** **

** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

** **

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

**SECURITIESEXCHANGE ACT OF 1934**

 

**For the quarterly periodended June 25, 2006**

** **

OR

 

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

 

**For the transition period from _____ to _____**

 

 

**Commission file number 0-24746**

 

 

**TESSCO Technologies Incorporated**

(Exact name of registrant as specified in charter)

 

| **Delaware**                                                                        |   | **52-0729657**       |
|-------------------------------------------------------------------------------------|--------|----------------------|
| (State or other  jurisdiction of                                                    |   | (IRS Employer        |
| incorporation or  organization)                                                     |   | Identification  No.) |
|                                                                                |   |                 |
| **11126  McCormick Road, Hunt Valley, Maryland**                                    |   | **21031**            |
| (Address of  principal executive offices)                                           |   | (Zip Code)           |
|                                                                                |   |                 |
| Registrant’s  telephone number, including area code:   **(410) 229-1000** |

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tofiling requirements for the past 90 days.Yes  x   No  o

 

Indicate by check mark if the registrantis a large accelerated filer, an accelerated filer, or a non-accelerated filer(as defined in Rule 12b-2 of the Act). Large accelerated filer o  Accelerated filer o  Non-Accelerated Filer x

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

Thenumber of shares of the registrant’s Common Stock, $.01 par value per share,outstanding as of July 31, 2006, was 4,193,888.

 

 

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**TESSCO TECHNOLOGIES INCORPORATED**

**Index to Form 10-Q**
| **Part I**   | ** ** | **Financial  Information** |
|--------------|------------|----------------------------|
|         |       |                       |   |   |
|         |       | Item  1.                   |   | Financial  Statements |
|         |       |                       |   |   |
|         |       |                       |   | Consolidated  Balance Sheets as of June 25, 2006 and March 26, 2006 |
|         |       |                       |   |   |
|         |       |                       |   | Consolidated Statements of Income for the periods  ended June 25, 2006 and June 26, 2005 |
|         |       |                       |   |   |
|         |       |                       |   | Consolidated Statements of Cash Flows for the periods  ended June 25, 2006 and June 26, 2005 |
|         |       |                       |   |   |
|         |       |                       |   | Notes to Consolidated Financial Statements |
|         |       |                       |   |   |
|         |       | Item 2.                    |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations |
|         |       |                       |   |   |
|         |       | Item 3.                    |   | Quantitative and Qualitative Disclosures about Market  Risk |
|         |       |                       |   |   |
|         |       | Item 4.                    |   | Controls and Procedures |
|         |       |                       |   |   |
| **Part  II** | ** ** | **Other  Information**     |
|         |       |                       |   |   |
|         |       | Item  1.                   |   | Legal  Proceedings |
|         |       |                       |   |   |
|         |       | Item 1A.                   |   | Risk Factors |
|         |       |                       |   |   |
|         |       | Item 2.                    |   | Unregistered Sales of Equity Securities and Use of  Proceeds |
|         |       |                       |   |   |
|         |       | Item 3.                    |   | Defaults upon Senior Securities |
|         |       |                       |   |   |
|         |       | Item 4.                    |   | Submission of Matters to a Vote of Security Holders |
|         |       |                       |   |   |
|         |       | Item  5.                   |   | Other  Information |
|         |       |                       |   |   |
|         |       | Item 6.                    |   | Exhibits |
|         |       |                       |   |   |
| ** **   |       | Signature                  |
|         |       |                       |   |   |

 

2

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###### ** **

###### **PartI.  Financial Information**

###### **Item1.  Financial Statements**

**TESSCO TECHNOLOGIES INCORPORATED**

**Consolidated Balance Sheets**

 

|                                                     | ** ** | **June 25, 2006** | ** **  | **March 26, 2006** | ** ** |
|-----------------------------------------------------|------------|-----------------------------|-------------|------------------------------|------------|
| ** **                                          | ** ** | **(unaudited)**             | ** **  | ** **                   | ** ** |
| **ASSETS**                                          |       |                        |        |                         |       |
|                                                |       |                        |        |                         |       |
| Current assets:                                     |       |                        |        |                         |       |
| Cash and cash equivalents                           |       | $                           | 3,564,600   |                         | $          | 2,286,900 |   |
| Trade accounts receivable, net                      |       | 42,186,200                  |        | 43,576,500                   |       |
| Product inventory                                   |       | 55,736,100                  |        | 47,615,700                   |       |
| Deferred tax asset                                  |       | 2,396,000                   |        | 2,396,000                    |       |
| Prepaid expenses and other  current assets          |       | 2,370,200                   |        | 2,799,200                    |       |
| Total current assets                                |       | 106,253,100                 |        | 98,674,300                   |       |
|                                                |       |                        |        |                         |       |
| Property and equipment, net                         |       | 24,627,300                  |        | 24,619,800                   |       |
| Goodwill, net                                       |       | 3,062,800                   |        | 2,452,200                    |       |
| Other long-term assets                              |       | 2,534,200                   |        | 1,054,100                    |       |
| Total assets                                        |       | $                           | 136,477,400 |                         | $          | 126,800,400 |   |
|                                                |       |                        |        |                         |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**      |       |                        |        |                         |       |
|                                                |       |                        |        |                         |       |
| Current liabilities:                                |       |                        |        |                         |       |
| Trade accounts payable                              |       | $                           | 53,441,400  |                         | $          | 44,984,000 |   |
| Accrued expenses and other  current liabilities     |       | 6,492,300                   |        | 7,543,400                    |       |
| Current portion of long-term  debt                  |       | 439,900                     |        | 442,500                      |       |
| Total current liabilities                           |       | 60,373,600                  |        | 52,969,900                   |       |
|                                                |       |                        |        |                         |       |
| Deferred tax liability                              |       | 2,785,300                   |        | 2,785,300                    |       |
| Long-term debt, net of current portion              |       | 4,470,700                   |        | 4,559,400                    |       |
| Other long-term liabilities                         |       | 1,364,500                   |        | 1,379,000                    |       |
| Total liabilities                                   |       | 68,994,100                  |        | 61,693,600                   |       |
|                                                |       |                        |        |                         |       |
| Commitments and contingencies                       |       |                        |        |                         |       |
|                                                |       |                        |        |                         |       |
| Shareholders’ equity:                          |       |                        |        |                         |       |
| Preferred stock                                     |       | —                      |        | —                       |       |
| Common stock                                        |       | 50,100                      |        | 49,600                       |       |
| Additional paid-in capital                          |       | 25,425,800                  |        | 24,748,700                   |       |
| Treasury stock, at cost                             |       | (9,699,900                  | )           | (9,521,100                   | )          |
| Retained earnings                                   |       | 51,617,600                  |        | 49,764,200                   |       |
| Accumulated other  comprehensive income, net of tax |       | 89,700                      |        | 65,400                       |       |
| Total shareholders’ equity                     |       | 67,483,300                  |        | 65,106,800                   |       |
| Total liabilities and shareholders’ equity     |       | $                           | 136,477,400 |                         | $          | 126,800,400 |   |

 

Seeaccompanying notes.

3

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** **

**TESSCO TECHNOLOGIES INCORPORATED**

**Consolidated Statements of Income**

 

|                                              | ** ** | **Fiscal Quarters Ended** | ** **  |
|----------------------------------------------|------------|-------------------------------------|-------------|
| ** **                                   | ** ** | **June 25, 2006**         | ** **  | **June 26, 2005** | ** ** |
| ** **                                   | ** ** | **(unaudited)**                     | ** **  | **(unaudited)** | ** ** |
|                                         |       |                                |        |   |   |
| Revenues                                     |       | $                                   | 111,940,300 |   | $ | 148,323,300 |   |
| Cost of goods sold                           |       | 83,855,200                          |        | 122,301,200 |   |
| Gross profit                                 |       | 28,085,100                          |        | 26,022,100 |   |
| Selling, general and administrative expenses |       | 24,968,100                          |        | 23,959,800 |   |
| Income from operations                       |       | 3,117,000                           |        | 2,062,300 |   |
| Interest, net                                |       | 155,300                             |        | 38,000 |   |
| Income before provision for  income taxes    |       | 2,961,700                           |        | 2,024,300 |   |
| Provision for income taxes                   |       | 1,108,300                           |        | 789,500 |   |
| Net income                                   |       | $                                   | 1,853,400   |   | $ | 1,234,800 |   |
| Basic earnings per share                     |       | $                                   | 0.44        |   | $ | 0.29 |   |
| Diluted earnings per share                   |       | $                                   | 0.43        |   | $ | 0.29 |   |
|                                         |       |                                |        |   |   |
| Basic weighted average shares outstanding    |       | 4,180,500                           |        | 4,236,700 |   |
| Diluted  weighted average shares outstanding |       | 4,275,800                           |        | 4,277,000 |   |

 

See accompanying notes.

4

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### **TESSCO TECHNOLOGIES INCORPORATED**

### **Consolidated Statements of Cash Flows**

 

|                                                                                               | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                    | ** ** | **June 25, 2006**      | ** ** | **June 26, 2005** | ** ** |
| ** **                                                                                    | ** ** | **(unaudited)**                  | ** ** | **(unaudited)** | ** ** |
| Cash flows from operating activities:                                                         |       |                             |       |   |   |
| Net income                                                                                    |       | $                                | 1,853,400  |   | $ | 1,234,800 |   |
| Adjustments to reconcile net  income to net cash (used in) provided by  operating activities: |       |                             |       |   |   |
| Depreciation and amortization                                                                 |       | 1,138,100                        |       | 1,193,800 |   |
| Non-cash stock compensation  expense                                                          |       | 529,600                          |       | 220,900 |   |
| Deferred taxes and other  non-cash items                                                      |       | 53,100                           |       | (49,400 | ) |
| Change in trade accounts  receivable                                                          |       | 3,075,800                        |       | 4,541,100 |   |
| Change in product inventory                                                                   |       | (7,223,800                       | )          | 5,775,700 |   |
| Change in prepaid expenses and  other current assets                                          |       | 446,200                          |       | 518,800 |   |
| Change in trade accounts  payable                                                             |       | 7,698,500                        |       | (16,362,000 | ) |
| Change in accrued expenses and  other current liabilities                                     |       | (1,246,800                       | )          | (264,700 | ) |
| Net cash provided by (used in)  operating activities                                          |       | 6,324,100                        |       | (3,191,000 | ) |
|                                                                                          |       |                             |       |   |   |
| Cash flows from investing activities:                                                         |       |                             |       |   |   |
| Purchases of property and  equipment                                                          |       | (999,400                         | )          | (620,800 | ) |
| Acquisition of business in  purchase transaction                                              |       | (3,924,900                       | )          | — |   |
| Net cash used in investing  activities                                                        |       | (4,924,300                       | )          | (620,800 | ) |
|                                                                                          |       |                             |       |   |   |
| Cash flows from financing activities:                                                         |       |                             |       |   |   |
| Payments on long-term debt                                                                    |       | (91,300                          | )          | (90,200 | ) |
| Net proceeds from issuance of  stock                                                          |       | 46,500                           |       | 21,200 |   |
| Purchase of treasury stock                                                                    |       | (178,800                         | )          | — |   |
| Excess tax benefit from  stock-based compensation                                             |       | 101,500                          |       | — |   |
| Net cash used in financing  activities                                                        |       | (122,100                         | )          | (69,000 | ) |
|                                                                                          |       |                             |       |   |   |
| Net increase (decrease) in  cash and cash equivalents                                         |       | 1,277,700                        |       | (3,880,800 | ) |
|                                                                                          |       |                             |       |   |   |
| Cash and cash equivalents, beginning of period                                                |       | 2,286,900                        |       | 3,880,800 |   |
|                                                                                          |       |                             |       |   |   |
| Cash  and cash equivalents, end of period                                                     |       | $                                | 3,564,600  |   | $ | — |   |

 

Seeaccompanying notes.

5

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** **

**TESSCOTechnologies IncorporatedNotes to Consolidated Financial StatementsJune 25, 2006**(Unaudited)

**Note1.  Description of Business and Basis ofPresentation**

----

#  

# TESSCO Technologies Incorporated, a Delawarecorporation (TESSCO or the Company), is a leading provider of integratedproduct and supply chain solutions to the professionals that design, build,run, maintain and use wireless, mobile, fixed and in-building systems. TheCompany provides marketing and sales services, knowledge and supply chain management,product solution delivery and control systems utilizing extensive Internet andinformation technology.  Approximately97% of the Company’s sales are made to customers in the United States.  The Company takes orders in several ways,including phone, fax, online and through electronic data interchange.

# In management’s opinion, the accompanying interimfinancial statements of the Company include all adjustments, consisting only ofnormal, recurring adjustments, necessary for a fair presentation of the Company’sfinancial position for the interim periods presented.  These statements are presented in accordancewith the rules and regulations of the Securities and Exchange Commission(SEC).  Certain information and footnotedisclosures normally included in the Company’s annual financial statements havebeen omitted from these statements, as permitted under the applicable rules andregulations.  The results of operationspresented in the accompanying interim financial statements are not necessarilyrepresentative of operations for an entire year.  The information included in this Form 10-Qshould be read in conjunction with the financial statements and notes theretoincluded in the Company’s Form 10-K for the fiscal year ended March 26, 2006.

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

# 

#  

# In July 2006, theFinancial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN48), “Accounting for Uncertainty in Income Taxes,” which clarifies theaccounting for income taxes by prescribing the minimum recognition threshold atax position is required to meet before being recognized in the financialstatements.  FIN 48 also providesguidance on derecognition, measurement, classification, interest and penalties,accounting in interim periods, disclosure and transition. FIN 48 is effectivefor fiscal years beginning after December 15, 2006.  The Company is reviewing FIN 48 to determinethe impact of adoption on its financial statements.

# **Note 3.  Stock Compensation**

# 

 

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

# SFAS No. 123R requires the Company to include in itscalculation of periodic stock compensation expense an estimate of futureforfeitures.  Previously, in accordancewith SFAS No. 123, the Company only included forfeitures in its calculation ofstock compensation expense when the PSUs were actually forfeited.  The inclusion of estimated in lieu of actualforfeitures did not have a material impact on the Company’s financial positionor results of operations for the quarter. Prior to the adoption of SFAS No. 123R, benefits of tax deductionsin excess of recognized compensation costs were reported as operating cash flows.SFAS No. 123R requires excess tax benefits be reported as a financing cashflow.

# The Company’s selling, general and administrativeexpenses for the three months ended June 25, 2006 and June 26, 2005includes $529,600 and $220,900, respectively, of stock compensationexpense.  Provision for income taxes forthe three months ended June 25, 2006 and June 26, 2005 includes $198,100 and$86,200, respectively, of income tax benefits related to our stock-basedcompensation arrangements.

6

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# The Company’sstock incentive plan is the Amended and Restated 1994 Stock and Incentive Plan(the 1994 Plan).  The 1994 Plan allowsfor the grant of awards in respect of an aggregate of 1,172,500 shares of theCompany’s common stock. As of June 25, 2006, 178,021 shares were available forissue in respect of awards available for future grant under the 1994 Plan. The1994 Plan allows for the grant of incentive stock options, nonqualified stockoptions, stock appreciation rights, restricted stock and restricted stock unitsand other performance awards.  Noadditional awards can be made under the 1994 Plan after July 22, 2009, withoutshareholder approval of an extension of the plan term.  Options and Performance Stock Unit (PSU)Awards have been granted as awards under the 1994 Plan.  Shares which are subject to outstanding PSUor other awards under the Plan, and which are not earned, are returned to the1994 Plan and become available for future issuance.

# **Performance Stock Units: **Beginning in fiscal year2005, the Company’s equity-based compensation philosophy and practice shiftedaway from awarding stock options to granting performance-based and time-vestedstock grants.  Accordingly, in April2004, the Company’s Board of Directors established a Performance Stock UnitAward Program under the Company’s Amended and Restated 1994 Stock and IncentivePlan.  Under the program, PerformanceStock Units (PSUs) have been granted to selected individuals. Each PSU entitlesthe participant to earn TESSCO common stock, but only after earnings per shareand, for non-director employee participants, individual performance targets aremet over a defined performance cycle. Performance cycles, which are fixed foreach grant at the date of grant, range from one to three years.  Once earned, shares vest and are issued overa specified period of time determined at the time of the grant, provided thatthe participant remains employed by or associated with the Company at the timeof share issuance.  Earnings per sharetargets, which take into account the earnings impact of this program, are setby the Board of Directors in advance for the complete performance cycle atlevels designed to grow shareowner value, and for those PSUs which are basedupon multiple year performance cycles, typically represent continual increasesin earnings per share.  If actualperformance does not reach the minimum annual or cumulative threshold targets,no shares are issued. Under SFAS No. 123R, the Company records compensation expenseon its PSUs over the service period, based on the number of shares managementestimates will ultimately be issued. Accordingly, the Company determines the periodic financial statementcompensation expense based upon the stock price at the PSU grant date,management’s projections of future EPS performance over the performance cycle,and the resulting amount of estimated share issuances, net of estimatedforfeitures.  Future changes in factorsimpacting the ultimate number of shares granted could cause these estimates tochange significantly in future periods. The Company estimated the forfeiture rate primarily based on historicalexperience. The Company’s calculated forfeiture rate was approximately 4%.

The following table summarizes the activity under the Company’s PSUprogram for the three months ended June 25, 2006:

 

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

 

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

In May 2006, 52,869 shares were earned and becamevested related to fiscal year 2005 and/or fiscal year 2006 performance.  Unrecognized compensation expense based onthe current expectation of targets to be achieved as of June 25, 2006 for PSUsexpected to be earned is $4.2 million. These costs are expected to be recognized over a weighted average periodof three years.  If the maximum target ofPSUs outstanding were assumed to be earned, total unrecognized compensationcosts would be $8.8 million.

7

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**Stock Options:**  There wereno option grants, forfeitures, or exercises during the three months ended June25, 2006.  For the three months endedJune 26, 2005, options for 1,800 shares were exercised at an exercise price of$11.60 per share.  In accordance with SFASNo. 123R, the fair value of the Company’s stock options have been determinedusing the Black-Scholes Merton option pricing model, based upon facts andassumptions existing at the date of grant. Stock options granted have exercise prices equal to the market price ofthe Company’s common stock on the grant date.

The value of each option at the date of grant is amortized ascompensation expense over the option service period.  This occurs without regard to subsequentchanges in stock price, volatility or interest rates over time, provided thatthe option remains outstanding.  Thefollowing table summarizes the pertinent option information for outstandingoptions:

|                                   | ** ** | ** ** | ** ** | **Three month ended June 25, 2006** | ** ** | ** **                                                  | ** ** |
|-----------------------------------|------------|------------|------------|--------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                        | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise Price**                   | ** ** | **Weighted Average  Remaining  Contractual Life** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
| Outstanding,  beginning of period |       | 160,000    |       | $12.51                                                       |       | 3.92                                                        |       | 974,400 |   |
| Outstanding, end  of period       |       | 160,000    |       | $12.51                                                       |       | 3.67                                                        |       | 1,245,300 |   |
| Exercisable, end of  period       |       | 144,000    |       | $13.06                                                       |       | 3.44                                                        |       | 1,045,200 |   |

 

The aggregate intrinsic value in the table aboverepresents the total pretax intrinsic value (the difference between the closingstock price on the last trading day of the first quarter of fiscal 2007 and theexercise price, multiplied by the number of in-the-money options) that wouldhave been received by the option holders had all option holders exercised theiroptions on June 25, 2006.  This amountchanges based on the fair market value of TESSCO’s stock.

As of June 25, 2006, there was $86,300 of totalunrecognized compensation costs related to stock options. These costs areexpected to be recognized over a weighted average period of approximately one year.

**TeamMember Stock Purchase Plan:**  During fiscal 2000, the Company adoptedthe Team Member Stock Purchase Plan. This plan permits eligible employees topurchase up to an aggregate of 200,000 shares of the Company’s common stock at85% of the lower of the market price on the first day of a six-month period orthe market price on the last day of that same six-month period.  The Company’s expenses relating to this planare for its administration and expense associated with the fair value of thisbenefit in accordance with SFAS No. 123R. Expenses incurred for the Team Member Stock Purchase Plan during thefirst three months of fiscal year 2007 related to SFAS No. 123R wereimmaterial.  During the first threemonths of fiscal year 2007, 2,323 shares were sold to employees under thisplan, having a weighted average market value of $11.25.

**Note 4.  Acquisition**

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# ** **

# On April 21, 2006, the Company acquired substantiallyall the non-cash net assets of TerraWave Solutions, Ltd. and its commonly ownedaffiliate, GigaWave Technologies, Ltd. for an initial cash payment ofapproximately $3.8 million, and additional cash earn-out payments over afour-year period, contingent on the achievement of certain minimum earningsthresholds ($1.5 million of the $3.8 million cash amount paid at closing is anon-refundable prepayment against future earn-out payments, if any).  To the extent that certain minimum earningsthresholds are not achieved, the Company will not be able to recover thisprepayment.  The maximum amount of contingentfuture earn-out payments (after subtracting the $1.5 million prepayment) is$15.5 million.  Any contingent paymentsmade under the terms of the purchase agreement will be treated as an additionalcost of the acquired businesses and additional goodwill will be recorded.  Additionally, acquisition related transactioncosts, primarily comprised of legal and accounting fees totaled $77,100 throughthe end of the first quarter.

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

8

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

# This acquisition has been accounted for as a businesscombination in accordance with SFAS No. 141, “Business Combinations.”  Under business combination accounting, thetotal preliminary purchase price was allocated to TerraWave and GigaWave’s nettangible and identifiable intangible assets based on their estimated fairvalues as of April 21, 2006.  The excessof the purchase price over the net tangible and identifiable intangible assetswas recorded as goodwill.  Thepreliminary purchase price was allocated as set forth below:

 

| Trade accounts receivable         |   | $         | 1,685,600 |   |
|-----------------------------------|--------|-----------|-----------|--------|
| Product  inventory                |   | 896,600   |      |
| Prepaid expenses                  |   | 17,200    |      |
| Identifiable  intangible assets   |   | 1,530,000 |      |
| Goodwill                          |   | 610,600   |      |
| Fixed assets                      |   | 139,600   |      |
| Trade accounts  payable           |   | (758,900  | )         |
| Accrued expenses                  |   | (195,800  | )         |
| Total preliminary  purchase price |   | $         | 3,924,900 |   |

 

In performing its preliminary purchase price allocation, the Companyconsidered, among other factors, its intention for future use of acquiredassets, analyses of historical financial performance and estimates of futureperformance of TerraWave and GigaWave. The Company’s estimate of the fair valueof intangible assets was based, in part, on a valuation completed by anindependent valuation specialist, and estimates and assumptions provided bymanagement. The identified intangible assets consisted of service-marks,covenants not to compete and customer contracts and relationships.  Based upon the preliminary purchase priceallocation, the trademarks are estimated to have an approximate fair value of$700,000 and an indefinite life, the customer contacts are estimated to have anapproximate fair value of $470,000 and an estimated useful life of four yearsand the covenants not to complete are estimated to have an approximate fairvalue of $360,000 and an estimated useful life of six years.  Goodwill noted above is expected to be deductiblefor tax purposes.  The primary factorscontributing to a purchase price that resulted in the recognition of goodwillincluded expansion of the WLAN product line, expansion of markets for TESSCO’sexisting products, the acquired employee force and the expansion of TESSCO’straining business.

**Note 5.  Earnings Per Share**

----

# ** **

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

 

|                                                     | ** ** | **Fiscal Quarters Ended** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                          | ** ** | **June 25, 2006**         | ** ** | **June 26, 2005** | ** ** |
|                                                |       |                                |       |   |   |
| Basic weighted average common shares outstanding    |       | 4,180,500                           |       | 4,236,700 |   |
| Dilutive common shares outstanding                  |       | 95,300                              |       | 40,300 |   |
| Diluted  weighted average common shares outstanding |       | 4,275,800                           |       | 4,277,000 |   |

 

As of June 25, 2006, stock options with respect to 160,000 shares ofcommon stock were outstanding, of which options to purchase 7,500 shares ofcommon stock at a weighted average exercise price of $26.17 per share were notincluded in the computation of diluted earnings per share because the options’exercise prices were greater than the average market price of the common sharesand, therefore, the effect would be antidilutive.

9

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**Note6.  Business Segments**

----

 

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

(1)             Networkinfrastructure products, which are used to build, repair and upgrade wirelesstelecommunications, computing and Internet networks, and generally complementradio frequency transmitting and switching equipment provided directly byoriginal equipment manufacturers (OEMs). Results from the recently acquired businesses of TerraWave and GigaWaveare included in network infrastructure.

(2)             Mobiledevices and accessory products, which include cellular telephones and otherdata devices, pagers and two-way radios and related accessories such asreplacement batteries, cases, speakers, mobile amplifiers, power supplies,headsets, mounts, car antennas and various wireless data devices.

(3)             Installation,test and maintenance products, which are used to install, tune, maintain andrepair wireless communications equipment.

Within the mobile devices and accessories line of business, the Companysells to both commercial and consumer markets. The network infrastructure andinstallation, test and maintenance lines of business sell primarily tocommercial markets. The Company also regularly reviews its commercial resultsof operations in two customer categories. These two customer categories and the consumer customer category, forwhich results of operations are also separately reviewed, are described furtherbelow:

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

·*                 *Commercial Self-Maintained Users, Governments andResellers.  Self-maintained user (SMU) andgovernment customers include commercial entities such as major utilities andtransportation companies, federal agencies and state and local governments,including public safety organizations. Resellers include dealers and resellersthat sell, install and service cellular telephone, paging and two-way radio communicationsequipment primarily for the consumer and small business markets.  These resellers include local and nationalproprietorships and retailers, as well as sales and installation centersoperated by cellular and paging carriers.

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

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

10

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| **(Amounts in thousands)**    | ** ** | **Network  Infrastructure** | ** ** | **Mobile Devices  and Accessories** | ** ** | **Installation, Test  and Maintenance** | ** ** | **Total** | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|-----------------------------------------------|------------|---------------------------------------------------|------------|-----------|------------|
| **Fiscal Quarter ended June 25,  2006** |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial Revenues:                    |       |                        |       |                                          |       |                                              |       |      |       |
| Public Carriers and Network Operators   |       | $                           | 12,268     |                                          | $          | 704                                               |       | $         | 4,244      |   | $ | 17,216 |   |
| SMUs, Governments and Resellers         |       | 25,437                      |       | 41,159                                        |       | 26,610                                            |       | 93,206    |       |
| Total Commercial  Revenues              |       | 37,705                      |       | 41,863                                        |       | 30,854                                            |       | 110,422   |       |
| Consumer  Revenues                      |       | —                      |       | 1,518                                         |       | —                                            |       | 1,518     |       |
| Total Revenues                          |       | $                           | 37,705     |                                          | $          | 43,381                                            |       | $         | 30,854     |   | $ | 111,940 |   |
|                                    |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial Gross  Profit:               |       |                        |       |                                          |       |                                              |       |      |       |
| Public Carriers and Network Operators   |       | $                           | 2,814      |                                          | $          | 197                                               |       | $         | 944        |   | $ | 3,955 |   |
| SMUs, Governments and Resellers         |       | 6,289                       |       | 8,475                                         |       | 8,609                                             |       | 23,373    |       |
| Total Commercial  Gross Profit          |       | 9,103                       |       | 8,672                                         |       | 9,553                                             |       | 27,328    |       |
| Consumer Gross  Profit                  |       | —                      |       | 757                                           |       | —                                            |       | 757       |       |
| Total Gross  Profit                     |       | $                           | 9,103      |                                          | $          | 9,429                                             |       | $         | 9,553      |   | $ | 28,085 |   |
|                                    |       |                        |       |                                          |       |                                              |       |      |       |
| Product  Inventory                      |       | $                           | 16,730     |                                          | $          | 18,561                                            |       | $         | 20,445     |   | $ | 55,736 |   |
|                                    |       |                        |       |                                          |       |                                              |       |      |       |
| **Fiscal Quarter ended June 26,  2005** |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial Revenues:                    |       |                        |       |                                          |       |                                              |       |      |       |
| Public Carriers and Network Operators   |       | $                           | 14,334     |                                          | $          | 625                                               |       | $         | 4,385      |   | $ | 19,344 |   |
| SMUs, Governments and Resellers         |       | 20,558                      |       | 22,755                                        |       | 11,061                                            |       | 54,374    |       |
| Total Commercial  Revenues              |       | 34,892                      |       | 23,380                                        |       | 15,446                                            |       | 73,718    |       |
| Consumer  Revenues                      |       | —                      |       | 74,605                                        |       | —                                            |       | 74,605    |       |
| Total Revenues                          |       | $                           | 34,892     |                                          | $          | 97,985                                            |       | $         | 15,446     |   | $ | 148,323 |   |
|                                    |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial Gross  Profit:               |       |                        |       |                                          |       |                                              |       |      |       |
| Public Carriers and Network Operators   |       | $                           | 3,346      |                                          | $          | 172                                               |       | $         | 994        |   | $ | 4,512 |   |
| SMUs, Governments and Resellers         |       | 4,999                       |       | 5,764                                         |       | 3,542                                             |       | 14,305    |       |
| Total Commercial  Gross Profit          |       | 8,345                       |       | 5,936                                         |       | 4,536                                             |       | 18,817    |       |
| Consumer Gross  Profit                  |       | —                      |       | 7,205                                         |       | —                                            |       | 7,205     |       |
| Total Gross  Profit                     |       | $                           | 8,345      |                                          | $          | 13,141                                            |       | $         | 4,536      |   | $ | 26,022 |   |
|                                    |       |                        |       |                                          |       |                                              |       |      |       |
| Product  Inventory                      |       | $                           | 17,755     |                                          | $          | 24,422                                            |       | $         | 12,880     |   | $ | 55,057 |   |

 

11

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** **

**Note 7.  CustomerConcentration**

----

# ** **

# The Company’s future results could be negativelyimpacted by the loss of certain customer and/or vendor relationships.  For the three months ended June 25, 2006,sales of products to the Company’s top customer relationship, Cingular WirelessLLC, accounted for 14% and 11% of totalrevenues and total gross profits, respectively. For the three months ended June 25, 2006, sales of productsrelated to the Company’s top vendor relationship, the Nokia Inc. (Nokia) repairand replacement component relationship, accounted for 17% and 25% of total revenues and total gross profits, respectively.  The Nokia relationship is a completesupply chain relationship and, therefore, we have no alternative sources ofsupply, and our purchases, and ultimately our resale of these products, isdependent upon the continuation of the Nokia relationship.  We also sell products other than Nokia repairand replacement materials to many of these customers.  Absent this arrangement with Nokia, we wouldmaintain the ability to sell these other products to these customers. At June 25, 2006, repair and component partspurchased from Nokia accounted for 29% of the dollar value of the total productinventory, based on the purchase price for the inventory.

# In September 2005, T-Mobile, previously the Company’slargest customer relationship, transitioned the TESSCO provided e-commercemarketing and sales system to their own in-house web solution and alternativethird-party logistics provider, and accordingly, revenues from thisrelationship ceased.  In the firstquarter of fiscal year 2007, this affinity relationship did not account for anyrevenues or gross profits.  T-Mobileaccounted for 48% and 21% of total revenues and total gross profits,respectively, in the first quarter of fiscal year 2006.

**Note 8. Reclassifications**

----

# ** **

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

# 

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

# This commentary should be read in conjunction with theManagement’s Discussion and Analysis of Financial Condition and Results ofOperations from the Company’s Form 10-K for the fiscal year ended March 26,2006.

# 

# **Business Overview and Environment**

# 

# TESSCO Technologies Incorporated (TESSCO) is a leadingprovider of integrated product and supply chain solutions to the professionalsthat design, build, run, maintain and use wireless mobile, fixed andin-building systems.  Although we sellproducts to customers in over 100 countries, approximately 97% of our sales aremade to customers in the United States. We have operations and office facilities in Hunt Valley, Maryland, Reno,Nevada and San Antonio, Texas.  Due tothe diversity in our business, we are not significantly affected byseasonality.

# 

# We offer a wide range of products that are classifiedinto three business segments: network infrastructure; mobile devices andaccessories; and installation, test and maintenance.

·                                          Network infrastructure products, whichare sold to our commercial customers, are used to build, repair and upgradewireless telecommunications, computing and Internet networks. Sales oftraditional network infrastructure products, such as cable, transmission linesand antennas are in part dependent on capital spending in the wirelesscommunications industry.  However, wehave also been growing our offering of wireless broadband and network equipmentproducts, which are not as dependent on the overall capital spending of theindustry.  The acquisition of TerraWaveand GigaWave in late April 2006 further broadened our WLAN product and serviceoffering in this segment.

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

12

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·                                          Installation, test and maintenanceproducts, which are sold to our commercial customers, are used to install,tune, maintain and repair wireless communications equipment. Approximately 61%of all of our installation, test and maintenance sales for the first quarter offiscal year 2007 were generated from the sales of replacement parts andmaterials for original equipment manufacturers, primarily Nokia Inc.(Nokia).  The arrangements on which theserelationships are based, like many of our other customer and vendorarrangements, are of limited duration and are terminable by either party uponseveral months or otherwise short notice. The remainder of this segment is madeup of sophisticated analysis equipment and various frequency-, voltage- andpower-measuring devices, as well as an assortment of tools, hardware andsupplies required by service technicians. Both our repair and replacement parts sales and consumer sales throughour affinity partnerships are reliant on relationships with a small number ofvendors.

We view our customer basein three major categories:

·                                          Commercial Public Carriers and Network Operators. Public carriers and network operators include systems operators that aregenerally responsible for building and maintaining the infrastructure systemand provide airtime service to individual subscribers.

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

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

The wirelesscommunications distribution industry is competitive and fragmented, and iscomprised of several national distributors. In addition, many manufacturerssell direct. Barriers to entry for distributors are relatively low,particularly in the mobile devices and accessory market, and the risk of newcompetitors entering the market is high. Consolidation of larger wireless carriers has and will most likelycontinue to impact our current and potential customer base.  In addition, the agreements or arrangementswith our customers or vendors looking to us for product and supply chainsolutions are typically of limited duration and are terminable by either partyupon several months notice.  Our abilityto maintain these relationships is subject to competitive pressures andchallenges.  We believe, however, thatour strength in service, the breadth and depth of our product offering, ourinformation technology system, our large customer base and purchasingrelationships with approximately 350 manufacturers provide us with asignificant competitive advantage over new entrants to the market. 

Our first quarterrevenues decreased by 25% compared to the first quarter of last year.  This 25% decrease is a result of:

·                                          Commercial revenue growth of 50% comparedto last year’s first quarter.  Thisgrowth was driven by growth in each of our commercial lines of business. Weexperienced exceptionally strong growth in ourinstallation, test and maintenance segment. This significant increasewas primarily driven by large sales related to our repair componentsrelationship with Nokia.  Going forward,we expect that revenues and gross profits from sales of these repair componentswill not continue at the first quarter level, but will return to levels moreconsistent with those experienced last fiscal year.

·                                          Consumer revenues decreased by 98%compared to last year’s first quarter due to the loss of the T-Mobile affinityrelationship in September 2005.

The transitioned T-Mobileaffinity relationship consisted primarily of low-margin handset sales.  The increases in the higher margin commercialbusiness in the first quarter, more than offset the loss of the gross profitgenerated from this T-Mobile business and thus, gross profits have increased by8% despite the overall decrease in revenues.

Our first quarterselling, general and administrative expenses grew by 4% compared to the prioryear quarter.  Because of the grossprofit growth described above and the smaller growth in expenses, our earningsper share reached $0.43 in the first quarter of fiscal 2007, compared to $0.29in the first quarter of fiscal 2006.

13

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**Results of Operations**

----

** **

The followingtable summarizes the unaudited results of our operations for the three monthsended June 25, 2006 and June 26, 2005:
| ** **                                                                      | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------|------------|
| **(Amounts in thousands, except per share data)** | ** ** | **June 25, 2006**      | ** ** | **June 26, 2005** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Commercial Revenues                                                             |       |                             |       |   |   |   |   |   |   |
| Network  Infrastructure:                                                        |       |                             |       |   |   |   |   |   |   |
| Public Carriers and Network Operators                                           |       | $                                | 12,268     |   | $ | 14,334 |   | $ | (2,066 | ) | (14.4 | %) |
| SMUs, Governments and Resellers                                                 |       | 25,437                           |       | 20,558 |   | 4,879 |   | 23.7 | % |
| Total Network Infrastructure                                                    |       | 37,705                           |       | 34,892 |   | 2,813 |   | 8.1 | % |
| Mobile Devices  and Accessories:                                                |       |                             |       |   |   |   |   |   |   |
| Public Carriers and Network Operators                                           |       | 704                              |       | 625 |   | 79 |   | 12.6 | % |
| SMUs, Governments and Resellers                                                 |       | 41,159                           |       | 22,755 |   | 18,404 |   | 80.9 | % |
| Total Mobile Devices and Accessories                                            |       | 41,863                           |       | 23,380 |   | 18,483 |   | 79.1 | % |
| Installation,  Test and Maintenance:                                            |       |                             |       |   |   |   |   |   |   |
| Public Carriers and Network Operators                                           |       | 4,244                            |       | 4,385 |   | (141 | ) | (3.2 | %) |
| SMUs, Governments and Resellers                                                 |       | 26,610                           |       | 11,061 |   | 15,549 |   | 140.6 | % |
| Total Installation, Test and Maintenance                                        |       | 30,854                           |       | 15,446 |   | 15,408 |   | 99.8 | % |
| Total Commercial  Revenues                                                      |       | 110,422                          |       | 73,718 |   | 36,704 |   | 49.8 | % |
| Consumer  Revenues - Mobile Devices and Accessories                             |       | 1,518                            |       | 74,605 |   | (73,087 | ) | (98.0 | %) |
| Total Revenues                                                                  |       | $                                | 111,940    |   | $ | 148,323 |   | $ | (36,383 | ) | (24.5 | %) |
|                                                                            |       |                             |       |   |   |   |   |   |   |
| Commercial Gross Profit                                                         |       |                             |       |   |   |   |   |   |   |
| Network  Infrastructure:                                                        |       |                             |       |   |   |   |   |   |   |
| Public Carriers and Network Operators                                           |       | $                                | 2,814      |   | $ | 3,346 |   | $ | (532 | ) | (15.9 | %) |
| SMUs, Governments and Resellers                                                 |       | 6,289                            |       | 4,999 |   | 1,290 |   | 25.8 | % |
| Total Network Infrastructure                                                    |       | 9,103                            |       | 8,345 |   | 758 |   | 9.1 | % |
| Mobile Devices  and Accessories:                                                |       |                             |       |   |   |   |   |   |   |
| Public Carriers and Network Operators                                           |       | 197                              |       | 172 |   | 25 |   | 14.5 | % |
| SMUs, Governments and Resellers                                                 |       | 8,475                            |       | 5,764 |   | 2,711 |   | 47.0 | % |
| Total Mobile Devices and Accessories                                            |       | 8,672                            |       | 5,936 |   | 2,736 |   | 46.1 | % |
| Installation,  Test and Maintenance:                                            |       |                             |       |   |   |   |   |   |   |
| Public Carriers and Network Operators                                           |       | 944                              |       | 994 |   | (50 | ) | (5.0 | %) |
| SMUs, Governments and Resellers                                                 |       | 8,609                            |       | 3,542 |   | 5,067 |   | 143.1 | % |
| Total Installation, Test and Maintenance                                        |       | 9,553                            |       | 4,536 |   | 5,017 |   | 110.6 | % |
| Total Commercial  Gross Profit                                                  |       | 27,328                           |       | 18,817 |   | 8,511 |   | 45.2 | % |
| Consumer Gross  Profit - Mobile Devices and Accessories                         |       | 757                              |       | 7,205 |   | (6,448 | ) | (89.5 | %) |
| Total Gross  Profit                                                             |       | 28,085                           |       | 26,022 |   | 2,063 |   | 7.9 | % |
|                                                                            |       |                             |       |   |   |   |   |   |   |
| Selling, general  and administrative expenses                                   |       | 24,968                           |       | 23,960 |   | 1,008 |   | 4.2 | % |
| Income from operations                                                          |       | 3,117                            |       | 2,062 |   | 1,055 |   | 51.2 | % |
| Interest, net                                                                   |       | 155                              |       | 38 |   | 117 |   | NM |   |
|                                                                            |       |                             |       |   |   |   |   |   |   |
| Income before provision for income taxes                                        |       | 2,962                            |       | 2,024 |   | 938 |   | 46.3 | % |
| Provision for  income taxes                                                     |       | 1,109                            |       | 789 |   | 320 |   | 40.6 | % |
| Net income                                                                      |       | $                                | 1,853      |   | $ | 1,235 |   | $ | 618 |   | 50.0 | % |
| Diluted earnings  per share                                                     |       | $                                | 0.43       |   | $ | 0.29 |   | $ | 0.14 |   | 48.3 | % |

 

NM - not meaningful

14

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** **

**First Quarter of Fiscal Year 2007 Compared with First Quarterof Fiscal Year 2006**

----

###### ** **

###### **Revenues. **Revenues for thefirst quarter of fiscal year 2007 decreased 25% as compared with the firstquarter of fiscal year 2006, primarily due to a 98% decrease in consumerrevenues, partially offset by a 50% growth in commercial revenues.  While total sales in our mobile devices andaccessories line of business declined due to the large decrease in consumersales, we grew sales in all of our commercial lines of business.

###### Sales in themobile devices and accessories line of business decreased 56% in the firstquarter of fiscal year 2007, as compared with the prior-year period.  The decrease was due to a 98% decrease inconsumer sales, offset by a 79% increase in commercial sales.  The decrease in consumer sales wasattributable to the transition in the second quarter of fiscal year 2006 of theTESSCO provided e-commerce marketing and sales system to T-Mobile’s ownin-house web solution and alternative third-party logistics provider.  The increase in commercial revenues formobile devices and accessories, which are sold primarily to SMUs, governmentsand resellers, but also to public carriers and network operators, was primarilydue to increased sales of accessory products to carrier and independent retailcustomers.  During the third quarter offiscal year 2006, we began supplying several new wireless carrier customers,including one large Tier 1 national carrier.

###### The 8%increase in our network infrastructure sales as compared with the first quarterof last year is primarily attributable to an increase in sales of fixedwireless broadband products and wireless local area network (WLAN)products.  These increases were largely aresult of our acquisition of TerraWave and GigaWave, which primarily offer WLANproducts and training.  The market forbroadband and network equipment products continues to emerge and grow.  The market for radio frequency (RF) propagationproducts continues to be challenging, especially in cable products; however,our revenue for these products increased over the prior-year quarter, primarilydriven by growth in antenna systems and tower site support products. Most ofour growth in sales of network infrastructure product was in sales to SMUs,governments and resellers, as we have focused on diversification beyond thetraditional infrastructure carrier customer. Although we believe the market for both broadband and RF propagationproducts will continue to grow, there can be no assurance that these trends willcontinue.

###### Revenues fromour installation, test and maintenance line of business had a 100% increasefrom the prior-year quarter, primarily due to large sales of repair parts earlyin the quarter related to our expanded major repair components relationshipwith Nokia.  This increase in revenue wasin part due to one-time large sales to certain customers.  Going forward, we expect that revenues fromsales of these repair components will not continue at this level, but willreturn to levels more consistent with those experienced last fiscal year.

###### **GrossProfit. **Grossprofit for the first quarter of fiscal year 2007 increased 8% as compared withthe first quarter of fiscal year 2006. Total commercial gross profit grew 45%,while consumer gross profit decreased 89% as a result of the transition of theT-Mobile relationship as discussed above. Gross profit margin increased to 25.1% in the first quarter of fiscalyear 2007 from 17.5% in first quarter of fiscal year 2006.  Gross profit margin in our network infrastructuresegment increased from 23.9% in the first quarter of fiscal year 2006 to 24.1%in the first quarter of fiscal year 2007. In our installation, test and maintenance segment, gross profit marginincreased to 31.0% in the first quarter of fiscal year 2007 from 29.4% in thefirst quarter of fiscal year 2006, which was primarily driven by large sales ofrepair components as discussed above. Generally, our gross margins by product within these segments have beensustained and these variations are related to sales mix within the segmentproduct offerings, including repair and replacement parts in our installation,test and maintenance line of business, an increased portion of which wasaccounted for on a net revenue basis. Gross profit margin in our mobile devices and accessories segmentincreased to 21.7% in the first quarter of this fiscal year from 13.4% in thefirst quarter of last year.  Thisincrease is primarily attributable to a large decrease in low margin consumersales which had been related to the T-Mobile relationship, partially offset bya decrease in gross profit margin for our commercial sales.  The decrease in commercial gross profitmargin for our mobile devices and accessories, from 25.4% in the first quarterof last fiscal year to 20.7% for the first quarter of this fiscal year, isattributable to sales mix within the product offering in part due to new retailrelationships established in the third quarter of fiscal year 2006.  We account for inventory at the lower of costor market, and as a result, write-offs/write-downs occur due to damage,deterioration, obsolescence, changes in prices and other causes.

###### Our ongoingability to earn revenues and gross profits from customers and vendors lookingto us for product and supply chain solutions is dependent upon a number offactors.  The terms, and accordingly thefactors, applicable to each affinity

15

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###### relationshipoften differ.  Among these factors arethe strength of the customer’s or vendor’s business, the supply and demand forthe product or service, including price stability, changing customer or vendorrequirements, and our ability to support the customer or vendor and tocontinually demonstrate that we can improve the way they do business.  In addition, the agreements or arrangementson which our affinity relationships are based are typically of limitedduration, and are terminable by either party upon several months or otherwiserelatively short notice.  These affinityrelationships could also be affected by wireless carrier consolidation.

###### **Selling,General and Administrative Expenses.** Total selling, general and administrativeexpenses increased by 4% in the first quarter of fiscal year 2007 as comparedwith the first quarter of fiscal year 2006. Selling, general and administrative expenses as a percentage of revenuesincreased to 22% in the first quarter of fiscal year 2007 from 16% in the firstquarter of fiscal year 2006, primarily due to the large decrease in consumerrevenues and increased expenses related to business generation activities asdiscussed below, partially offset by decreased freight costs.

###### The largestfactors contributing to the increase in total selling, general andadministrative expenses were increased labor expenses related to businessgeneration activities. These increases are reflective of our increased focus onour commercial business.  Labor costshave also increased over the prior-year quarter due to increased accrualsrelated to our reward programs, including Performance Stock Units (PSU). Rewardprogram expense is based on actual results to date and management’s currentestimates of future performance in relation to pre-determined performancetargets. Labor costs were also impacted by the acquisition of TerraWave andGigaWave in April 2006.  Total laborcosts, including benefits, increased by approximately $2.2 million from thefirst quarter of fiscal year 2006 to the first quarter of fiscal year 2007.

###### Marketingexpenses also increased in the first quarter of fiscal year 2007 as comparedwith the first quarter of fiscal year 2006. Near the end of the first quarter of fiscal year 2006, we retained RTCRelationship Marketing, a direct- and database- marketing firm to increasemarket awareness of TESSCO’s value proposition and product and solutionsoffering among potential and existing customers.  Marketing expense also increased due to salespromotion costs related to increased sales to retail customers.  Total marketing and sales promotion expensesincreased by approximately $1.3 million from the first quarter of fiscal year2006 to first quarter of fiscal year 2007.

###### Freight costsin the first quarter of fiscal year 2007 decreased approximately $2.2 millionover the prior-year quarter, primarily due to the loss of consumer salesassociated with our T-Mobile relationship which ended in the second quarter offiscal year 2006.  This decrease waspartially offset by the freight costs associated with the increase incommercial sales.

###### We continuallyevaluate the credit worthiness of our existing customer receivable portfolioand provide an appropriate reserve based on this evaluation.  We also evaluate the credit worthiness ofprospective customers and make decisions regarding extension of credit terms tosuch prospects based on this evaluation. Accordingly, we recorded a provision for bad debts of $339,800 and$346,900 for the first quarter ended June 25, 2006 and June 26, 2005,respectively.

###### **Interest,Net.**  Netinterest expense increased from $38,000 in the first quarter of fiscal year2006 to $155,300 in the first quarter of fiscal year 2007 primarily due toincreased interest expense on our revolving credit facility, as well asincreased interest expense on our existing term bank loan due to higherinterest rates.  As noted below, weentered into a receive variable/pay fixed interest rate swap on our existingbank loan, thus fixing the interest rate on this loan at 6.38%.  Interest expense on our other debtinstruments had only minor variances from year-to-year in total.

###### **IncomeTaxes, Net Income and Diluted Earnings per Share.** The effective tax rate in the first quarter offiscal year 2007 was 37.4% as compared with 39.0% in the first quarter offiscal year 2006.  As a result of thefactors discussed above driving growth in sales and gross profit, net incomeand diluted earnings per share for the first quarter of fiscal year 2007increased 50% and 48%, respectively, over the prior-year quarter.

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

----

###### ** **

###### We generated$6.3 million of net cash in the first three months of fiscal year 2007 comparedwith a net cash outflow of $3.2 million in the first three months of fiscalyear 2006.  In the first quarter offiscal year 2007, our cash inflow from operating activities was primarilydriven by net income, a significant increase in trade accounts payable and asignificant decrease in trade accounts receivable, partially offset by anincrease in product inventory.  Theincrease in product inventory and trade accounts payable was primarily due toour expanded major repair components relationship with Nokia

16

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###### as well asincreased purchases and on-hand inventory for our mobile devices andaccessories vendors.   At June 25, 2006, repair and component partspurchased from Nokia accounted for 29% of the dollar value of our total productinventory, based on the purchase price for the inventory.  Trade accounts receivable decreased due tothe timing of collections from our customers, many of whom maintain accountswith open terms.

###### Capitalexpenditures of $1.0 million in the first quarter of fiscal year 2007 were upfrom expenditures of $0.6 million in the first quarter of fiscal year2006.  In both periods, capitalexpenditures primarily consisted of investment in information technology and infiscal year 2007, also included training equipment.

###### On April 21,2006, the Company acquired substantially all the non-cash net assets ofTerraWave Solutions, Ltd. and its commonly owned affiliate, GigaWaveTechnologies, Ltd. for an initial cash payment of approximately $3.8 million,and additional cash earn-out payments over a four-year period, contingent onthe achievement of certain minimum earnings thresholds ($1.5 million of the$3.8 million cash amount paid at closing is a non-refundable prepayment againstfuture earn-out payments, if any).  Tothe extent that certain minimum earnings thresholds are not achieved, theCompany will not be able to recover this prepayment.  The maximum amount of contingent futureearn-out payments (after subtracting the $1.5 million prepayment) is $15.5million.  Any contingent payments madeunder the terms of the purchase agreement will be treated as an additional costof the acquired businesses and additional goodwill will be recorded.  Additionally, acquisition related transactioncosts, primarily comprised of legal and accounting fees, totaled $77,100through the end of the first quarter.

###### Net cash usedfor financing activities was $122,100 in the first quarter of fiscal year 2007compared with net cash used for financing activities of $69,000 for the firstquarter of fiscal year 2006.  During thefirst quarter of fiscal year 2007, we purchased 8,800 shares of our outstandingcommon stock pursuant to our stock buyback program.  No shares were purchased in the first quarterof fiscal year 2006.  From the beginningof our stock buyback program (the first quarter of fiscal 2004), through theend of the first quarter of fiscal year 2007, a total of 509,503 shares havebeen purchased under this program for approximately $5.9 million, or an averageprice of $11.59 per share.  The Board ofDirectors had authorized the purchase of up to 900,000 shares in theaggregate.  On July 17, 2006, the Boardof Directors amended the program, authorizing the purchase of an additional400,000 shares, and therefore, 790,497 shares remained available to be purchasedas of that date.  We expect to fundfuture purchases, if any, from working capital and/or our revolving creditfacility.  No timetable has been set forthe completion of this program.

###### To minimizeinterest expense, our policy is to use excess available cash to pay down anybalance on our $30 million revolving credit facility.  We expect to meet short-term and long-termliquidity needs through operating cash flow, supplemented by our existingrevolving credit facility.  In doing so,the balance on our revolving credit facility could increase depending on ourworking capital and other cash needs.  Ifwe were to undertake an acquisition or other major capital purchases thatrequire funds in excess of its existing sources of liquidity, we would look tosources of funding from additional credit facilities, debt and/or equityissuances.  There can be no assurancesthat such additional future sources of funding would be available.  Our current revolving line of credit expiresin September 2007.

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

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

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###### ** **

###### Our discussionand analysis of our financial condition and results of our operations are basedon our unaudited consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United States. Thepreparation 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. Actual results may differ from these estimates under different assumptions orconditions.

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###### We haveidentified the policies below as critical to our business operations and theunderstanding of our results of operations. For a detailed discussion on theapplication of these and other accounting policies, see the Notes to theConsolidated Financial Statements in our Form 10-K for the fiscal year ended March26, 2006.

###### *RevenueRecognition*.  Werecord revenue when 1) persuasive evidence of an arrangement exists, 2)delivery has occurred or services have been rendered, 3) our price to the buyeris fixed and determinable, and 4) collectibility is reasonably assured. Ourrevenue recognition policy includes evidence of arrangements for significantrevenue transactions through either receipt of a customer purchase order or aweb-based order.  We record revenue whenrisk of loss has passed to the customer and, in most cases, shipments are madeusing FOB shipping terms.  For a smallportion of our sales, we use FOB destination terms and record the revenue whenthe product is received by the customer. Our prices are always fixed at the time of sale.  Historically, there have not been anymaterial concessions provided to or by customers, future discounts, or otherincentives subsequent to a sale. We sell under normal commercial terms and,therefore, we only record sales on transactions where collectibilty isreasonably assured.

###### Because oursales transactions meet the conditions set forth in Statement of FinancialAccounting Standard (SFAS) No. 48, “Revenue Recognition When Right of ReturnExists,” we recognize revenues from sales transactions containing sales returnsprovisions at the time of the sale. These conditions require that 1) our price be substantially fixed anddeterminable at the date of sale, 2) the buyer is obligated to pay us, and suchobligation is not contingent on their resale of the product, 3) the buyer’sobligation to us does not change in the event of theft or physical destructionor damage of the product, 4) the buyer has economic substance apart from us, 5)we do not have significant obligations for future performance to directly bringabout resale of the product by the buyer, and 6) the amount of future returnscan be reasonably estimated.  Because ournormal terms and conditions of sale are consistent with conditions 1-5 above,and we are able to perform condition 6, we make a reasonable estimate ofproduct returns in sales transactions and accrue a sales return reserve basedon this estimate.

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

###### Most of oursales arrangements do not contain multiple elements.  However, when we enter into arrangements thatdo contain multiple elements, we follow the guidance under EITF No. 00-21, “RevenueArrangements with Multiple Deliverables.” Therefore, at the inception of the arrangement, we determine if eachdeliverable under the arrangement represents a separate unit ofaccounting.  We do this by determiningwhether the undelivered items have value to the customer on a stand-alone basis(if it is sold separately by any other vendor or the customer could resell thedelivered item on a stand-alone basis), if there is objective and reliableevidence of the fair value of the item, and whether the delivery or performanceof the undelivered item is considered probable and substantially in our control(in cases where the arrangement includes a general right of return relative tothe delivered item).

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###### *Allowancefor Doubtful Accounts*. We use estimates to determine the amount of the allowance for doubtfulaccounts necessary to reduce accounts receivable and unbilled receivables totheir expected net realizable value. We estimate the amount of the requiredallowance by reviewing the status of past-due receivables and analyzinghistorical bad debt trends. Actual collection experience has not variedsignificantly from estimates, due primarily to credit policies, collectionexperience and our stability as it relates to its current customer base.  Typical payments from commercial customersare due 30 days from the date of the invoice. Sales made to consumers are primarily made through credit cardtransactions.  We charge-off receivablesdeemed to be uncollectible to the allowance for doubtful accounts.  Accounts receivable balances are notcollateralized.

###### *Impairmentof Long-Lived and Indefinite-Lived Assets*.  Our Consolidated Balance Sheet includesgoodwill of approximately $3.1 million. We perform an annual impairment test for goodwill on the first day ofour fourth quarter.  We also periodicallyevaluate our long-lived assets and intangible assets for potential impairmentindicators.  Our judgments regarding theexistence of impairment indicators are based on estimated future cash flows,market conditions, operational performance and legal factors.  Future events, such as significant changes incash flow assumptions, could cause us to conclude that impairment indicatorsexist and that the net book value of goodwill, long-lived assets or intangibleassets are impaired.  Had thedetermination been made that the goodwill asset was impaired, the value of thisasset would have been reduced by an amount up to $3.1 million, resulting in acharge to operations.

###### *IncomeTaxes*.  Werecognize deferred tax assets and liabilities based on the differences betweenthe financial statement carrying amounts and the tax bases of assets andliabilities.  We regularly review ourdeferred tax assets for recoverability. This review is based on historical taxable income, projected futuretaxable income and the expected timing of the reversals of existing temporarydifferences.  Based on this review, wehave not established a valuation allowance.  If we are unable to generate sufficient taxable income, or if there is amaterial change in the actual effective tax rates or time period within whichthe underlying temporary differences become taxable or deductible, we could berequired to establish a valuation allowance against all or a significantportion of our deferred tax assets, resulting in a substantial increase in oureffective tax rate and a material adverse impact on our operating results.

###### In July, 2006,the Financial Accounting Standards Board (FASB) issued Interpretation No. 48(FIN 48), “Accounting for Uncertainty in Income Taxes,” which clarifies theaccounting for income taxes by prescribing the minimum recognition threshold atax position is required to meet before being recognized in the financialstatements.  FIN 48 also providesguidance on derecognition, measurement, classification, interest and penalties,accounting in interim periods, disclosure and transition. FIN 48 is effectivefor fiscal years beginning after December 15, 2006.  The Company is reviewing FIN 48 to determinethe impact of adoption on its financial statements.

###### *Stock-BasedCompensation*. Effective March 27, 2006, we adopted Statement of Financial AccountingStandards (SFAS) No. 123R, “Share-Based Payment,” using the modifiedprospective application transition method. Because the fair value recognitionprovisions of SFAS No. 123, “Accounting for Stock-Based Compensation,”which we had previously adopted effective March 29, 2004, and SFASNo. 123R are generally consistent with respect to our share-based payments(other than as described below), the adoption of SFAS No. 123R did nothave a material impact on our financial position, results of operations or cashflows.

###### SFAS No. 123Rrequires us to include in our calculation of periodic stock compensationexpense an estimate of future forfeitures. Previously, in accordance with SFAS No. 123, we included forfeitures inits calculation of stock compensation expense when the PSUs were actuallyforfeited.  This change did not have amaterial impact on our  financialposition or results of operations for the quarter.  Prior to the adoption of SFAS No. 123R,benefits of tax deductions in excess of recognized compensation costs werereported as operating cash flows. SFAS No. 123R requires excess taxbenefits be reported as a financing cash flow.

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

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###### ** **

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

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** **

**Forward-Looking Statements******

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## ** **

## This Reportcontains a number of forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995, all of which are based oncurrent expectations. These forward-looking statements may generally beidentified by the use of the words “may,” “will,” “believes,” “should,” “expects,”“anticipates,” “estimates,” and similar expressions. Our future results ofoperations and other forward-looking statements contained in this reportinvolve a number of risks and uncertainties, including those describedthroughout this Quarterly Report on Form 10-Q and referenced under Item 1Abelow. For a variety of reasons, actual results may differ materially fromthose described in any such forward-looking statement.  Consequently, the reader is cautioned toconsider all forward-looking statements in light of the risks to which they aresubject.

**Available Information******

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## ** **

## Our InternetWeb site address is: www.tessco.com. We make available free of charge throughour Web site, our annual report on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K and amendments to those reports filed or furnishedpursuant to Section 13 or 15(d) of the Exchange Act as soon as reasonably practicableafter such documents are electronically filed with, or furnished to, theSecurities and Exchange Commission.  Alsoavailable on our Web site is our Code of Business Conduct and Ethics.

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

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

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

The Company’s ChiefExecutive Officer (CEO) and Chief Financial Officer (CFO) have evaluated theeffectiveness of the Company’s disclosure controls and procedures (as such termis defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Actof 1934, as amended (Exchange Act)) as of the end of the period covered by thisquarterly report. A control system, no matter how well designed and operated,can provide only reasonable, not absolute, assurance that the control system’sobjectives will be met. Based on the evaluation of these controls andprocedures required by Rules 13a-15(b) or 15d-15(b) of the Exchange Act,the Company’s management, including the CEO and CFO, have concluded that, as ofthe end of the period covered by this quarterly report, the Company’sdisclosure controls and procedures were effective to provide reasonableassurance that information required to be disclosed by the Company in reportsthat it files or submits under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the Securities andExchange Commission’s rules and forms and to provide reasonable assurance thatsuch information is accumulated and communicated to the Company’s management,including the Company’s CEO and CFO, as appropriate to allow timely decisionsregarding required disclosure. During the period covered by this quarterlyreport, there have been no changes to the Company’s internal control overfinancial reporting that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

**Part II. Other Information**

**Item1.  Legal Proceedings**

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

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**Item1A.  Risk Factors**

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

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

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

**IssuerPurchases of Equity Securities**
| **Period (1)**                    | ** ** | **Total Number  of Shares  Purchased** | ** ** | **Average  Price Paid  Per Share** | ** ** | **Total Number of  Shares Purchased  as Part of Publicly  Announced Plans  or Programs** | ** ** | **Maximum  Number of Shares  that May Yet Be  Purchased under  the Plans or  Programs (2)** | ** ** |
|----------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------|------------|
| March 27, 2006  through April 23, 2006 |       | —                                           |       | N/A                                          |       | —                                                                                                                           |       | 399,297                                                                                                                                  |       |
| April 24, 2006  through May 28, 2006   |       | 2,200                                            |       | $                                            | 21.13      |                                                                                                                             | 2,200      |                                                                                                                                     | 397,097    |   |
| May 29, 2006  through June 25, 2006    |       | 6,600                                            |       | $                                            | 20.08      |                                                                                                                             | 6,600      |                                                                                                                                     | 390,497    |   |
| Total                                  |       | 8,800                                            |       | $                                            | 20.34      |                                                                                                                             | 8,800      |                                                                                                                                     | 390,497    |   |

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

(2)          Values are as of the end of the fiscal accounting monthor quarter, as applicable.

On April 28, 2003, ourBoard of Directors announced a stock buyback program and authorized thepurchase of up to 450,000 shares of our common stock pursuant to theprogram.  On October 20, 2005, our Boardof Directors amended the program and authorized the purchase of an additional450,000 shares of outstanding commons stock. As of June 25, 2006, we had purchased an aggregate of 509,503 shares ofour outstanding common stock pursuant to this program for approximately $5.9 million,or an average price of $11.59 per share. All shares repurchased during the first quarter of fiscal year 2007 wererepurchased under this program.  On July17, 2006, our Board of Directors amended the program and authorized thepurchase of an additional 400,000 shares of outstanding common stock, and as ofthat date, 790,497 shares remained available to be purchased under theprogram.  Shares may be purchased fromtime to time in the open market, by block purchase, or through negotiatedtransactions, or possibly other transactions managed by broker-dealers.  No timetable has been set for completion ofthe program.

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

None

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

The Company held itsAnnual Meeting of Shareholders at the Company’s facility located in HuntValley, Maryland on July 20, 2006.  Atthe meeting, the shareholders were asked to vote on the election of directorsand the ratification of the appointment of the Company’s independent registeredpublic accounting firm.  Each of theseproposals was described in the Company’s Definitive Proxy Statement filed withthe Commission on June 19, 2006.

ELECTION OFDIRECTORS.  At the meeting, theshareholders re-elected John D. Beletic, Daniel Okrent and Morton F. Zifferer,Jr. for a three-year term expiring at the Company’s 2009 Annual Meeting ofShareholders and until their successors are duly elected and qualify.  The term of office of each of Jerome C.Eppler, Susan D. Goodman, Dennis J. Shaughnessy, Robert B. Barnhill, Jr. andBenn R. Konsynski also continued after the meeting.  The votes cast for Messrs. Beletic, Okrentand Zifferer were as follows:
| John D. Beletic          |   | 3,336,427 |   | For                 |
|--------------------------|--------|-----------|--------|---------------------|
|                     |   | 13,581    |   | Against or Withheld |
|                     |   |      |   |                |
| Daniel Okrent            |   | 3,321,303 |   | For                 |
|                     |   | 28,705    |   | Against or Withheld |
|                     |   |      |   |                |
| Morton F.  Zifferer, Jr. |   | 3,330,402 |   | For                 |
|                     |   | 19,606    |   | Against or Withheld |

 

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INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM.  Atthe meeting, the shareholders ratified the appointment of Ernst & Young LLPto serve as the independent registered public accounting firm of the Companyfor the fiscal year ending April 1, 2007. The number of votes “for” was 3,343,957, the number of votes “against”or “withheld” was 3,844, and the number of abstentions was 2,207.

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

None

 

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

(a)                Exhibits:

| 10.1 |   | Asset Purchase Agreement, Dated as of April 5, 2006,  by and among TerraWave Solutions, Ltd., Gigawave Solutions, Ltd. and TESSCO  Incorporated and GW Services Solutions, Inc. |
|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1 |   | Rule 15d-14(a) Certification of Robert B. Barnhill,  Jr., Chief Executive Officer.                                                                                              |
| 31.2 |   | Rule 15d-14(a) Certification of David M. Young,  Chief Financial Officer.                                                                                                       |
| 32.1 |   | Section 1350 Certification of Robert B. Barnhill,  Jr., Chief Executive Officer.                                                                                                |
| 32.2 |   | Section 1350 Certification of David M. Young, Chief  Financial Officer.                                                                                                         |

 

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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:  August 9, 2006 |   | By:                               |   | /s/ David M. Young |
|                       |   |                              |   | David M. Young |
|                       |   |                              |   | Chief Financial Officer |
|                       |   |                              |   | (principal financial and accounting officer) |

 

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