2009 and September 28, 2008 the allocated value of the shares withheldtotaled $101,800 and $230,200, respectively.

 

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

 

TheCompany’s future results could be negatively impacted by the loss of certaincustomer and/or vendor relationships. For the fiscal quarter and six monthsended September 27, 2009, sales of products to the Company’s top customerrelationship, AT&T Mobility, accounted for 30% and 26% of total revenues, respectively. For the fiscalquarter and six months ended September 28, 2008, sales of products to theCompany’s top customer relationship, AT&T Mobility, accounted for 26% and 24% of total revenues, respectively.

 

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

 

The Company has evaluated all subsequent events from the fiscal quarterended September 27, 2009 through November 12, 2009, the date thefinancial statements were issued.

 

On October 20, 2009, the Company declared a quarterly cashdividend of ten cents ($0.10) per share of common stock, par value $0.01 pershare, of the Company, payable on November 25, 2009, to shareholders ofrecord as of November 11, 2009. Any future declaration of dividends andthe establishment of any corresponding record and payment dates remains subjectto further determination from time to time by the Board of Directors.

 

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

 

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

 

**Business Overview and Environment**

 

TESSCOTechnologies Incorporated (TESSCO, we, or the Company) is a leading provider ofintegrated product and supply chain solutions to the professionals that design,build, run, maintain and use wireless mobile, fixed and in-building systems.Although we sell products to customers in many countries, approximately 97% ofour sales are made to customers in the United States. We have operations andoffice facilities in Hunt Valley, Maryland, Reno, Nevada and San Antonio,Texas.

 

Our second quarterrevenues decreased by 7.5% compared to the second quarter of last year. Thisdecrease was driven by a decline in each of our commercial lines of business.Gross profits also declined in each of our commercial lines of business.However, this overall decrease in gross profit was offset by a substantialdecrease in operating expenses, resulting in a 15.8% increase in net income anda 15.9% increase in diluted earnings per share over the prior-year quarter.

 

Despitethe unfavorable revenue and gross profit comparables to last year’s secondquarter, we experienced growth in both revenues and gross profits as comparedwith the first quarter of fiscal year 2010. Revenues and gross profits hadsequential growth of 22.2% and 9.0%, respectively. Net income and dilutedearnings per share increased 35.6% and 34.2%, respectively. While the currentglobal economy is still having a negative affect on our business (as furtherdiscussed below), we have been able thus far to successfully navigate through adifficult environment to achieve these results.

 

The current globalfinancial crisis — which has included, among other things, significantreductions in available capital and liquidity from banks and other providers ofcredit, substantial reductions and/or fluctuations in equity and currencyvalues worldwide, significant decreases in consumer confidence and consumer andbusiness spending, rising unemployment and concerns that the worldwide economymay enter into a prolonged recessionary period — may materially adverselyaffect our customers’ access to capital or willingness to spend capital on ourproducts, and/or their levels of cash liquidity with which to pay for ourproducts. During the first six months of fiscal year 2010 we saw negativeeffects of the current global financial crisis, including a decline in ouraverage number of monthly buying customers and in the average dollars purchasedfor each buying customer as compared to the corresponding first six months ofthe prior year. We expect the economic crisis to continue to have an impact onour operating results during the remaining six months of the fiscal year,especially in our retail and public carriers and network operators businesses.In addition, the current global financial crisis may materially adverselyaffect our suppliers’ access to capital and liquidity, which may in turn adverselyimpact their ability to maintain inventories, production levels, and/or productquality, or cause them to raise prices or lower production levels, or result intheir ceasing operation. The impact of the crisis on our liquidity is furtherdiscussed below under the heading “Liquidity and Capital Resources.”

 

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

 

Effective March 30,2009, we retrospectively adopted Accounting Standards Codification (“ASC”)260-10-45-60, “Earnings per Share — Participating Securities and the Two-Class Method”,previously referred to as Staff Position No. 03-6-1, “Determining WhetherInstruments Granted in Share-Based Payment Transactions Are ParticipatingSecurities.” See Note 3 to the consolidated financial statements for adiscussion of the impact of the change in accounting standards.

 

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**Resultsof Operations**

 

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

 
| ** **                                              | ** ** | **Fiscal  Quarters Ended**   | ** ** | **Six  Months Ended**        | ** ** |
|---------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| **(Amounts in thousands,  except per share  data)**     | ** ** | **September 27,  2009** | ** ** | **September 28,  2008** | ** ** | **$  Change** | ** ** | **%  Change** | ** ** | **September 27,  2009** | ** ** | **September 28,  2008** | ** ** | **$  Change** | ** ** | **%  Change** | ** ** |
| Commercial Revenues                                     |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Network Infrastructure:                                 |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public  Carriers and Network Operators                  |       | $                            | 14,001     |                         | $          | 12,664 |   | $ | 1,337 |   | 10.6 | % | $ | 24,551 |   | $ | 24,206 |   | $ | 345 |   | 1.4 | % |
| Resellers                                               |       | 19,596                       |       | 20,541                       |       | (945 | ) | (4.6 | )% | 36,388 |   | 39,091 |   | (2,703 | ) | (6.9 | )% |
| SMUs  and Governments                                   |       | 13,462                       |       | 14,407                       |       | (945 | ) | (6.6 | )% | 25,910 |   | 27,263 |   | (1,353 | ) | (5.0 | )% |
| Total Network  Infrastructure                           |       | 47,059                       |       | 47,612                       |       | (553 | ) | (1.2 | )% | 86,849 |   | 90,560 |   | (3,711 | ) | (4.1 | )% |
| Mobile Devices and  Accessories:                        |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public Carriers and  Network Operators                  |       | 537                          |       | 436                          |       | 101 |   | 23.2 | % | 1,004 |   | 1,119 |   | (115 | ) | (10.3 | )% |
| Resellers                                               |       | 63,707                       |       | 65,959                       |       | (2,252 | ) | (3.4 | )% | 110,331 |   | 116,754 |   | (6,423 | ) | (5.5 | )% |
| SMUs and Governments                                    |       | 3,490                        |       | 3,716                        |       | (226 | ) | (6.1 | )% | 6,724 |   | 7,529 |   | (805 | ) | (10.7 | )% |
| Total Mobile Devices and  Accessories                   |       | 67,734                       |       | 70,111                       |       | (2,377 | ) | (3.4 | )% | 118,059 |   | 125,402 |   | (7,343 | ) | (5.9 | )% |
| Installation, Test and  Maintenance:                    |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public Carriers and  Network Operators                  |       | 2,303                        |       | 3,400                        |       | (1,097 | ) | (32.3 | )% | 5,019 |   | 7,060 |   | (2,041 | ) | (28.9 | )% |
| Resellers                                               |       | 1,946                        |       | 2,019                        |       | (73 | ) | (3.6 | )% | 3,827 |   | 4,737 |   | (910 | ) | (19.2 | )% |
| SMUs and Governments                                    |       | 9,959                        |       | 17,501                       |       | (7,542 | ) | (43.1 | )% | 20,818 |   | 32,287 |   | (11,469 | ) | (35.5 | )% |
| Total Installation, Test  and Maintenance               |       | 14,208                       |       | 22,920                       |       | (8,712 | ) | (38.0 | )% | 29,664 |   | 44,084 |   | (14,420 | ) | (32.7 | )% |
| Total Commercial  Revenues                              |       | 129,001                      |       | 140,643                      |       | (11,642 | ) | (8.3 | )% | 234,572 |   | 260,046 |   | (25,474 | ) | (9.8 | )% |
| Consumer Revenues -  Mobile Devices and Accessories     |       | 3,953                        |       | 3,131                        |       | 822 |   | 26.3 | % | 7,183 |   | 5,796 |   | 1,387 |   | 23.9 | % |
| Total Revenues                                          |       | $                            | 132,954    |                         | $          | 143,774 |   | $ | (10,820 | ) | (7.5 | )% | $ | 241,755 |   | $ | 265,842 |   | $ | (24,087 | ) | (9.1 | )% |
|                                                    |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial Gross Profit                                 |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Network Infrastructure:                                 |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public  Carriers and Network Operators                  |       | $                            | 3,395      |                         | $          | 3,249 |   | $ | 146 |   | 4.5 | % | $ | 6,074 |   | $ | 6,309 |   | $ | (235 | ) | (3.7 | )% |
| Resellers                                               |       | 5,408                        |       | 5,761                        |       | (353 | ) | (6.1 | )% | 10,320 |   | 10,747 |   | (427 | ) | (4.0 | )% |
| SMUs  and Governments                                   |       | 3,776                        |       | 3,931                        |       | (155 | ) | (3.9 | )% | 7,348 |   | 7,566 |   | (218 | ) | (2.9 | )% |
| Total Network  Infrastructure                           |       | 12,579                       |       | 12,941                       |       | (362 | ) | (2.8 | )% | 23,742 |   | 24,622 |   | (880 | ) | (3.6 | )% |
| Mobile Devices and  Accessories:                        |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public Carriers and  Network Operators                  |       | 142                          |       | 124                          |       | 18 |   | 14.5 | % | 263 |   | 330 |   | (67 | ) | (20.3 | )% |
| Resellers                                               |       | 13,404                       |       | 13,974                       |       | (570 | ) | (4.1 | )% | 25,727 |   | 26,086 |   | (359 | ) | (1.4 | )% |
| SMUs and Governments                                    |       | 1,058                        |       | 1,205                        |       | (147 | ) | (12.2 | )% | 2,036 |   | 2,480 |   | (444 | ) | (17.9 | )% |
| Total Mobile Devices and  Accessories                   |       | 14,604                       |       | 15,303                       |       | (699 | ) | (4.6 | )% | 28,026 |   | 28,896 |   | (870 | ) | (3.0 | )% |
| Installation, Test and  Maintenance:                    |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Public Carriers and  Network Operators                  |       | 583                          |       | 726                          |       | (143 | ) | (19.7 | )% | 1,259 |   | 1,624 |   | (365 | ) | (22.5 | )% |
| Resellers                                               |       | 449                          |       | 477                          |       | (28 | ) | (5.9 | )% | 920 |   | 1,231 |   | (311 | ) | (25.3 | )% |
| SMUs and Governments                                    |       | 2,262                        |       | 3,735                        |       | (1,473 | ) | (39.4 | )% | 4,593 |   | 6,824 |   | (2,231 | ) | (32.7 | )% |
| Total Installation, Test  and Maintenance               |       | 3,294                        |       | 4,938                        |       | (1,644 | ) | (33.3 | )% | 6,772 |   | 9,679 |   | (2,907 | ) | (30.0 | )% |
| Total Commercial Gross  Profit                          |       | 30,477                       |       | 33,182                       |       | (2,705 | ) | (8.2 | )% | 58,540 |   | 63,197 |   | (4,657 | ) | (7.4 | )% |
| Consumer Gross Profit -  Mobile Devices and Accessories |       | 1,136                        |       | 1,039                        |       | 97 |   | 9.3 | % | 2,089 |   | 2,037 |   | 52 |   | 2.6 | % |
| Total Gross Profit                                      |       | 31,613                       |       | 34,221                       |       | (2,608 | ) | (7.6 | )% | 60,629 |   | 65,234 |   | (4,605 | ) | (7.1 | )% |
|                                                    |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general and  administrative expenses           |       | 27,322                       |       | 30,298                       |       | (2,976 | ) | (9.8 | )% | 53,084 |   | 57,793 |   | (4,709 | ) | (8.1 | )% |
| Income from operations                                  |       | 4,291                        |       | 3,923                        |       | 368 |   | 9.4 | % | 7,545 |   | 7,441 |   | 104 |   | 1.4 | % |
| Interest expense, net                                   |       | 76                           |       | 166                          |       | (90 | ) | (54.2 | )% | 185 |   | 303 |   | (118 | ) | (38.9 | )% |
| Income before provision  for income taxes               |       | 4,215                        |       | 3,757                        |       | 458 |   | 12.2 | % | 7,360 |   | 7,138 |   | 222 |   | 3.1 | % |
| Provision for income  taxes                             |       | 1,622                        |       | 1,518                        |       | 104 |   | 6.9 | % | 2,855 |   | 2,837 |   | 18 |   | 0.6 | % |
| Net income                                              |       | $                            | 2,593      |                         | $          | 2,239 |   | $ | 354 |   | 15.8 | % | $ | 4,505 |   | $ | 4,301 |   | $ | 204 |   | 4.7 | % |
| Diluted earnings per  share                             |       | $                            | 0.51       |                         | $          | 0.44 |   | $ | 0.07 |   | 15.9 | % | $ | 0.89 |   | $ | 0.81 |   | $ | 0.08 |   | 9.9 | % |

 

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###### **Second Quarter of Fiscal Year 2010 Compared withSecond Quarter of Fiscal Year 2009**

 

**Revenues.**Revenues for thesecond quarter of fiscal year 2010 decreased 7.5% as compared with the secondquarter of fiscal year 2009, primarily due to an 8.3% decrease in commercialrevenues, partially offset by a 26.3% increase in consumer revenues. Salesdecreased across all commercial lines of business.

 

Networkinfrastructure sales decreased 1.2% as compared with the second quarter offiscal year 2009, as a result of lower sales of radio frequency propagation andsite support products to resellers and self-maintained users, partially offsetby increased sales to public carriers and network operators. Sales of broadbandproducts to public carriers and network operators and resellers increasedslightly, but were partially offset by decreased sales to self-maintainedusers.

 

Sales in themobile devices and accessories line of business decreased 2.1% in the secondquarter of fiscal year 2010, as compared with the same period last year. Thedecrease was due to a 3.4% decrease in commercial sales, partially offset by a26.3% increase in consumer sales. The decrease in commercial revenues formobile devices and accessories, which are sold primarily to resellers, wasprimarily due to decreased sales to smaller resellers and users. Sales ofmobile devices and accessories to SMUs and governments also decreased, but werepartially offset by increased sales to public carriers and network operators.

 

Revenues from ourinstallation, test and maintenance line of business decreased 38.0% from thecorresponding prior-year quarter, primarily due to a decline in sales of repairparts related to our major repair components relationship with Nokia, as wellas decreased sales of test equipment, tools and supply products across all ofour market categories. In January 2009, we extended our componentsrelationship with Nokia through December 2010. As part of this extension,Nokia now plays a larger, and we a smaller, role in servicing a group of largercustomers. We continue to earn fees from Nokia to fulfill product to theselarger customers, but as a result of our reduced role in these transactions, wereceive a smaller fee and we account for these sales on a net basis. Wecontinue to manage the complete supply chain as primary obligor for smallercustomers so we continue to record sales to these smaller customers on a grossbasis. Because of the evolution of our relationship with Nokia, it has becomeless material to our consolidated financial statements, and we expect that trendto continue.

 

**GrossProfit.**Grossprofit for the second quarter of fiscal year 2010 decreased 7.6% as comparedwith the second quarter of fiscal year 2009. Total commercial gross profitdecreased 8.2%, while consumer gross profit increased 9.3%. Gross profit marginremained flat at 23.8% in the second quarter of fiscal year 2010 as compared tothe second quarter of fiscal year 2009. Gross profit margin in our networkinfrastructure segment decreased from 27.2% in the second quarter of fiscalyear 2009 to 26.7% in the second quarter of fiscal year 2010. This decrease ingross profit margin was a result of changes in product mix as discussed above.Gross profit margin in our mobile devices and accessories segment decreased to22.0% in the second quarter of this fiscal year from 22.3% in the secondquarter of last fiscal year. This decrease was primarily attributable to thecommercial gross profit margin for our mobile devices and accessories, whichdecreased to 21.6% in the second quarter of fiscal year 2010 from 21.8% for thesecond quarter of fiscal year 2009, principally due to product mix in sales toa large tier-one carrier, AT&T Mobility. Consumer gross profit margin forour mobile devices and accessories decreased to 28.7% in the second quarter of thisfiscal year from 33.2% for the second quarter of last fiscal year. Gross profitmargin in our installation, test and maintenance line of business increasedfrom 21.5% in the second quarter of fiscal year 2009 to 23.2% in the secondquarter of fiscal year 2010. Generally, our gross margins by product withinthese segments have been sustained, except as noted above, and these variationsare related to sales mix within the segment product offerings. We account forinventory at the lower of cost or market, and as a result,write-offs/write-downs occur due to damage, deterioration, obsolescence,changes in prices and other causes.

 

Our ongoing ability to earn revenues and gross profits from customersand vendors looking to us for product and supply chain solutions is dependentupon a number of factors. The terms, and accordingly the factors, applicable toeach relationship often differ. Among these factors are the strength of thecustomer’s or vendor’s business, the supply and demand for the product orservice, including price stability, changing customer or vendor requirements,and our ability to support the customer or vendor and to continuallydemonstrate that we can improve the way they do business. In addition, theagreements or arrangements on which our customer and vendor relationships arebased are typically of limited duration, and are terminable by either partyupon several months or otherwise relatively short notice. Our customerrelationships could also be affected by wireless carrier consolidation or theglobal financial crisis.

 

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

 

**Selling,General and Administrative Expenses.**Total selling, general and administrative expensesdecreased by 9.8% in the second quarter of fiscal year 2010 as compared withthe second quarter of fiscal year 2009. Selling, general and administrativeexpenses as a percentage of revenues decreased to 20.6% in the second quarterof fiscal year 2010 from 21.1% in the second quarter of fiscal year 2009. Thelargest factors contributing to the decrease in total selling, general andadministrative expenses were decreased compensation, freight out, marketing andsales promotion and corporate support expenses during the second quarter offiscal year 2010.

 

Compensation costsprimarily decreased due to lower temporary compensation expenses, decreasedvariable sales compensation based on lower gross profit and decreased quarterlybonus related to our cash and equity bonus programs as compared to last year’ssecond quarter. Total compensation costs, including benefits and bonus expense,decreased approximately $1.4 million in the second quarter of fiscal year 2010as compared to the second quarter of fiscal year 2009.

 

Freight expense decreasedby approximately $1.1 million due to increased efficiencies in our distributionoperations, reduced rates and lower sales in the second quarter of fiscal year2010 as compared to the second quarter of fiscal year 2009.

 

Marketing and salespromotion expenses decreased by approximately $219,500 in the second quarter offiscal year 2010 as compared with the second quarter of fiscal year 2009,primarily due to decreased expenses incurred for travel and entertainment aswell as decreased racks and graphics expense associated with our retailbusiness.

 

Corporate supportexpenses decreased by approximately $205,600, primarily due to lower estimatedsales tax audit exposure in the second quarter of fiscal year 2010 as comparedto the second quarter of fiscal year 2009.

 

We continually evaluatethe credit worthiness of our existing customer receivable portfolio and providean appropriate reserve based on this evaluation. We also evaluate the creditworthiness of prospective and current customers and make decisions regarding extensionof credit terms to such customers based on this evaluation. Accordingly, werecorded a provision forbad debts of $299,900 and $226,500 for the second quarter ended September 27,2009 and September 28, 2008, respectively.

 

**InterestExpense, Net.** Netinterest expense decreased from $165,900 in the second quarter of fiscal year2009 to $76,300 in the second quarter of fiscal year 2010, primarily due todecreased average borrowings on our revolving line of credit facility.

 

**IncomeTaxes, Net Income and Diluted Earnings per Share.**The effective tax rate in the secondquarter of fiscal year 2010 was 38.5% as compared with 40.4% in the secondquarter of fiscal year 2009. The decrease in the tax rate is primarilyattributable to changes in the relationship between non-deductible expenses andtaxable income as well as changes in our state tax effective rate. As a resultof the factors discussed above, net income for the second quarter of fiscalyear 2010 increased 15.8% and diluted earnings per share increased 15.9%compared to the corresponding prior-year quarter.

 

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

 

**Revenues.**Revenues for thefirst six months of fiscal year 2010 decreased 9.1% as compared with the firstsix months of fiscal year 2009, primarily due to a 9.8% decrease in commercialrevenues, partially offset by a 23.9% increase in consumer revenues. Salesdecreased across all commercial lines of business.

 

Sales in thenetwork infrastructure line of business decreased 4.1% in the first six monthsof fiscal year 2010, as compared with the prior-year period. The decrease wasprimarily the result of lower sales of radio frequency propagation and sitesupport products in our public carriers and network operators market, partiallyoffset by higher sales to resellers and 

 

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SMUs andgovernments. Sales of broadband products decreased in our resellers and SMUsand governments markets, but were partially offset by an increase in sales toour public carriers and network operators. Our overall decrease in sales ofnetwork infrastructure products was in sales to resellers and SMUs andgovernments, partially offset by an increase in sales to public carriers andnetwork operators.

 

Mobile devices andaccessories sales declined as compared with the first six months of fiscal year2009, primarily due to a 5.9% decrease in commercial sales, partially offset bya 23.9% increase in consumer sales. Sales in the commercial mobile devices andaccessories line of business decreased across all market categories.

 

Revenues from ourinstallation, test and maintenance line of business had a 32.7% decrease fromthe prior year, primarily due to a decline in sales of repair parts related toour major repair components relationship with Nokia, as well as decreased salesof test equipment, tools and supply products across all of our marketcategories. In January 2009, we extended our components relationship withNokia through December 2010. As part of this extension, Nokia now plays alarger, and we a smaller, role in servicing a group of larger customers. Wecontinue to earn fees from Nokia to fulfill product to these larger customers,but as a result of our reduced role in these transactions, we receive a smallerfee and we account for these sales on a net basis. We continue to manage thecomplete supply chain as primary obligor for smaller customers so we continueto record sales to these smaller customers on a gross basis. Because of theevolution of our relationship with Nokia, it has become less material to ourconsolidated financial statements, and we expect that trend to continue.

 

**GrossProfit.**Grossprofit for the first six months of fiscal year 2010 decreased 7.1% as comparedwith the first six months of fiscal year 2009. Total commercial gross profitdecreased 7.4%, while consumer gross profit increased 2.6% over the prior year.Gross profit margin increased to 25.1% in the first six months of fiscal year2010 from 24.5% in the first six months of fiscal year 2009. Gross profitmargin in our network infrastructure segment increased from 27.2% in the firstsix months of fiscal year 2009 to 27.3% in the first six months of 2010. Grossprofit margin in our mobile devices and accessories segment increased to 24.0%in the first six months of this fiscal year from 23.6% in the first six monthsof last fiscal year primarily due to product mix in sales to a large tier-onecarrier, AT&T Mobility. Commercial gross profit margin for our mobiledevices and accessories increased to 23.7% in the first six months of thisfiscal year from 23.0% for the first six months of last fiscal year. Consumergross profit margin for our mobile devices and accessories decreased to 29.1%in the first six months of this fiscal year from 35.1% for the first six monthsof last fiscal year. In our installation, test and maintenance segment, grossprofit margin increased to 22.8% in the first six months of fiscal year 2010from 22.0% in the first six months of fiscal year 2009. Generally, our grossmargins by product within these segments have been sustained, except as notedabove, and these variations are related to sales mix within the segment productofferings. We account for inventory at the lower of cost or market, and as aresult, write-offs/write-downs occur due to damage, deterioration,obsolescence, changes in prices and other causes.

 

**Selling,General and Administrative Expenses.**Total selling, general and administrative expensesdecreased by 8.1% in the first six months of fiscal year 2010 as compared withthe first six months of fiscal year 2009. Selling, general and administrativeexpenses as a percentage of revenues increased to 22.0% in the first six monthsof fiscal year 2010 from 21.7% in the first six months of fiscal year 2009. Thelargest factors contributing to the decrease in total selling, general andadministrative expenses were decreased compensation, freight out, marketing andsales promotion and corporate support expenses during the first six months offiscal year 2010.

 

Compensation costsprimarily decreased due to decreased quarterly bonus and 401(k) expensesrelated to our cash and equity bonus programs as compared to the first sixmonths of last fiscal year as well as decreased temporary compensation expensesand variable sales compensation based on lower gross profit. Total compensationcosts, including benefits and bonus expense, decreased approximately $2.3million in the first six months of fiscal year 2010, as compared to the firstsix months of fiscal year 2009.

 

Freight expense decreasedby approximately $1.1 million due to increased efficiencies in our distributionoperations, reduced rates and lower sales in the first six months of fiscalyear 2010 as compared to the first six months of fiscal year 2009.

 

Marketing and salespromotion expenses decreased by approximately $634,500 in the first six monthsof fiscal year 2010 as compared with the first six months of fiscal year 2009,primarily due to decreased racks and graphics expense associated with ourretail business, decreased print and online advertising as well as decreasedexpenses incurred for travel and entertainment.

 

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Corporate supportexpenses decreased approximately $242,000 over the first six months of theprior year, primarily due to lower estimated sales tax audit exposure andrecruiting expenses, partially offset by increased bad debt expenses andconsulting services expenses.

 

We continually evaluatethe credit worthiness of our existing customer receivable portfolio and providean appropriate reserve based on this evaluation. We also evaluate the creditworthiness of prospective and current customers and make decisions regardingextension of credit terms to such customers based on this evaluation.Accordingly, we recorded a provisionfor bad debts of $855,900 and $493,200 for first six months of fiscal year 2010and fiscal year 2009, respectively. This increase in bad debt expense isrelated to customer write-offs during the first six months of this fiscal yearand the anticipation for further increases in write-offs related to outstandingreceivables as of September 27, 2009, due largely to the downturn in theglobal economy as discussed above.

 

**InterestExpense, Net.** Netinterest expense decreased from $302,700 in the first six months of fiscal year2009 to $185,600 in the first six months of fiscal year 2010, primarily due todecreased average borrowings on our revolving line of credit facility.

 

**IncomeTaxes, Net Income and Diluted Earnings per Share.**The effective tax rate in the first sixmonths of fiscal year 2010 was 38.8% as compared with 39.7% in the first sixmonths of fiscal year 2009. The decrease in the tax rate is primarilyattributable to changes in the relationship between non-deductible expenses andtaxable income as well as changes in our state tax effective rate. As a resultof the factors discussed above, net income and diluted earnings per share forthe first six months of fiscal year 2010 increased 4.7% and 9.9%, respectively,compared to the prior year.

 

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

 
| ** **                                            | ** ** | **Six Months Ended**        | ** ** |
|-------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                            | ** ** | **September 27, 2009** | ** ** | **September 28, 2008** | ** ** |
| Cash  flows provided by operating activities          |       | $                           | 11,965,900 |   | $ | 10,825,500 |   |
| Cash  flows used in investing activities              |       | (3,299,800                  | )          | (2,548,700 | ) |
| Cash  flows used in financing activities              |       | (872,900                    | )          | (8,956,100 | ) |
| Net  increase (decrease) in cash and cash equivalents |       | $                           | 7,793,200  |   | $ | (679,300 | ) |

 

We generated $12.0million of net cash from operating activities in the first six months of fiscalyear 2010 compared with $10.8 million in the first six months of fiscal year2009. In the first six months of fiscal year 2010, our cash inflow fromoperating activities was primarily driven by net income, net of depreciationand amortization and non-cash stock compensation expense, as well as by a significantincrease in accounts payable, partially offset by an increase in trade accountsreceivable and an increase in product inventory. The increase in accountspayable is largely due to the timing and credit terms of inventory receipts.The increase in trade accounts receivable is primarily due to the timing ofsales and collections largely related to our large tier-one carrier. Theincreased inventory levels are to improve our inventory availability for ourcustomers and prepare for the winter holiday season.

 

Capitalexpenditures of $0.9 million in the first six months of fiscal year 2010 weredown from expenditures of $1.2 million in the first six months of fiscal year2009. In both periods, capital expenditures primarily consisted of investmentsin information technology.

 

OnApril 21, 2006, we acquired substantially all the non-cash net assets ofTerraWave Solutions, Ltd. and its commonly owned affiliate, GigaWaveTechnologies, Ltd. for an initial cash payment of approximately $3.9 million,and potential additional cash earn-out payment obligations of up to $15.5million accruing over a four-year period, contingent on the achievement by theTerraWave/GigaWave business unit post acquisition of certain minimum earningsthresholds. Of the $3.9 million cash amount paid at closing, $1.5 million was anon-refundable prepayment against future earn-out obligations, amortizable overthe four-year period. To the extent that the minimum earnings thresholds arenot achieved over the remainder of the four-year period, we will not be able toapply the remainder of this prepayment ($375,000 as of September 27,2009). To date, we have paid $5.9 million in earn-out payments, thus themaximum amount of contingent future earn-out payments that could be earnedthrough April 2010 is $9.6 million. Contingent payments made under the 

 

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termsof the acquisition agreement are treated as an additional cost of the acquiredbusinesses and additional goodwill has been and will continue to be recordedthrough April 2010, if earnings targets are achieved. For the six month period ended September 27,2009, approximately $2.4 million in earn-out payments were made, based onachievement of certain earnings thresholds in accordance with the terms of thepurchase agreement. As of September 27,2009, an additional earn-out obligation of $100,000 has been accrued and isanticipated to be paid, along with any additional amounts earned over theremaining six months of fiscal year 2010, in the first quarter of fiscal year2011.

 

Net cash used infinancing activities was $0.9 million in the first six months of fiscal year2010 compared with a net cash outflow from financing activities of $9.0 millionfor the first six months of fiscal year 2009. For the first six months offiscal year 2010, our cash outflow from financing activities was primarily dueto cash dividends paid to shareholders as well as an excess tax loss fromstock-based compensation, partially offset by the proceeds from our BaltimoreCounty Economic Development Revolving Loan Fund. The excess tax loss is due tothe ultimate tax deduction we will be able to recognize for awards that vestedduring the period being less than the cumulative compensation cost previouslyrecognize for financial reporting purposes. For the first six months of fiscalyear 2009, our cash outflow from financing activities was primarily driven bynet repayments on our revolving line of credit and treasury stock purchases.During the first six months of fiscal year 2010, we did not repurchase anyshares of our outstanding common stock pursuant to our stock buyback program,compared with 69,392 shares purchased during the first six months of fiscalyear 2009. From the beginning of our stock buyback program (the first quarterof fiscal year 2004), through the end of the second quarter of fiscal year2010, a total of 2,311,128 shares have been purchased under this program forapproximately $30.3 million, or an average price of $13.12 per share. The Boardof Directors has authorized the purchase of up to 2,395,567 shares in theaggregate pursuant to this program, and therefore, 84,439 shares remainedavailable to be purchased as of the end of the second quarter of fiscal year2010. We expect to fund future purchases, if any, from working capital and/orour revolving credit facility. No timetable has been set for the completion orexpiration 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 negotiated transaction.See Note 10 to the consolidated financial statements for additional discussionof the Brightpoint transaction.

 

Weare party to an unsecured revolving credit facility with SunTrust Bank andWachovia Bank, National Association, with interest payable monthly at the LIBORrate plus an applicable margin. Pursuant to a recent Third ModificationAgreement, the term of the facility was extended (from May 2010) to May 31,2012; and the amount of allowable dividend payments was increased from $2.0million (the previous stated amount) to $2.5 million in any 12 month period,assuming continued compliance with the otherwise applicable terms. Also inconnection with the modification, we agreed to pay a $175,000 modification fee,and agreed to increases in the applicable margins (from a range of 1.25% to2.75% to a range of 2.25% to 3.25%) and unused facility fee, which is notunusual in the current lending environment. In an effort to offset the impactof the increase in the unused facility fee, we considered our track record ofpositive cash flows and relatively small historical borrowings under thefacility, and in connection with the modification requested and obtained areduction in the maximum available principal amount to $35 million, from $50million. Borrowing availability under this facility is determined in accordancewith a borrowing base and the applicable credit agreement includes financialcovenants, including a minimum tangible net worth covenant, a minimum cash flowto debt service ratio, and a maximum funded debt to EBITDA ratio. Certain ofthese covenants were modified pursuant to the Third Modification Agreement, ona going forward basis. The applicable terms also limit our ability to engage incertain transactions or activities, including (but not limited to) investmentsand acquisitions, sales of assets, issuance of additional debt and othermatters. As of September 27, 2009, we had a zero balance outstanding onour revolving credit facility; therefore, we had the full committed amount ($35million) available, subject to the limitations imposed by the borrowing base andcontinued compliance with the other applicable terms, including the covenantsdiscussed above. Pursuant to the terms of this facility, we are permitted torepurchase up to $25 million of common stock from May 31, 2007 forward. Asof September 27, 2009, we had repurchased an aggregate of $13 million ofcommon stock since May 31, 2007, leaving $12 million available for futurerepurchases, without the consent of our lenders or a further amendment to theterms of the facility.

 

Pursuant to the relevant documents, thefinancial covenants included in the Credit Agreement for the unsecuredrevolving credit facility are also applicable to our existing Term Loan withthe same lenders, having an original principal amount of $5.5 million andsecured by our Hunt Valley, Maryland facility. Accordingly, the ThirdModification Agreement also has the effect of amending the financial covenantsapplicable to the Term Loan. At September 27, 2009, the principal balanceof this term loan was $3.3 million.

 

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On March 31, 2009, we entered into a term loan with theBaltimore County Economic Development Revolving Loan Fund for an aggregate principalamount of $250,000. The term loan is payable in equal monthly installments ofprincipal and interest of $2,300, with the balance due at maturity, April 1,2019. The term loan bears interest at 2.00% per annum and is secured by asubordinate position on our Hunt Valley, Maryland facility. At September 27,2009, the principal balance of this term loan was approximately $240,500.

 

We are also party to an existing note payable outstanding tothe Maryland Economic Development Corporation, which is payable in equalquarterly installments of principal and interest of $37,400, with the balancedue at maturity, October 10, 2011. The note bears interest at 3.00% perannum and is secured by a subordinate position on Company-owned real propertylocation in Hunt Valley, Maryland. At September 27, 2009, the principalbalance of this note was approximately $324,000.

 

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

 

We believe that ourexisting cash, payments from customers, and availability under our revolvingcredit facility will be sufficient to support our operations for at least thenext twelve months. To minimize interest expense, our policy is to use excessavailable cash to pay down any balance on our revolving credit facility. Weexpect to meet short-term and long-term liquidity needs through operating cashflow, supplemented by our revolving credit facility. In doing so, the balanceon our revolving credit facility could increase depending on our workingcapital and other cash needs. If we were to undertake an acquisition or othermajor capital purchases that require funds in excess of existing sources ofliquidity, we would look to sources of funding from additional creditfacilities, debt and/or equity issuances. There can be no assurances that suchadditional future sources of funding would be available on terms acceptable tous, if at all.

 

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

 

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

 

In September 2006, the Financial AccountingStandards Board (“FASB”) issued an accounting pronouncement regarding fairvalue measurements, previously referred to as Statement of Financial AccountingStandards (“SFAS”) No. 157, “Fair Value Measurements.” The purpose of thisaccounting pronouncement, found under Accounting Standards Codification 820 (“ASC820”) is to provide guidance for using fair value to measure assets andliabilities. The pronouncement also responds to investors’ requests forexpanded information about the extent to which companies measure assets andliabilities at fair value, the information used to measure fair value, and theeffect of fair value measurements on earnings. The pronouncement applieswhenever other standards require (or permit) assets or liabilities to bemeasured at fair value. It does not expand the use of fair value in any newcircumstances. In February 2008, the FASB partially deferred the effectivedate of ASC 820 for certain non-financial assets and liabilities that arerecognized or disclosed at fair value in the financial statements on anonrecurring basis until fiscal years beginning after November 15, 2008 orin our case, the fiscal year beginning March 30, 2009. We adopted ASC 820for our financial assets and liabilities effective as of March 31, 2008,and adopted ASC 820 for non-financial assets and liabilities effective March 30,2009. The adoption of ASC 820 did not have a material impact on ourconsolidated financial statements. See Note 5 to the consolidated financialstatements for additional disclosure.

 

In December 2007, the FASB issued an accountingpronouncement regarding business combinations, previously referred to as SFAS No. 141(R),“Business Combinations.” The purpose of this accounting pronouncement, foundunder ASC 805, is to improve the information provided in financial reportsabout a business combination and its effects. The pronouncement requires thatthe acquisition method of accounting be used for all business combinations andthat an acquirer be identified for each business combination. The pronouncementrequires the assets, liabilities, noncontrolling 

 

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interests, certain acquired contingencies andcontingent consideration during a business combination to be measured at theirfair value as of the acquisition date. The pronouncement is effective forfiscal years beginning on or after December 15, 2008. We adopted thepronouncement on March 30, 2009 for any acquisitions made subsequent tothat date. The adoption of the pronouncement did not impact the accounting foracquisitions made by the Company prior to March 30, 2009, however it willimpact the accounting treatment of all acquisitions made after such date.

 

In March 2008, the FASB issued an accountingpronouncement regarding enhanced disclosure of derivative instruments,previously referred to as SFAS No. 161, “Disclosures about DerivativeInstruments and Hedging Activities — an amendment of FASB Statement No. 133.”Under the accounting pronouncement, found under ASC 815-10, entities arerequired to provide enhanced disclosures about (a) how and why an entityuses derivative instruments, (b) how derivative instruments and relatedhedged items are accounted for under ASC 815 and its related interpretations,and (c) how derivative instruments and related hedged items affect anentity’s financial position, financial performance and cash flows. Theprovisions of this pronouncement are effective for periods beginning after November 15,2008, and both early application and comparative disclosures are encouraged.The adoption of this pronouncement did not have a material impact on ourconsolidated financial statements.

 

In April 2009, the FASB issued an accountingpronouncement extending the disclosure requirements for financial instruments,previously referred to as FASB Staff position No. 107-1 and AccountingPrinciples Board Opinion 28-1, “Interim Disclosures about Fair Value ofFinancial Instruments.” The accounting pronouncement, found under ASC825-10-50, extends the disclosure requirements regarding the fair value offinancial instruments to interim financial statements. The pronouncement iseffective for interim reporting periods ending after June 15, 2009, withearly adoption permitted for periods ending after March 15, 2009. Weadopted the pronouncement effective June 28, 2009. The adoption of thepronouncement did not have a material impact on our consolidated financialstatements. See Note 5 to the consolidated financial statements for additionaldisclosure.

 

In May 2009, the FASB issued an accountingpronouncement regarding the disclosure of subsequent events, previouslyreferred to as SFAS No. 165, “Subsequent Events.” The accountingpronouncement, found under ASC 855-10, provides guidance to establish generalstandards of accounting for and disclosures of events that occur after balancesheet date but before financial statements are issued or are available to beissued. The pronouncement requires disclosure of the date through which anentity has evaluated subsequent events and the basis for that date. Thepronouncement is effective for interim or annual financial periods ending afterJune 15, 2009. The adoption of the pronouncement did not have a materialimpact on our consolidated financial statements. See Note 12 to the consolidatedfinancial statements for additional disclosure.

 

InJuly 2009, the FASB issued an accounting pronouncement establishing a newsource of authorative United States Generally Accepted Accounting Principles (“GAAP”),previously referred to as SFAS No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally AcceptedAccounting Principles — a replacement of FASB SFAS No. 162.” Theaccounting pronouncement, found under ASC 105, established the AccountingStandards Codification (the “Codification”). Other than resolving certain minor inconsistencies in current GAAP,the Codification does not change GAAP, but is intended to make it easier tofind and research GAAP applicable to particular transactions or specificaccounting issues. The Codification is a new structure which takes accountingpronouncements and organizes them by approximately ninety accounting topics.The Codification will be the single source of authoritative nongovernmentalU.S. GAAP. All guidance included in the Codification is authoritative, evenguidance that comes from what used to be deemed a non-authoritative section ofa standard. All non-grandfathered, non-SEC accounting literature not includedin the Codification is non-authoritative. The Codification is effective forinterim and annual periods ending after September 15, 2009. The adoptionof the Codification did not have a material impact on our consolidatedfinancial statements.

 

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

 

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

 

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

 

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

 

We have no material off-balance sheet arrangements.

 

## **Forward-LookingStatements**

 

This Report maycontain forward-looking statements. These forward-looking statements maygenerally be identified by the use of the words “may,” “will,” “expects,” “anticipates,”“believes,” “estimates,” and similar expressions, but the absence of thesewords or phrases does not necessarily mean that a statement is not forward looking.Forward looking statements involve a number of risks and uncertainties. Ouractual results may differ materially from those described in or contemplated byany such forward-looking statement for a variety of reasons, including thoserisks identified in our most recent Annual Report on Form 10-K and otherperiodic reports filed with the Securities and Exchange Commission, under theheading “Risk Factors” and otherwise. Consequently, the reader is cautioned toconsider all forward-looking statements in light of the risks to which they aresubject.

 

We are not able toidentify or control all circumstances that could occur in the future that mayadversely affect our business and operating results. Without limiting the risksthat we describe in our periodic reports and elsewhere, among the risks thatcould lead to a materially adverse impact on our business or operating resultsare the following: termination or non-renewal of limited duration agreements orarrangements with our vendors and affinity partners which are typicallyterminable by either party upon several months notice; loss of significantcustomers or relationships, including affinity relationships; loss of customerseither directly or indirectly as a result of consolidation among large wirelessservice carriers and others within the wireless communications industry; thestrength of our customers’, vendors’ and affinity partners’ businesses;increasingly negative or prolonged adverse economic conditions, including thoseadversely affecting consumer confidence or consumer or business spending, orotherwise adversely affecting our vendors or customers, including their accessto capital or liquidity or our customers’ demand for or ability to fund or payfor the purchase of our products and services; our dependence on a relativelysmall number of suppliers and vendors, which could hamper our ability tomaintain appropriate inventory levels and meet customer demand; failure of ourinformation technology system or distribution system; technology changes in thewireless communications industry, which could lead to significant inventoryobsolescence and/or our inability to offer key products that our 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 or retain financing as and whenneeded; transitional and other risks associated with acquisitions of companiesthat we may undertake in an effort to expand our business; the possibilitythat, for unforeseen reasons, we may be delayed in entering into or performing,or may fail to enter into or perform, anticipated contracts or may otherwise bedelayed in realizing or fail to realize anticipated revenues or anticipatedsavings; our inability to protect certain intellectual property, includingsystems and technologies on which we rely; and our inability to hire or retainfor any reason our key professionals, management and staff.

 

## **AvailableInformation**

 

Our InternetWebsite address is: www.tessco.com. We make available free of charge throughour Website, our Annual Report on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K and amendments to those reports filed orfurnished pursuant to Section 13 or 15(d) of the Exchange Act as soonas reasonably practicable after such documents are electronically filed with,or furnished to, the Securities and Exchange Commission. Also available on ourWebsite is our Code of Business Conduct and Ethics.

 

###### **Item 3. Quantitative andQualitative Disclosures About Market Risk.**

###### ** **

NotApplicable.

 

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###### **Item 4. Controls andProcedures.**

 

The Company’s ChiefExecutive Officer (CEO) and Chief Financial Officer (CFO) have evaluated the effectivenessof the Company’s disclosure controls and procedures (as such term is defined inRules 13a-15(e) and 15d-15(e) under the Securities Exchange Actof 1934, as amended (Exchange Act)) as of the end of the period covered by thisquarterly report. A control system, no matter how well designed and operated,can provide only reasonable, not absolute, assurance that the control system’sobjectives will be met. Based on the evaluation of these controls andprocedures required by Rules 13a-15(b) or 15d-15(b) of theExchange Act, the Company’s management, including the CEO and CFO, haveconcluded that, as of the end of the period covered by this quarterly report,the Company’s disclosure controls and procedures were effective to providereasonable assurance that information required to be disclosed by the Companyin reports that it files or submits under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission’s rules and forms and to providereasonable assurance that such information is accumulated and communicated tothe Company’s management, including the Company’s CEO and CFO, as appropriateto allow timely decisions regarding required disclosure. During the periodcovered by this quarterly report, there have been no changes to the Company’sinternal control over financial reporting that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

**PART II. OTHER INFORMATION**

 

**Item 1.Legal Proceedings.**

 

Lawsuits andclaims are filed against us from time to time in the ordinary course ofbusiness. We do not believe that any lawsuits or claims currently pendingagainst the Company, individually or in the aggregate, are material, or willhave a material adverse affect on our financial condition or results ofoperations. In addition, from time to time, we are also subject to review fromfederal and state taxing authorities in order to validate the amounts of income,sales and/or use taxes which have been claimed and remitted. No federal, stateand local income tax returns are currently under examination.

 

**Item 1A.Risk Factors.**

 

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

 

###### **Item 2. UnregisteredSales of Equity Securities and Use of Proceeds.**

###### ** **

On April 28,2003, our Board of Directors announced a stock buyback program. As of September 27,2009, the Board of Directors has authorized the purchase of up to 2,395,567shares of outstanding common stock under the stock buyback program. During thesecond quarter of fiscal year 2010, the Company did not repurchase any sharesof its common stock for pursuant to this program. As of September 27,2009, we had purchased an aggregate of 2,311,128 shares of our outstandingcommon stock pursuant to this program for approximately $30.3 million, or anaverage price of $13.12 per share. Accordingly, as of September 27, 2009,84,439 shares remained available for repurchase under this program. Shares maybe purchased from time to time under this program in the open market, by blockpurchase, or through negotiated transactions, or possibly other transactionsmanaged by broker-dealers. No timetable has been set for completion orexpiration of the program. On July 1, 2008, separate from, and inaddition to, the stock buyback program, we repurchased all 470,000 shares ofour common stock then held by Brightpoint, Inc. (“Brightpoint”) in aprivately negotiated transaction. See Note 10 to the consolidated financialstatements for additional discussion of the Brightpoint transaction. Our revolving credit facility and termloan with SunTrust Bank and Wachovia Bank, National Association, limit to $25million the aggregate dollar value of shares that may be repurchased from May 31,2007 forward. As of September 27, 2009, we had the ability to purchaseapproximately $12 million in additional shares of common stock withoutviolating this covenant.

 

###### **Item 3. Defaults UponSenior Securities.**

###### ** **

None.

 

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###### **Item 4. Submission ofMatters to a Vote of Security Holders.**

###### ** **

Theinformation regarding the submission of matters to a vote of security holders,set forth on page 24 of the Company’s quarterly report on Form 10-Qfor the fiscal quarter ended June 28, 2009, filed with the SEC on August 12,2009, is incorporated herein by reference.

 

###### **Item 5. OtherInformation.**

###### ** **

None.

 

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

###### ** **

(a)                EXHIBITS:

 
|   | 10.1   |   | Third  Modification Agreement, made effective July 22, 2009, 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, National Association, as lenders (incorporated by reference to  Exhibit 10.1 to the Company’s Form 10-Q filed August 12,  2009). |
|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 31.1.1 |   | Rule 15d-14(a) Certification  of Robert B. Barnhill, Jr., Chief Executive Officer.                                                                                                                                                                                                                                                                                                  |
|   | 31.2.1 |   | Rule 15d-14(a) Certification  of David M. Young, Chief Financial Officer.                                                                                                                                                                                                                                                                                                                |
|   | 32.1.1 |   | Section 1350 Certification of Robert B.  Barnhill, Jr., Chief Executive Officer.                                                                                                                                                                                                                                                                                                         |
|   | 32.2.1 |   | Section 1350 Certification of David M. Young,  Chief Financial Officer.                                                                                                                                                                                                                                                                                                                       |

 

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**Signature**

 

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

 

 
|                          | TESSCO TECHNOLOGIES  INCORPORATED             |
|-------------------------------|-----------------------------------------------|
|                          |                                          |
|                          |                                          |
| Date: November 11,  2009 | By:                                           | /s/ David M. Young |
|                          | David M. Young                                |
|                          | Chief Financial Officer                       |
|                          | (principal  financial and accounting officer) |

 

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