**UNITED STATES SECURITIES ANDEXCHANGE COMMISSION****Washington, D.C. 20549**

 

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**FORM 10-K**

 

| **x**      | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED  MARCH 30, 2008**                                                                                                                                        |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                |
| **o**      | ** ** | **TRANSITION REPORT 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**

(Exactname of registrant as specified in its charter)

 

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

 

Registrant’s telephonenumber, including area code **(410) 229-1000**

 

Securities registeredpursuant to Section 12(b) of the Act:

 

| **Title of  each class**       | ** ** | **Name of  each exchange on which registered** |
|--------------------------------|------------|------------------------------------------------|
| Common Stock, $0.01 par  value |       | NASDAQ Global Market                           |

 

Securities registeredpursuant to Section 12(g) of the Act:

**None**

 

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Indicate by check mark if the registrant is a  well-known seasoned issuer (asdefined in Rule 405 of the Act). Yes o**  **No x

 

Indicate by check mark if the registrant is not required to filereports pursuant to Section 13 or 15(d) of the Act. Yes o**  **No x

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not becontained, to the best of registrant’s knowledge, in definitive proxy or otherinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. o

 

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

 

| Large accelerated filer o                     |   | Accelerated filer o         |
|-----------------------------------------------|--------|----------------------------------|
|                                          |   |                             |
| Non-accelerated filer o                       |   | Smaller reporting company x |
| (Do not check if a smaller reporting company) |   |                             |

 

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

 

The aggregate market value of Common Stock, $0.01 par value, held bynon-affiliates of the registrant based on the closing sales price of the CommonStock as quoted on the NASDAQ Global Market as of September 30, 2007, was $56,052,996**.**

 

The number of shares of the registrant’s Common Stock, $0.01 par value,outstanding as of June 4, 2008,was 5,306,362.

 

**DOCUMENTS INCORPORATED BYREFERENCE: **Portions of the definitive Proxy Statement tobe delivered to stockholders in connection with the 2008 Annual Meeting ofShareholders scheduled to be held July 24, 2008, are incorporated byreference into Part III.

 

 

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# **TABLE OF CONTENTS**

 
| **PART 1**   | ** **                                                                                                          | ** ** |
|-------------------|---------------------------------------------------------------------------------------------------------------------|------------|
| Item 1.           | Business                                                                                                            |       |
| Item 1A.          | Risk Factors                                                                                                        |       |
| Item 1B.          | Unresolved  Staff Comments                                                                                          |       |
| Item 2.           | Properties                                                                                                          |       |
| Item 3.           | Legal Proceedings                                                                                                   |       |
| Item 4.           | Submission  of Matters to a Vote of Security Holders                                                                |       |
| **PART II**  | ** **                                                                                                          | ** ** |
| Item 5.           | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities |       |
| Item 6.           | Selected  Financial Data                                                                                            |       |
| Item 7.           | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         |       |
| Item 8.           | Financial  Statements and Supplementary Data                                                                        |       |
| Item 9.           | Changes in  and Disagreements With Accountants on Accounting and Financial Disclosure                               |       |
| Item 9A(T).       | Controls and  Procedures                                                                                            |       |
| Item 9B.          | Other Information                                                                                                   |       |
| **PART III** | ** **                                                                                                          | ** ** |
| Item 10.          | Directors, Executive  Officers and Corporate Governance                                                             |       |
| Item 11.          | Executive Compensation                                                                                              |       |
| Item 12.          | Security Ownership of  Certain Beneficial Owners and Management and Related Stockholder Matters                     |       |
| Item 13.          | Certain Relationships and  Related Transactions, and Director Independence                                          |       |
| Item 14.          | Principal  Accounting Fees and Services                                                                             |       |
| **Part IV**  | ** **                                                                                                          | ** ** |
| Item 15.          | Exhibits  Financial Statement Schedules                                                                             |       |
| Schedule  II:     | Valuation  and Qualifying Accounts                                                                                  |       |
| Signatures        |                                                                                                                |       |

 

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# **Part I**

 

## **Item 1. Business.**

## ** **

### **General**

### ** **

TESSCO Technologies Incorporated (TESSCO, or theCompany) is a leading provider of integrated product and supply chain solutionsto the professionals that design, build, run, maintain and use wireless mobile,fixed and in-building systems.

 

We link customers with integrated product and supplychain solutions configured from product choices made by world-classmanufacturers. While creating Your Total Source® opportunity for ourcustomers to improve the way business is done, we present, market, sell,supply, and support manufacturers’ products as a part of a total customersolution, thus providing a cost-effective channel to a broad and diversecustomer base.

 

Our operational platform, which we refer to as ourKnowledge, Configuration, Delivery and Control System (KCDCTM),allows customers and manufacturers the opportunity to streamline the supplychain process and lower total inventories and costs by providing guaranteedavailability and complete, on-time delivery to the point of use.

 

We began our “total source” operations in 1982,reincorporated as a Delaware corporation in 1987, and have been listed on theNASDAQ Global Market (symbol: TESS) since 1994. Today, we operate 24 hours aday, seven days a week, under ISO 9001:2000 registration. Our solution offeringfalls within the broad business segment categories of network infrastructure,mobile devices and accessories, and installation, test and maintenanceproducts.

 

We currently serve an average of approximately 8,700commercial customers whose purchases each exceed $250 per month, and 2,300consumers per month, including a diversified mix of carrier and public networkoperators, infrastructure site owners, program managers, contractors andintegrators, industrial and enterprise self-maintained users, governments,manufacturers, repair centers, retailers, dealers and value-added resellers,affinity partners and consumers.

 

On November 29, 2006,we issued a stock dividend in order to effect a 3-for-2 stock split of ourcommon stock. The share prices and number of shares included in this AnnualReport on Form 10-K prior to the November 29, 2006 stock split havebeen retroactively restated to reflect the stock dividend for all periodspresented.

 

**Products and Services**

 

We identify, select, present, market, sell, supply,and support products and services required to design, build, run, maintain anduse a wireless system. We principally offer competitively priced, manufacturerbrand-name products, ranging from simple hardware items to sophisticated test equipment,with per item prices ranging from less than $1 to $75,000 and gross profitmargins ranging from less than 5% to over 95%. During fiscal year 2008, weoffered products classified into our three business segments: networkinfrastructure, mobile devices and accessories, and installation, test andmaintenance products, which accounted for approximately 32%, 52% and 16% ofrevenues, respectively. Network infrastructure products are used to build,repair and upgrade wireless telecommunications, computing and Internetnetworks, and generally complement radio frequency transmitting and switchingequipment provided directly by original equipment manufacturers (OEMs).Products include base station antennas, cable and transmission lines, fixedbroadband equipment, filtering systems, small towers, lightning protectiondevices, connectors and miscellaneous hardware. Our network infrastructureservice offering includes connector installation, custom jumper assembly,filter product tuning, site kitting and logistics integration. Mobile devicesand accessory products include cellular phone and data device accessories suchas replacement batteries, cases, speakers, mobile amplifiers, power supplies,headsets, mounts, and car antennas, as well as two-way radios and relatedaccessories. Retail merchandising displays, promotional programs, customizedorder fulfillment services and affinity-marketing programs, such as providingoutsourced call centers and private label Internet sites, complement our mobiledevices and accessory product offering. Installation, test and maintenanceproducts are used to install, tune, maintain and repair wireless communicationsequipment. Products include sophisticated analysis equipment and variousfrequency-, voltage- and power-measuring devices, as well as an assortment oftools, hardware, replacement and component parts and supplies required byservice technicians. For more detailed financial information regarding our 

 

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business segments for each of the past three fiscal years, see Note 10to the Consolidated Financial Statements included in Item 8 to this AnnualReport on Form 10-K for the fiscal year ended March 30, 2008.

 

While we principally provide manufacturer brand-nameproducts, a variety of products, which are primarily subscriber accessoryproducts and infrastructure accessory components, are developed and offeredunder TESSCO owned-brands, Wireless SolutionsÒ,TerraWave® and Airstream. Also, our WLAN certificationtraining is offered under our GigaWave® trade name. We have not incurred significantresearch and development expenditures in any of the last three fiscal years.

 

Our products are sold aspart of our integrated product and supply chain solutions. Our supply chainservices for all product areas are grouped under Knowledge, Configuration,Delivery and Control. Knowledge solutions include the entire suite of TESSCOpublications that focus on product choice comparison, with comprehensivespecifications organized by product, not manufacturer, reinforced byengineering, sales and technical support staff and hands-on training programs.Configuration services are comprised of customized product kitting, logisticsmanagement and consumer and retail merchandising and marketing, allowing theproducts to be delivered ready for immediate use, installation or resale. Ourdelivery system allows the customer to select 1-, 3- or 5-day “just-in-time”delivery, to specific delivery locations, designed to eliminate the customer’s need for staging and warehousing.Our services that increase customer control include predetermined monthlypricing levels, the ability to monitor multi-site purchasing with pre-approved,customized parameters indicating who is able to order how much of whichspecific products, order delivery tracking, product and usage tracking andhistory reporting and alternative financing options.

 

As part of our commitment to customer service, wetypically allow customers to return most products for any reason, for credit,within 30 days of the date of purchase. Total returns and credits havebeen less than 5% of revenues in each of the past three fiscal years.

 

As of March 30,2008, we offered products purchased from approximately 360 manufacturers. Asubstantial portion of our inventory purchases are concentrated with a smallnumber of vendors. In fiscal year 2008, products purchased from our largestvendor, Motorola Inc., generated approximately 16% of our revenue. Our nextnine top vendors accounted for approximately 33% of our fiscal year 2008revenues, thus resulting in revenue from sales of products purchased from ourtop ten vendors of approximately 49% of our total revenues. Although we do notmaintain long-term supply contracts with our vendors, we believe that, forother than those products purchased by us as part of our affinity relationshipsas described below, alternative sources of supply are available for many of theproduct types we carry. The agreements andarrangements on which most of our affinity relationships are based, are oflimited duration and terminable by either party upon several months or otherwise short notice.

 

In mid-September 2005,T-Mobile, previously our largest affinity and overall customer relationship,completed its transition from the TESSCO provided e-commerce marketing andsales system to an in-house Web solution and alternative third-party logisticsprovider, and thus revenues then ceased from this relationship.

 

We supply repair andreplacement materials to authorized service centers for Nokia Inc. (Nokia) inthe United States, Canada and Latin America. Sales of the Nokia repair andreplacement materials, that we purchase from Nokia and sell to approximately1,200 separate and distinct service centers, accounted for approximately 8% ofour total revenues in fiscal year 2008. This relationship is a complete supplychain relationship and, therefore, we have no alternative sources of supply,and our purchases, and ultimately our resale of these products, is dependentupon the continuation of the Nokia relationship. We also sell products otherthan Nokia repair and replacement materials to many of these customers. Absentthis arrangement with Nokia, we would maintain the ability to sell these otherproducts to these customers.

 

We are dedicated to superior performance and quality andconsistency of service in an effort to maintain and expand these types ofrelationships, but there can be no assurance that we will continue to besuccessful in this regard in the future, or that competitive pressures or otherevents beyond our control will not have a negative impact on our ability tomaintain these relationships or to continue to derive revenue from theserelationships.

 

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**Customers**

 

Our customer base consists of commercial customers andconsumers, which accounted for approximately 98% and 2%, respectively, offiscal year 2008 revenues. Commercial customers share the characteristic thatthey are organizations that design, install, operate, repair or sell some typeof wireless communications system. Beginning in fiscal year 2008, we categorizeour commercial customers into three different categories:  1) public carriers and network operators, 2)resellers and 3) self-maintained users (SMUs) and governments, which accountedfor approximately 12%, 62% and 24%, respectively, of fiscal year 2008 revenues.

 

Public carriers and network operators are systemoperators that are generally responsible for building and maintaining theinfrastructure system and providing airtime service to individual subscribers.

 

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. Theseresellers include local and national proprietorships and retailers.

 

SMUs and government customers include commercialentities such as major utilities, transportation companies and installationcenters and federal agencies and state and local governments, including publicsafety organizations.

 

Consumers place orders for devices and relatedaccessories via telephone and the Internet primarily through ouraffinity-marketing programs. Under these programs, we collaborate with ouraffinity-marketing clients to market to their customers under their brands. Inmany cases, we act as the merchant on behalf of the affinity-marketing client,interfacing with the customer, accepting the order, shipping from our inventoryand collecting payment. Our affinity-marketing programs create a high level ofcustomer service and supplementary income for the client through revenue sharepayments. In addition to our affinity programs, we maintain our own internallydeveloped consumer Web site, YourWirelessSource.comTM, which offerscellular phone accessories from OEMs and Wireless Solutions®, our own private brand, and other complementaryconsumer wireless products.

 

Our largest customer relationship, AT&T Mobility(formerly Cingular Wireless), a top tier cellular carrier purchasing phoneaccessories, accounted for approximately 26% of our revenues during fiscal year2008. Our next nine largest customer relationships accounted for 5% of ourtotal revenues during fiscal year 2008, and therefore, our top ten customerrelationships totaled 31% of our total revenues.

 

Although we currently service customers in over 100countries, approximately 96% of our sales have been made to customers in theUnited States during each of the past three years. Due to our diverse productsegments and our wide customer base, our business is not significantly affectedby seasonality. However, sales to our retailers generally peak in our secondand third quarters in preparation for the winter holiday season. Also, ournetwork infrastructure sales are typically affected by weather conditions inthe United States, especially in our fourth quarter.

 

**Method of Operation**

 

We believe that we have developed a highly integrated,technologically advanced and efficient method of operation based on thefollowing key tenets:

 

·                 Understandingand anticipating customers’ needs and building solutions by cultivating lastingrelationships;

·                  Allowingcustomers to make the best decisions by delivering product knowledge, not justinformation, through our knowledge tools, including *The Wireless Guide*, and TESSCO.com®,our Internet-based Solution and Transaction System;

·                  Respondingto what we refer to as “the moments of truth” by providing customers withsales, service and technical support, 24 hours a day, 7 days a week,365 days a year;

·                  Providingcustomers what they need, when and where they need it by delivering integratedproduct and supply chain solutions; and

·                  Helpingcustomers enhance their operations by providing real-time order tracking andperformance measurement.

 

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We operate as a team of teams structured to enhancemarketing innovation, customer focus and operational excellence and consist ofthese integrated units:

 

*Market Development and Sales:*  Inorder to meet the needs of a dynamic and diverse marketplace, sales andmarketing activities are organized on an end-market basis. Sales teams arefocused on: public carrier and network operator (e.g., carriers, infrastructuresite owners, program site managers, contractors and integrators); SMUs andgovernments (e.g., self-maintained users, governments, manufacturers, repaircenters); resellers (e.g. retailers, dealers and value-added resellers); andconsumers (e.g., affinity programs, Web store programs and fulfillment andconsumer services). This organization allows for the development of uniqueproduct and solution offerings to meet the needs of our diverse customer base.

 

We attempt to understand and anticipate customers’needs and to build solutions by cultivating lasting relationships. Ourcommercial customer database contains detailed information on approximately264,000 existing and potential customers, including the names of key personnel,past contacts, inquiries, and buying and credit histories. This extensivecustomer database enables us to identify and target potential customers and tomarket specific products to these targeted customers. Potential customers areidentified through their responses to TESSCO.com®, direct-marketingmaterials, advertisements in trade journals and industry trade shows, as wellas through referrals from other TESSCO customers and vendors. Customerrelationship representatives pursue these customer inquiries throughdistribution of our Knowledge Tools and through phone contact, electroniccommunications and field visits. The information technology system trackspotential customer identification from the initial marketing effort through theestablishment and development of a purchasing relationship. Once a customerrelationship is established, we carefully analyze purchasing patterns andidentify opportunities to encourage customers to make more frequent purchasesof a broader array of products. Scheduled contacts are made to each regularlypurchasing customer for the purpose of information dissemination, ordergeneration, database maintenance and the overall enhancement of the businessrelationship. The process is aimed at the attraction of prospects to TESSCO,the conversion of these prospects to buying customers, and the ultimatemigration to loyal, total-source monthly buyers.

 

*Solutions Development and Marketing:*  We actively monitor advances in technologiesand industry trends, both through market research and continual customer andmanufacturer interaction, and continue to enhance our product offering as newwireless communications products and technologies are developed.

 

In addition to determining the product offering, ourproduct and solutions development teams provide the technical foundation forboth customers and our personnel. The Wireless Product Knowledge System (WPKS)is continually updated to add new products and additional technical informationin response to manufacturer specification changes and customer inquiries. WPKScontains detailed information on each SKU offered, including full productdescriptions, category classifications, technical specifications,illustrations, product cost, pricing and delivery information, alternative andassociated products, and purchase and sales histories. This information isavailable on a real-time basis to all of our personnel for product development,procurement, technical support, cataloging and marketing.

 

We utilize our WPKS to develop both broad-based andcustomized product information materials. These materials are designed toencourage both existing and potential customers to realize the value we providein their product and supply chain decisions. These Knowledge Tools are anintegrated suite of informational print and electronic media. They include: *The Wireless Guide*,which is distributed annually to more than 60,000 current and prospectivebuyers; *The Wireless Journal®*,a bi-monthly trade journal with an annual circulation of approximately 480,000,which is designed to introduce the reader to our capabilities and productofferings, and contains information on significant industry trends and productreviews; *The Wireless Update*, which is emailedmonthly to more than 100,000 different individuals, and is uniquely producedfor various portions of our customer base; the family of Wireless Bulletins including*TheWireless Bulletin for Accessories for Handsets & Music Devices, TheWireless Bulletin for Installation, Test & Maintenance Products, TheWireless Bulletin for Site Planning, The Wireless Bulletin for Training,* and*TheWireless Bulletin for Wireless Networking Solutions,*which are**distributed throughout differenttimes of the year and have an annual circulation of approximately445,000; *The Wireless Guide At-a-Glance*, which isannually distributed to more than 100,000 individuals, Technical Application Notes and White Papers, which providein-depth planning and installation instructions and diagrams; Tech Tips, whichoffer suggestions and ideas from TESSCO customers; and TESSCO.com®.

 

TESSCO.com® is our ecommerce site. It offers online access to a real-timesystem of Knowledge, Configuration, Delivery and Control of product and supplychain solutions. Intended for our commercial customers who design, build, run,maintain and use everything wireless, its feature-rich capabilities include:

 

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·                  Electronicversions of various Knowledge Tools, including: *The Wireless Update*, *The Wireless Journal*®,and five customized versions of *The Wireless Bulletin*;

·                  13 product search options, ranging from keyword searches to product category browsing;

·                  Real-timepricing and product availability;

·                  Easy ordering capabilities, including arecently-improved worksheet ordering tool which allows for the construction andconfiguration of a total-source order; additionally, worksheets can be savedwith or without protection, as well as copied, shared, uploaded and emailed;

·                  Order confirmation – specifying the contents,order status, delivery date, tracking number and total cost of an order;

·                  Order reservations, order status, back-orderdetails and four-month order history;

·                  Theability to view invoices online and customer-specific pricing, based on ourtiered pricing levels tied to a customer’s aggregate purchase volume;

·                  Comprehensive, targeted marketing pages formore than 200 product solutions;

·                  Interactive, how-to illustrations for a rangeof wireless applications; and

·                  Variety of useful customer service, financialand technical support pages.

 

Our Knowledge Tools empower our customers to makebetter decisions by delivering product knowledge, rather than just information.These tools also afford our manufacturers the opportunity to develop theirbrands and to promote their products to a broad and diverse customer base.

 

*Procurement and Inventory Management:*  Our product management and purchasing systemaims to provide customers with a total source of broad and deep productavailability, while maximizing our return on our inventory investment.

 

We use our information technology system to monitorand manage our inventory. Historical sales results, sales projections andinformation regarding vendor lead times are all used to determine appropriateinventory levels. The information technology system also provides early warningreports regarding upcoming inventory requirements. As of March 30, 2008and April 1, 2007, we had an immaterial level of backlog orders. Mostbacklog orders as of March 30, 2008, are expected to be filled within90 days of fiscal year-end. For the fiscal years ended March 30, 2008and April 1, 2007, inventory write-offs, excluding purchases from vendorsfor whom we hold goods on consignment, were 1.2% and 1.0% of total purchases,respectively. In many cases, we have been able to return slow-moving inventoryto our vendors pursuant to stock rotation agreements. Inventory turns forfiscal years 2008 and 2007 were 9.3 and 8.6, respectively. This increase islargely due to an amended repair parts and components arrangement implementedwith Nokia in the fourth quarter of fiscal year 2007, in which inventory formerlyowned by us, became held by us on a consignment basis.

 

*Customer Support and Order Entry:*  The customer support teams are responsiblefor responding to what we refer to as “the moments of truth” by providing salesand customer support services by means of an effective and efficienttransaction system. We also continually monitor our customer serviceperformance through report cards included with each product delivery, customersurveys and regular interaction with customers. By combining our broad productoffering with a commitment to superior customer service, we seek to reduce acustomer’s overall procurement costs by enabling the customer to consolidatethe number of suppliers from which it obtains products, while also reducing thecustomer’s need to maintain high inventory levels.

 

Our information technology system provides detailedinformation on every customer account, including recent inquiries, buying andcredit histories, separate buying locations within a customer account andcontact diaries for key personnel, as well as detailed product information,including technical, product availability and pricing information. Theinformation technology system increases sales productivity by enabling anycustomer support representative to provide any customer with personalizedservice and also allows non-technical personnel to provide a high level oftechnical product information and order assistance.

 

We believe that our commitment to providing prompt,friendly and efficient customer service before, during and after the saleenables us to maximize sales, customer satisfaction and customer retention. Theaverage number of commercial customers whose purchases each exceed $250 permonth increased from 8,400 in fiscal year 2007 to 8,700 in fiscal year 2008. Anaverage of 3,200 consumer end-users were served per month in fiscal year 2008as compared with 7,100 in fiscal year 2007. This decline in consumers is due tochanges in relationships with some of our affinity partners.

 

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*Fu**lfillment and Distribution:* Orders are received at our Hunt Valley, Maryland, Reno, Nevada and SanAntonio, Texas customer sales support centers. As orders are received, customerrepresentatives have access to technical information, alternative andcomplementary product selections, product availability and pricing information,as well as customer purchasing and credit histories and recent inquirysummaries. An automated materials-handling system, which is integrated with theproduct planning and procurement system, allows us to ensure inventory control,minimize multiple product shipments to complete an order and limit inventoryduplication. Bar-coded labels are applied to every product, allowingdistribution center personnel to utilize radio frequency scanners to locateproducts, fill orders and update inventory records in real-time, thus reducingoverhead associated with the distribution functions. Orders are delivered tocustomers by a variety of freight line and parcel transportation carrierpartners with whom we contract.

 

Delivery charges are generally calculated on the basisof the weight of the products ordered and on the delivery service requested,not distance to the customer. We generally believe that this approach, combinedwith our Performance and Delivery Guarantee, which emphasizes on-time deliveryinstead of shipment dates, enables customers to minimize their inventories andreduce their overall procurement costs, thereby encouraging them to make ustheir total source supplier.

 

*Information Technology:*  Critical to the success of our operations isour information technology system. We have made substantial investments in thedevelopment of this system, which integrates cataloging, marketing, sales,fulfillment, inventory control and purchasing, financial control and internaland external communications. The information technology system includes highlydeveloped customer and product databases and is integrated with ourConfiguration, Fulfillment and Delivery system. The information contained inthe system is available on a real-time basis to all of our employees and isutilized in every area of our operations.

 

We develop, construct, maintain and host several Websites for certain affinity partners. These sites include control capabilities,including partner branding, independent landing pages and URLs, productfiltering and purchase authorization limits that allow us to seamlesslyinteract with the customer, fulfill online orders and provide requiredinformation to these affinity partners.

 

We believe that we have been successful to date inpursuing a highly integrated, technologically advanced and efficient method ofoperations; however, disruption to our day-to-day operations, including failureof our information technology system, distribution system, or freight carrierinterruption, could impair our ability to receive and process orders or to shipproduct in a timely and cost-efficient manner.

 

**Acquisitions**

 

In July 2007, we acquiredthe net assets and business of NetForce Solutions, Inc. (NetForce), aprovider of technical and sales training solutions to wireless,telecommunications, and networking industries. The purchase includedsubstantially all of the non-cash business assets for an initial cash paymentof approximately $659,500 and potential additional cash earn-out payments of upto approximately $2.8 million over a four-year period, contingent on theachievement of certain earnings thresholds.

 

InApril 2006, we acquired the non-cash assets and businesses ofTerraWave Solutions, Ltd. and its commonly owned affiliate, GigaWaveTechnologies, Ltd. for an initial cash payment of approximately $3.9 million,and potential additional cash earn-out payments over a four-year period,contingent on the achievement of certain minimum earnings thresholds ($1.5million of the $3.8 million cash amount paid at closing is a prepayment againstfuture earn-out payments, if earned). To the extent that certain minimumearnings thresholds are not achieved, we will not be able to recover the remainderof this prepayment. The maximum amount of contingent future earn-out paymentsas of March 30, 2008 (after subtracting the $1.5 million prepayment) is$13.3 million.

 

TheTerraWave business designs, configures and offers Wi-Fi products and accessories,many of which are branded under TerraWave’s private label. Some of theTerraWave-branded products are sold with products of Cisco Systems under Cisco’sStrategic Technology Integrator program. The GigaWave business providescurriculum development and hands-on, instructor-led training courses for theWireless Local Area Network (WLAN) industry. GigaWave develops and deliverswireless networking courseware for Cisco Systems, allowing IT professionals toobtain Cisco Wireless Certifications.

 

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**Competition**

 

The wireless communications distribution industry iscompetitive and fragmented, and is comprised of several national distributors,such as Hutton Communications, Cellstar, Brightpoint, Embarq Logistics, Anixter,Westcon, Comstor, Tech Data, Ingram Micro, Superior Communications, Site Pro 1and Wincomm, as well as numerous regional distributors, including TalleyCommunications and Alliance Semiconductor. In addition, many manufacturers selland fulfill directly to customers. Barriers to entry for distributors arerelatively low, particularly in the mobile devices and accessory market, andthe risk of new competitors entering the market is high. In addition, theagreements or arrangements with our customers or vendors looking to us forproduct and supply chain solutions, are typically of limited duration and areterminable by either party upon several months or otherwise short notice. Accordingly,our ability to maintain these relationships is subject to competitive pressuresand challenges. We believe, however, that our strength in service, the breadthand depth of our product offering, our information technology system, our largecustomer base and purchasing relationships with approximately 360 manufacturersprovide us with a significant competitive advantage over new entrants to themarket. Some of our current competitors, particularly certain manufacturers,have substantially greater capital resources and sales and distributioncapabilities. In response to competitive pressures from any of our current orfuture competitors, we may be required to lower selling prices in order tomaintain or increase market share, and such measures could adversely affect ouroperating results.

 

Continuing changes in the wireless communicationsindustry, including risks associated with conflicting technology, changes intechnology, inventory obsolescence, and consolidation among wireless carriers,could adversely affect future operating results.

 

We believe that the principal competitive factors insupplying products to the wireless communications industry are the quality andconsistency of customer service, particularly timely delivery of completeorders, breadth and quality of products offered and total procurement costs tothe customer. We believe that we compete favorably with respect to each ofthese factors. In particular, we believe we differentiate ourselves from ourcompetitors based on the breadth of our product offering, our ability toquickly provide products and supply chain solutions in response to customerdemand and technological advances, the level of our customer service and thereliability of our order fulfillment process.

 

**Intellectual Property**

 

We seek to protect our intellectual property through acombination of trademarks, service marks, confidentiality agreements, tradesecret protection and, if and when appropriate, patent protection. Thus far, wehave generally sought to protect our intellectual property, including ourproduct data and information, customer information and information technologysystems, through trademark filings and nondisclosure, confidentiality and tradesecret agreements. We typically require our employees, consultants and othershaving access to our technology to sign confidentiality and nondisclosureagreements. There can be no assurance that these confidentiality andnondisclosure agreements will be honored, or whether they can be fullyenforced, or that other entities may not independently develop systems,technologies or information similar to that on which we rely.

 

TESSCO CommunicationsIncorporated, a wholly-owned subsidiary of TESSCO Technologies Incorporated,maintains a number of registered trademarks and service marks in connectionwith our business activities, including “TESSCOÒ,”“Delivering What You Need...When and Where You Need ItÒ,”“Your Total SourceÒ,” “YourVirtual InventoryÒ,” “*The Wireless Journal**Ò*,”“Wireless SolutionsÒ,” “The VitalLink to a Wireless WorldÒ,” “Transmitter®,”  “T-Flash®,” “Techdirect®,”“A Simple Way of Doing Business Better®,” “TerraWave Solutions®,”and “GigaWave Technologies®.” Our general policy is to file fortrademark and service mark protection for each of our trademarks and tradenames and to enforce our rights against any infringement.

 

Although we currently hold no patents, we intend, ifand when appropriate, to seek patent protection for patentable technology. Theability to obtain patent protection involves complex legal and factualquestions. Others may obtain patent protection for technologies that areimportant to our business, and as a result, our business may be adverselyaffected. In response to patents of others, we may need to license the right touse technology patented by others, or in the event that a license cannot beobtained, to design our systems around the patents of others.

 

9

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### ** **

### **Environmental Regulation**

### ** **

We are subject to various laws and governmentalregulations concerning environmental matters and employee safety and health inthe United States. We are also subject to regulation by the Occupational Safetyand Health Administration concerning employee safety and health matters. Compliancewith these federal, state and local laws and regulations related to protectionof the environment and employee safety and health has had no material effect onour business. There were no material capital expenditures for environmentalprojects in fiscal year 2008 and there are no material expenditures planned forsuch purposes in fiscal year 2009.

 

**Employees**

 

As of March 30, 2008, we had 857 full-timeequivalent employees. Of our full-time equivalent employees, 386****were engaged in customer and vendor service, marketing,sales and product management, 379 were engaged in fulfillment and distributionoperations and 92 were engaged in administration and technology systemsservices. No employees are covered by collective bargaining agreements. Weconsider our employee relations to be excellent.

 

### **Executive Officers**

### ** **

Executive officers are appointed annually by the Boardof Directors and, subject to the terms of any applicable employment agreement,serve at the discretion of the Board of Directors. Information regarding ourexecutive officers is as follows:

 
| **Name**                     | ** ** | **Age** | ** ** | **Position**                                                            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|------------------------------|------------|---------|------------|-------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                         |       |    |       |                                                                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Robert B. Barnhill, Jr. |       | 64      |       | Chairman, President and Chief Executive Officer                         |   | Robert B. Barnhill, Jr. is chairman, president  and chief executive officer and founded the current business in 1982.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                         |       |    |       |                                                                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| David M. Young               |       | 37      |       | Senior Vice President, Chief Financial Officer and  Corporate Secretary |   | David M. Young joined the Company in July 1999  and has served as senior vice president and chief financial officer since  March 2006. Between April 2002 and February 2006,  Mr. Young served as a vice president, and between February 2005 and  March 2006, he served as acting chief financial officer. Prior to  February 2005, Mr. Young served as the Company’s controller. Since  March 2004, Mr. Young has served, and continues to serve, as  Corporate Secretary. Prior to joining the Company, Mr. Young served as  assistant vice president and assistant corporate controller at Integrated  Health Services, Inc..                                                                                                                                                                      |
|                         |       |    |       |                                                                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Gerald T. Garland            |       | 57      |       | Senior Vice President of Solutions Development and  Product Management  |   | Gerald T. Garland rejoined the Company in  April 2003 and has served as senior vice president of solutions  development and product management since April 2006. Mr. Garland  has served as senior vice president of the installation, test and maintenance  line of business since May 2005, as senior vice president of the mobile  devices and accessories line of business since April 2004 and as senior  vice president of the network infrastructure line of business since  April 2003. Between September 1999 and April 2003,  Mr. Garland served as director of business development with American  Express Business Services and chief financial officer of Mentor Technologies, Inc..  Mr. Garland served as the Company’s chief financial officer from  September 1993 to September 1999. |
|                         |       |    |       |                                                                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Douglas A. Rein              |       | 48      |       | Senior Vice President of Performance Systems and                        |   | Douglas A. Rein joined the Company in July 1999  as senior vice president of performance systems and operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

 

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|         |   |   |   | Operations                                             |   | Previously, he was director of operations for Compaq  Computer Corporation and vice president, distribution and logistics  operations for Intelligent Electronics.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------------|--------|--------|--------|--------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |   |   |   |                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Said Tofighi |   | 53     |   | Senior Vice President of Market Development and  Sales |   | Said Tofighi rejoined the Company in  October 2000 as vice president of customer administration. In  April 2005, Mr. Tofighi began serving as vice president of the  customer supply chain unit and served in that capacity until May 2006,  when he was appointed senior vice president, customer supply chain. In  April 2007, Mr. Tofighi began serving as senior vice president of  market development and sales. Mr. Tofighi originally joined the Company  in March 1993 and served in various leadership roles through  July 1999. From July 1999 through October 2000,  Mr. Tofighi worked outside the Company. |

 

**Item 1A. Risk Factors.**

 

We are not able to identify or control all circumstancesthat could occur in the future that may adversely affect our business andoperating results. The following are certain risk factors that could adverselyaffect our business, financial position and results of operations. These riskfactors and others described in this Annual Report on Form 10-K should beconsidered in connection with evaluating the forward-looking statementscontained in this Annual Report on Form 10-K because these factors couldcause the actual results and conditions to differ materially from thoseprojected in the forward-looking statements. Additional risks and uncertaintiesthat management is not aware of or focused on, or that management currentlydeems immaterial may also adversely affect our business, financial position andresults of operations. If our business, financial position and results ofoperations are adversely affected by any of these or other adverse events, ourstock price would also likely be adversely affected.

 

**RISKS RELATING TO OUR BUSINESS**

 

***We face significant competition in the wireless communicationsdistribution industry.***

 

The wireless communications distribution industry iscompetitive and fragmented, and is comprised of several national distributors,as well as numerous regional distributors. In addition, many manufacturers selland fulfill directly to customers. Barriers to entry for distributors arerelatively low, particularly in the mobile devices and accessory market, andthe risk of new competitors entering the market is high. Some of our current competitors,particularly certain manufacturers, have substantially greater capitalresources and sales and distribution capabilities than we do. In response tocompetitive pressures from any of our current or future competitors, we may berequired to lower selling prices in order to maintain or increase market share,and such measures could adversely affect our operating results.

 

***The loss of key vendors or suppliers could have a material adverseaffect on our business, financial position and results of operations.***

 

We do not maintain long-term supply contracts with ourvendors or suppliers. If our vendors or suppliers refuse to, or for any reasonare unable to supply products to us, and if we are not able to procure thoseproducts from alternative sources, we may not be able to maintain appropriateinventory levels and meet customer demand, and our business, financial positionand results of operations would be adversely affected.

 

***Our businessdepends on the continued tendency of wireless equipment manufacturers andnetwork operators to outsource aspects of their business to us in the future.***

 

We provide functions such asdistribution, inventory management, fulfillment, customized packaging,e-commerce solutions, and other outsourced services for many wirelessmanufacturers and network operators. Certain wireless equipment manufacturersand network operators have elected, and others may elect, to undertake theseservices internally. Additionally, our customer service levels, industryconsolidation, competition, deregulation, technological changes or other

 

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developments could reduce the degree to whichmembers of the global wireless industry rely on outsourced logistic servicessuch as the services we provide. Any significant change in the market for ouroutsourced services could have a material adverse effect on our business. Ouroutsourced services are generally provided under short-term contractualarrangements. The failure to obtain renewals or otherwise maintain theseagreements on terms, including price, consistent with our current terms couldhave a material adverse effect on our business.

 

***We require substantial capital to operate, and the inability to obtainfinancing on favorable terms will adversely impact our business, financialposition and results of operations.***

 

Our business requiressubstantial capital to operate and to finance accounts receivable and productinventory that are not financed by trade creditors. We have historically reliedupon cash generated from operations, revolving credit facilities and tradecredit from our vendors to satisfy our capital needs and finance growth. As thefinancial markets change and new regulations come into effect, the cost ofacquiring financing and the methods of financing may change. Changes in ourcredit rating or other market factors may increase our interest expense orother costs of capital, or capital may not be available to us on competitiveterms to fund our working capital needs. Our credit facilities and long-termdebt arrangements are of specified terms and contain various financial andother covenants that may limit our ability to borrow or limit our flexibilityin responding to business conditions. While we generally expect to eitherextend or replace our credit facilities at term expirations, there can be noassurances that we will be able to do so on favorable terms, or at all. Theinability to maintain or when necessary obtain adequate sources of financingcould have an adverse affect on our business. Some of our existing financinginstruments involve variable rate debt, thus exposing us to risk offluctuations in interest rates. Such fluctuations in interest rates could havean adverse affect on our business, financial position and results of operations.We have and may also in the future use interest rate swaps in an effort toachieve a desired proportion of fixed and variable rate debt. We utilize thesederivative financial instruments to enhance our ability to manage risk,including interest rate exposures that exist as part of our ongoing businessoperations. However, our use of these instruments may not effectively limit oreliminate our exposure to a decline in operating results due to changes ininterest rates.

 

***We may be unable to successfullyexecute our merchandising and marketing strategic initiatives.***

 

We are focusing our salesand marketing efforts and initiatives to maximize sales. If we fail tosuccessfully execute these initiatives, our business, financial position andresults of operations could be adversely affected.

 

***The loss of key customers or affinity partners will have a materialadverse affect on our business, financial position and results of operations.***

 

Most of our agreements with affinity partners areterminable by either party upon several months or otherwise short notice. Customerstypically do not have an obligation to make purchases from us. In the event asignificant customer decides to make its purchases from another source,experiences a significant change in demand internally or from its own customerbase, becomes financially unstable, or is acquired by another company, ourability to generate revenues from these customers may be significantlyaffected, resulting in an adverse affect on our business, financial positionand results of operations.

 

***The telecommunications products marketplace is dynamic and challengingbecause of the continued introduction of new products and services.***

 

We must constantly introduce new products, servicesand product features to meet competitive pressures. We may be unable to timelychange our existing merchandise sales mix in order to meet these competitivepressures, which may result in increased inventory costs, inventory write-offsor loss of market share.

 

Additionally, our inventory may also lose value due toprice changes made by our significant vendors, in cases where our arrangementswith these vendors do not provide for inventory price protection, or in casesthat the vendor is unable or unwilling to provide these protections.

 

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***Consolidationamong wireless service carriers could result in the loss of significantcustomers.***

 

The wireless service carrier industry has experiencedsignificant consolidation in recent years. If any of our significant customersor partners are acquired or consolidate with others carriers, or are otherwiseinvolved in any significant transaction that results in them ceasing to dobusiness with us, or significantly reducing the level of business that they dowith us, our revenues from those customers could be significantly affected,possibly resulting in an adverse affect on our business, financial position andresults of operations.

 

***The failure of our information systems or inability to upgrade themcould have a material adverse affect on our business, financial position andresults of operations.***

 

We are highly dependent upon our internal computer andtelecommunication systems to operate our business. There can be no assurancethat our information systems will not fail or experience disruptions, that wewill be able to attract and retain qualified personnel necessary for theoperation of such systems, that we will be able to expand and improve ourinformation systems, that we will be able to convert to new systemsefficiently, or that we will be able to integrate new programs effectively withour existing programs. Any of such problems, or any significant damage ordestruction of these systems, could have an adverse affect on our business,financial position and results of operations.

 

***We depend heavily on e-commerce, and website security breaches orInternet disruptions could have a material adverse affect on our business,financial position and results of operations.***

 

We rely on the Internet (including TESSCO.com® and other affinity websites) for asignificant percentage of our orders and information exchanges with ourcustomers. The Internet and individual websites have experienced a number ofdisruptions and slowdowns, some of which were caused by organized attacks. Inaddition, some websites have experienced security breakdowns. There can be noassurances that our website will not experience any material breakdowns,disruptions or breaches in security. If we were to experience a securitybreakdown, disruption or breach that compromised sensitive information, thiscould harm our relationship with our customers or suppliers. Disruption of ourwebsite or the Internet in general could impair our order processing or moregenerally prevent our customers and suppliers from accessing information orplacing orders. This could have an adverse affect on our business, financialposition and results of operations.

 

***The inability to hire or retain certain key professionals, managementand staff could adversely affect our business, financial condition and resultsof operations.***

 

The nature of our business includes (but is notlimited to) a high volume of transactions, business complexity, widegeographical coverage, and broad scope of products, suppliers, and customers. Inorder to compete, we must attract, retain and motivate executives and other keyemployees, including those in managerial, technical, sales, marketing andsupport positions. Hiring and retaining qualified executives, informationtechnology and business generation personnel are critical to our business. Whileour success depends upon the skills of many of our personnel, we areparticularly dependent upon the skills and leadership of Robert B. Barnhill, Jr.,our chairman, president and chief executive officer. The loss of any of theseindividuals, and particularly Mr. Barnhill, could have a material adverseaffect on our business, financial position and results of operations.

 

To attract, retain and motivate qualified employees,we rely heavily on stock-based incentive awards such as Performance Stock Units(PSUs). If performance targets associated with these PSUs are not met, or thevalue of such stock awards does not appreciate as measured by the performanceof the price of our common stock and/or if our other stock-based compensationotherwise ceases to be viewed as a valuable benefit, our ability to attract,retain and motivate our employees could be adversely impacted, which couldnegatively affect our business, financial position and results of operations and/orrequire us to increase the amount we spend on cash and other forms ofcompensation. Our ability to issue PSUs is also limited by the provisions ofand our available shares in our current and/or future stock incentive plans,which may be subject to shareholder approval.

 

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***The damage or destruction of anyof our principal distribution or administrative facilities could materiallyadversely impact our business, financial position and results of operations.***

 

If any of our distributioncenters in Hunt Valley, Maryland or Reno, Nevada, were to be significantlydamaged or destroyed, we could suffer a loss of product inventory and ourability to conduct our business in the ordinary course could be materially andadversely affected. Similarly, if our office location in Hunt Valley, Marylandor San Antonio, Texas were to be significantly damaged or destroyed, ourability to conduct marketing, sales and other corporate activities in theordinary course could be adversely affected.

 

***We depend onthird parties to manufacture products that we distribute and, accordingly, relyon their quality control procedures.***

 

Product manufacturerstypically provide limited warranties directly to the end consumer or to us,which we generally pass through to our customers. If a product we distributefor a manufacturer has quality or performance problems, our ability to provideproducts to our customers could be disrupted, which could adversely affect ouroperations.

 

***We rely on trademark filings andconfidentiality agreements to protect our intellectual property rights.***

 

In an effort to protect ourintellectual property, including our product data, customer information andinformation technology systems, through trademark filings and nondisclosure,confidentiality and trade secret agreements, we typically require ouremployees, consultants and others having access to this information or ourtechnology to execute confidentiality and non-disclosure agreements. Theseagreements, however, may not provide us with adequate protection againstimproper use or disclosure of confidential information, and these agreementsmay be breached. A breach of confidentiality could adversely affect ourbusiness. In addition, in some situations, these agreements may conflict with,or be subject to, the rights of third parties with whom our employees,consultants and others have previous employment or consulting relationships. Also,others may independently develop substantially equivalent proprietary informationand techniques or otherwise gain access to our trade secrets. Adequate remediesmay not exist in the event of unauthorized use or disclosure of ourconfidential information. The disclosure of our proprietary information ortrade secrets could impair our competitive position and could have a materialadverse affect on our business, financial condition and results of operations. Othersmay obtain patent protection for technologies that are important to ourbusiness, and as a result, our business, financial position and results ofoperations may be adversely affected. In response to patents of others, we mayneed to license the rights to use the technology patented by others, or in theevent that a license cannot be obtained, design our systems around the patentsof others. There can be no assurances as to our ability to obtain any suchlicenses or to design around the patents of others, and our inability to do socould have an adverse affect on our business, financial position and results ofoperations.

 

***We offer credit to our customers and, therefore, are subject tosignificant credit risk.***

 

We sell our products to a large and diverse customerbase. We finance a significant portion of such sales through trade credit,typically by providing 30-day payment terms. As a result, our business could beadversely affected in the event of a deterioration of the financial conditionof our customers, resulting in the customers’ inability to repay us. This riskmay increase if there is a general economic downturn affecting a large numberof our customers and in the event our customers do not adequately manage theirbusiness or properly disclose their financial condition.

 

***We intend to explore additional growth through acquisitions.***

 

As part of our growth strategy, we may continue topursue the acquisition of companies that either complement or expand ourexisting business. As a result, we regularly evaluate potential acquisitionopportunities, which may be material in size and scope. In addition to thoserisks to which our business and the acquired businesses are generally subjectto, the acquisition of these businesses gives rise to transactional andtransitional risks, and the risk that the anticipated benefits will not berealized.

 

***We rely on independent shipping companies to deliver inventory to usand to ship products to customers.***

 

We rely on arrangements with independent shippingcompanies, for the delivery of our products from vendors and to customers. Thefailure or inability of these shipping companies to deliver products, or theunavailability of their

 

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shipping services,even temporarily, could have a material adverse affect on our business. We mayalso be adversely affected by an increase in freight surcharges due to risingfuel costs and added security. This could adversely impact our selling, generaland administrative expenses or lead to price increases to our customers whichcould decrease customer demand for our products.

 

***Changes in accounting rules could have a material adverse impacton our results of operations.***

 

We prepare our financial statements in conformity withaccounting principles generally accepted in the United States. These accountingprinciples are subject to interpretation by the Financial Accounting StandardsBoard, the Public Company Accounting Oversight Board, the Securities andExchange Commission, the American Institute of Certified Public Accountants andvarious other bodies formed to interpret and create appropriate accountingpolicies. A change in these policies or a new interpretation of an existingpolicy could have a significant affect on our reported results andmay affect our reporting of transactions.

 

***We may be subject to litigation.***

 

We may be subject to legalclaims or regulatory matters involving stockholder, consumer, antitrust andother issues. Litigation is subject to inherent uncertainties, and unfavorablerulings could occur. An unfavorable ruling could include money damages or, otheradverse affects. Were an unfavorable ruling to occur, there exists thepossibility of a material adverse impact on our business, financial positionand results of operations for the period in which the ruling occurred or futureperiods.

 

***We may incur product liabilityclaims which could be costly and could harm our reputation.***

 

The sale of our productsinvolves risk of product liability claims against us. We currently maintainproduct liability insurance, but our product liability insurance coverage issubject to various coverage exclusions and limits and may not be obtainable inthe future on terms acceptable to us, or at all. We do not know whether claimsagainst us with respect to our products, if any, would be successfully defendedor whether our insurance would be sufficient to cover liabilities resultingfrom such claims. Any claims successfully brought against us could harm ourbusiness.

 

**RISKS RELATED TO OWNERSHIPOF OUR COMMON STOCK**

 

***It may be difficult for a thirdparty to acquire the Company, which could affect the price of our common stock.***

 

Certain provisions of ourcertificate of incorporation and bylaws, certain arrangements to which we areparty, and applicable provisions of the Delaware General Corporation Law (DGCL)may each make it more difficult for or may prevent a third party from acquiringcontrol of us or changing our Board of Directors and management.  Theseprovisions include a classified Board of Directors with staggered three-yearterms, advance notice bylaws, and limitations on the removal of directors otherthan for cause, and then only upon the affirmative vote of 75% of ouroutstanding common stock.   Inaddition, on February 1, 2008, our Board of Directors adopted astockholder rights plan pursuant to which one preferred stock purchase rightwas distributed on each common share held of record as of the close of businesson February 11, 2008. The rights become exercisable under certaincircumstances following the announcement that any person has acquired 20% ormore of our common stock, or the announcement that any person has commenced atender offer for 20% of our common stock (in each case, with certain limitedexceptions). Under specified conditions, each right (other than those held bythe person or persons acquiring or making a tender offer for our stock, which rightsbecome void under the rights plan) will entitle the holder to purchase, at theexercise price provided for under the plan, our common stock (or if we areacquired in a merger or other business combination, common stock of theacquirer) having a then current value of two times the exercise price. Also seeNote 19 to the Consolidated Financial Statements included in Item 8 tothis Annual Report on Form 10-K. In addition, on February 1, 2008 ourBoard of Directors amended our bylaws to provide that a special meeting ofstockholders shall be called upon a request in writing by the holders of stockof all classes representing at least 50% of the votes possessed by all classesthen issued, outstanding and entitled to vote at the meeting. We are alsoafforded the protections of Section 203 of the DGCL, which will prevent usfrom engaging in a business combination with a person who acquires at least 15%of our common stock for a period of three years from the date such personacquired such common stock, unless Board of Director or shareholder approvalwere obtained.  Any delay or prevention of a change of control transactionor changes in our Board of Directors or management could deter potentialacquirers or prevent the completion of a transaction in which our shareholderscould receive a substantial premium over the then current market price fortheir shares.

 

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***A significant portion of ourvoting stock is controlled by our executive officers, directors and beneficialowners of 5% or more of our common stock.***

 

Our executive officers,directors and beneficial owners of 5% or more of our common stock and theiraffiliates, in the aggregate, beneficially owned approximately 50% of ouroutstanding common stock as of March 30, 2008. Robert B. Barnhill, Jr.,our chairman, president and chief executive officer beneficially ownedapproximately 25% of our outstanding common stock as of March 30, 2008. Shouldthese shareholders decide to act together, they would have the ability tosignificantly influence all matters requiring shareholder approval, includingthe election of directors and any significant corporate transaction requiringshareholder approval.

 

***Our quarterly operating results are subjectto significant fluctuation.***

 

Our operating results havefluctuated from quarter to quarter in the past, and we expect that they willcontinue to do so in the future. Our earnings may not continue to grow at ratessimilar to the growth rates achieved in recent years and may fall short ofeither a prior fiscal period or investors’ expectations. Most of our operatingexpenses, such as compensation expense, do not vary directly with the amount ofsales and are difficult to adjust in the short term. As a result, if sales in aparticular quarter are below expectations for that quarter, we may notproportionately reduce operating expenses for that quarter, and therefore sucha sales shortfall would have a disproportionate effect on our net income forthe quarter.

 

**Item 1B.****Unresolved Staff Comments.**

 

Not applicable.

 

**Item 2.****         Properties.**

 

Our corporate headquarters and primary distributioncenter, known as the Global Logistics Center (GLC), is located in aCompany-owned 184,000 square-foot facility north of Baltimore, in Hunt Valley,Maryland. Our sales, marketing and administrative offices are located in leasedoffice space near the GLC. On May 1, 2007, this lease was amended and nowexpires on December 31, 2012. Monthly rent payments range from $124,700 to$144,600 throughout the lease term. Additional sales and marketing offices arelocated in leased office space in San Antonio, Texas. Monthly rent there isapproximately $7,000. West coast sales and fulfillment is facilitated by ourCompany-owned 115,000 square-foot Americas Sales & Logistics Center(ALC) located in Reno, Nevada. The ALC is used to configure and fulfill productand supply chain solutions, provide disaster backup for the GLC, and allow forfuture growth of staffing and increased fulfillment capabilities. On June 1,2007, we entered into a 3 year lease for 66,000 square feet of office andwarehouse space adjacent to our GLC in Hunt Valley, Maryland. Monthly rent forthe facility is approximately $35,000. While we anticipate the need foradditional space, we believe our existing facilities are generally adequate forour current requirements and that suitable additional space will be availableas needed to accommodate future expansion of our operations. The GLC isencumbered by a deed of trust as security for a term loan. See Note 8 to ourConsolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.Each of our three business segments use all of our properties for either salesor fulfillment purposes.

 

**Item 3.****         LegalProceedings.**

 

Lawsuits and claims are filed against us from time totime in the ordinary course of business. We do not believe that any lawsuits orclaims currently pending against the Company, individually or in the aggregate,are material, or will have a material adverse affect on our financial conditionor results of operations. In addition, from time to time, we are also subjectto review from federal and state taxing authorities in order to validate theamounts of income, sales and/or use taxes which have been claimed and remitted.

 

**Item 4.****         Submissionof Matters to a Vote of Security Holders.**

 

None.

 

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**Part II**

 

**Item 5. Market for Registrant’sCommon Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities.**

 

Our common stock has been publicly traded on theNASDAQ Stock Market, now the NASDAQ Global Market, since September 28,1994, under the symbol “TESS.” The quarterly range of prices per share duringfiscal years 2007 and 2008 are as follows:

 
| ** **          | ** ** | **High** | ** ** | **Low** | ** ** |
|---------------------|------------|----------|------------|---------|------------|
| *Fiscal  Year 2007* |       |     |       |    |       |
| First Quarter       |       | $        | 14.57      |    | $          | 11.97 |   |
| Second Quarter      |       | 16.27    |       | 12.05   |       |
| Third Quarter       |       | 23.50    |       | 15.32   |       |
| Fourth Quarter      |       | 31.56    |       | 18.65   |       |
|                |       |     |       |    |       |
| *Fiscal  Year 2008* |       |     |       |    |       |
| First Quarter       |       | $        | 29.98      |    | $          | 18.82 |   |
| Second Quarter      |       | 22.00    |       | 8.92    |       |
| Third Quarter       |       | 19.90    |       | 12.26   |       |
| Fourth Quarter      |       | 19.65    |       | 13.09   |       |

 

As of June 4, 2008, the number of shareholders ofrecord of the Company was 61. We estimate that the number of beneficial ownersas of that date was approximately 2,700.

 

We have never declared or paid any cash dividends onour common stock and do not expect to pay any cash dividends in the foreseeablefuture. Our revolving credit facility prohibits the payment of cash dividendswithout the prior written consent of the lenders.

 

On November 29, 2006,we issued a stock dividend in order to effect a 3-for-2 stock split of ourcommon stock. The share prices above prior to the November 29, 2006 stocksplit have been retroactively restated to reflect the stock dividend for allperiods presented.

 

During the first quarter of fiscal year 2004, ourBoard of Directors approved a stock buyback program. As of March 30, 2008,the Board of Directors has authorized the purchase of up to 2,395,567 shares ofoutstanding common stock under the stock buyback program. Shares may bepurchased from time to time in the open market, by block purchase, or throughnegotiated transactions, or possibly other transactions managed bybroker-dealers. No time limit has been set for completion or expiration of theprogram. Through the end of the fiscal year 2008, we have repurchased 2,140,974shares through the program for approximately $28.3 million, or an average priceof $13.20 per share. Of the total shares repurchased, 346,107 were repurchasedin fiscal year 2008 at an average price of $13.96 per share and 1,043,813 wererepurchased in fiscal year 2007 at an average price of $16.95 per share. Anaggregate of 254,593 shares remain available for repurchase under this program.No repurchases were made in any month during the fourth quarter of fiscal year2008. We also purchase shares from our employees and directors from time totime to facilitate employees minimum federal and state tax withholdings relatedto vested performance stock units. For fiscal years 2008 and 2007 this totaled $1,406,400and $2,500, respectively.

 

The information requiredby Item 201(d) of Regulation S-K, pursuant to paragraph (a) of thisItem 5, is incorporated by reference to the information set forth under thecaption “Equity Compensation Plan Information” in the Company’s Proxy Statementfor the 2008 Annual Meeting of Shareholders, which is anticipated to be filedpursuant to Regulation 14A no later than one hundred twenty (120) daysfollowing the end of the fiscal year reported on.

 

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**Stock Performance Graph**

 

The graph set forth belowshows the value of an investment of $100 on March 30, 2003 in each of theCompany’s Common Stock, the Russell 2000 Index and a peer group for the period ofMarch 30, 2003 to March 30, 2008. The graph assumes that all dividends, if any, were reinvested.

 

**COMPARISON OF 5 YEAR CUMULATIVETOTAL RETURN***

Among TESSCO TechnologiesIncorporated, The Russell 2000 Indexand a Peer Group

 

 

* $100 invested on3/30/03 in stock or index-including reinvestment of dividends.

 
| ** **                      | ** ** | **3/30/2003** | ** ** | **3/28/2004** | ** ** | **3/27/2005** | ** ** | **3/26/2006** | ** ** | **4/1/2007** | ** ** | **3/30/2008** | ** ** |
|---------------------------------|------------|---------------|------------|---------------|------------|---------------|------------|---------------|------------|--------------|------------|---------------|------------|
| TESSCO  Technologies, Inc. |       | $             | 100.00     |          | $          | 173.35        |       | $             | 198.65     |         | $          | 245.24        |       | $ | 548.92 |   | $ | 304.00 |   |
| Russell 2000                    |       | 100.00        |       | 160.09        |       | 170.72        |       | 211.61        |       | 227.60       |       | 196.63        |       |
| Peer Group (1)                  |       | 100.00        |       | 129.93        |       | 157.11        |       | 192.00        |       | 198.32       |       | 183.28        |       |
|                                 |            |               |            |               |            |               |            |               |            |              |            |               |            |  |  |  |  |  |  |

 

----

(1) The peer group consists ofthe following:  Cellstar Corporation,Brightpoint, Inc., Ingram Micro Inc., W.W. Grainger, Inc., AnixterInternational Inc., Inphonic, Inc. and ScanSource Inc.

 

18

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**Item 6.Selected Financial Data.**

 
| ** **                                       | ** ** | **Fiscal Years Ended** | ** **  |
|--------------------------------------------------|------------|----------------------------------|-------------|
| ** **                                       | ** ** | **March 30, 2008**     | ** **  | **April 1, 2007** | ** ** | **March 26, 2006** | ** ** | **March 27, 2005** | ** ** | **March 28, 2004** | ** ** |
| **STATEMENT  OF INCOME DATA**                    |       |                             |        |   |   |   |   |   |   |   |   |
| Revenues                                         |       | $                                | 520,968,200 |   | $ | 492,327,800 |   | $ | 477,329,300 |   | $ | 513,027,300 |   | $ | 352,674,300 |   |
| Cost of goods  sold                              |       | 403,978,800                      |        | 370,916,400 |   | 374,316,300 |   | 418,180,500 |   | 275,028,200 |   |
| Gross profit                                     |       | 116,989,400                      |        | 121,411,400 |   | 103,013,000 |   | 94,846,800 |   | 77,646,100 |   |
| Selling, general  and administrative expenses    |       | 108,875,700                      |        | 109,208,800 |   | 94,268,800 |   | 84,747,400 |   | 73,444,300 |   |
| Benefit from  insurance proceeds (1)             |       | —                           |        | — |   | — |   | — |   | (3,054,000 | ) |
| Restructuring  charges (2)                       |       | —                           |        | — |   | — |   | — |   | 2,285,700 |   |
| Income from  operations                          |       | 8,113,700                        |        | 12,202,600 |   | 8,744,200 |   | 10,099,400 |   | 4,970,100 |   |
| Interest, net                                    |       | 574,100                          |        | 879,400 |   | 358,500 |   | 166,200 |   | 167,700 |   |
| Income before  provision for income taxes        |       | 7,539,600                        |        | 11,323,200 |   | 8,385,700 |   | 9,933,200 |   | 4,802,400 |   |
| Provision for  income taxes                      |       | 2,720,900                        |        | 4,281,100 |   | 3,270,500 |   | 3,866,000 |   | 1,910,600 |   |
| Net income                                       |       | $                                | 4,818,700   |   | $ | 7,042,100 |   | $ | 5,115,200 |   | $ | 6,067,200 |   | $ | 2,891,800 |   |
| Diluted earnings  per share (4)                  |       | $                                | 0.88        |   | $ | 1.17 |   | $ | 0.80 |   | $ | 0.92 |   | $ | 0.43 |   |
| Diluted weighted  average shares outstanding (4) |       | 5,463,400                        |        | 6,016,000 |   | 6,411,500 |   | 6,560,900 |   | 6,703,500 |   |
|                                             |       |                             |        |   |   |   |   |   |   |   |   |
| **Percentage  of Revenues**                      |       |                             |        |   |   |   |   |   |   |   |   |
| Revenues                                         |       | 100.0                            | %           | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
| Cost of goods  sold                              |       | 77.5                             |        | 75.3 |   | 78.4 |   | 81.5 |   | 78.0 |   |
| Gross profit                                     |       | 22.5                             |        | 24.7 |   | 21.6 |   | 18.5 |   | 22.0 |   |
| Selling, general  and administrative expenses    |       | 20.9                             |        | 22.2 |   | 19.7 |   | 16.5 |   | 20.8 |   |
| Benefit from  insurance proceeds                 |       | —                           |        | — |   | — |   | — |   | (0.9 | ) |
| Restructuring  charges                           |       | —                           |        | — |   | — |   | — |   | 0.6 |   |
| Income from  operations                          |       | 1.6                              |        | 2.5 |   | 1.8 |   | 2.0 |   | 1.4 |   |
| Interest, net                                    |       | 0.1                              |        | 0.2 |   | 0.0 |   | 0.0 |   | 0.0 |   |
| Income before  provision for income taxes        |       | 1.4                              |        | 2.3 |   | 1.8 |   | 1.9 |   | 1.4 |   |
| Provision for  income taxes                      |       | 0.5                              |        | 0.9 |   | 0.7 |   | 0.7 |   | 0.5 |   |
| Net income                                       |       | 0.9                              | %           | 1.4 | % | 1.1 | % | 1.2 | % | 0.8 | % |
| ** **                                       |       |                             |        |   |   |   |   |   |   |   |   |
| **SELECTED  OPERATING DATA**                     |       |                             |        |   |   |   |   |   |   |   |   |
| Average  commercial buyers per month             |       | 12,300                           |        | 11,900 |   | 10,900 |   | 9,900 |   | 9,400 |   |
| Average consumer  buyers per month               |       | 3,200                            |        | 7,100 |   | 20,600 |   | 36,100 |   | 34,500 |   |
| Return on assets  (3) (5)                   |       | 3.6                              | %           | 5.6 | % | 3.6 | % | 4.2 | % | 2.1 | % |
| Return on equity  (3) (6)                   |       | 8.2                              | %           | 11.5 | % | 8.1 | % | 10.4 | % | 4.4 | % |
| ** **                                       |       |                             |        |   |   |   |   |   |   |   |   |
| **BALANCE  SHEET DATA**                          |       |                             |        |   |   |   |   |   |   |   |   |
| Working capital                                  |       | $                                | 36,714,400  |   | $ | 33,527,300 |   | $ | 45,704,400 |   | $ | 41,000,200 |   | $ | 37,330,100 |   |
| Total assets                                     |       | 143,798,600                      |        | 123,682,700 |   | 126,800,400 |   | 160,557,200 |   | 129,128,700 |   |
| Short-term debt                                  |       | 3,713,900                        |        | 356,200 |   | 442,500 |   | 362,600 |   | 282,000 |   |
| Long-term debt                                   |       | 3,842,600                        |        | 4,203,200 |   | 4,559,400 |   | 5,000,700 |   | 5,354,700 |   |
| Shareholders’  equity                       |       | 60,151,600                       |        | 57,151,300 |   | 65,106,800 |   | 60,822,100 |   | 56,333,500 |   |

 

----

| (1) |   | Represents the gain on  insurance proceeds and business interruption insurance received as a result  of the October 12, 2002 disaster at our Global Logistics Center.                                                                                                                                   |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Represents termination  costs and facility consolidation costs associated with our fiscal year 2004  profitability improvement program.                                                                                                                                                                      |
| (3) |   | Excludes the gain on  insurance proceeds and business interruption insurance received as a result  of the October 12, 2002 disaster at our Global Logistics Center and the  termination costs and facility consolidation costs associated with our fiscal  year 2004 profitability improvement program. |
| (4) |   | All share and earnings per  share numbers have been retroactively restated for all periods presented to  reflect the November 29, 2006 stock dividend in order to effect a  3-for-2 stock split.                                                                                                        |
| (5) |   | Net income divided by the  average total assets.                                                                                                                                                                                                                                                             |
| (6) |   | Net income divided by the  average total equity.                                                                                                                                                                                                                                                             |

 

19

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### ** **

### **QuarterlyResults of Operations (Unaudited)**

 
| ** **                                    | ** ** | **Fiscal Year 2008 Quarters Ended** | ** **  | **Fiscal Year 2007 Quarters Ended** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------------|-------------|---------------------------------------------------------|------------|
| ** **                                    | ** ** | **Mar. 30,  2008**                                 | ** **  | **Dec. 30,  2007**                                 | ** ** | **Sept. 30,  2007** | ** ** | **Jul. 1,  2007** | ** ** | **Apr. 1,  2007** | ** ** | **Dec. 24,  2006** | ** ** | **Sept. 24,  2006** | ** ** | **Jun. 25,  2006** | ** ** |
| Revenues                                      |       | $                                                       | 128,287,800 |                                                    | $          | 135,732,000 |   | $ | 132,518,300 |   | $ | 124,430,100 |   | $ | 127,015,100 |   | $ | 134,716,700 |   | $ | 118,655,700 |   | $ | 111,940,300 |   |
| Cost of goods  sold                           |       | 98,542,400                                              |        | 105,329,600                                             |       | 103,837,700 |   | 96,269,100 |   | 96,597,200 |   | 101,838,200 |   | 88,625,800 |   | 83,855,200 |   |
| Gross profit                                  |       | 29,745,400                                              |        | 30,402,400                                              |       | 28,680,600 |   | 28,161,000 |   | 30,417,900 |   | 32,878,500 |   | 30,029,900 |   | 28,085,100 |   |
| Selling, general  and administrative expenses |       | 27,137,900                                              |        | 27,729,000                                              |       | 27,340,000 |   | 26,668,800 |   | 27,654,200 |   | 29,730,700 |   | 26,855,800 |   | 24,968,100 |   |
| Income from  operations                       |       | 2,607,500                                               |        | 2,673,400                                               |       | 1,340,600 |   | 1,492,200 |   | 2,763,700 |   | 3,147,800 |   | 3,174,100 |   | 3,117,000 |   |
| Interest, net                                 |       | 236,300                                                 |        | 161,000                                                 |       | 115,900 |   | 60,900 |   | 219,800 |   | 323,800 |   | 180,500 |   | 155,300 |   |
| Income before  provision for income taxes     |       | 2,371,200                                               |        | 2,512,400                                               |       | 1,224,700 |   | 1,431,300 |   | 2,543,900 |   | 2,824,000 |   | 2,993,600 |   | 2,961,700 |   |
| Provision income  taxes                       |       | 669,200                                                 |        | 978,100                                                 |       | 508,300 |   | 565,300 |   | 976,100 |   | 1,059,100 |   | 1,137,600 |   | 1,108,300 |   |
| Net income (1)                                |       | $                                                       | 1,702,000   |                                                    | $          | 1,534,300 |   | $ | 716,400 |   | $ | 866,000 |   | $ | 1,567,800 |   | $ | 1,764,900 |   | $ | 1,856,000 |   | $ | 1,853,400 |   |
| Diluted earnings  per share (1)               |       | $                                                       | 0.32        |                                                    | $          | 0.29 |   | $ | 0.13 |   | $ | 0.15 |   | $ | 0.28 |   | $ | 0.31 |   | $ | 0.29 |   | $ | 0.29 |   |
|                                          |       |                                                    |        |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Percentage  of Revenues**                   |       |                                                    |        |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                      |       | 100.0                                                   | %           | 100.0                                                   | %          | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
| Cost of goods  sold                           |       | 76.8                                                    |        | 77.6                                                    |       | 78.4 |   | 77.4 |   | 76.1 |   | 75.6 |   | 74.7 |   | 74.9 |   |
| Gross profit                                  |       | 23.2                                                    |        | 22.4                                                    |       | 21.6 |   | 22.6 |   | 23.9 |   | 24.4 |   | 25.3 |   | 25.1 |   |
| Selling, general  and administrative expenses |       | 21.2                                                    |        | 20.4                                                    |       | 20.6 |   | 21.4 |   | 21.8 |   | 22.1 |   | 22.6 |   | 22.3 |   |
| Income from  operations                       |       | 2.0                                                     |        | 2.0                                                     |       | 1.0 |   | 1.2 |   | 2.2 |   | 2.3 |   | 2.7 |   | 2.8 |   |
| Interest, net                                 |       | 0.2                                                     |        | 0.1                                                     |       | 0.1 |   | 0.0 |   | 0.2 |   | 0.2 |   | 0.2 |   | 0.1 |   |
| Income before  provision for income taxes     |       | 1.8                                                     |        | 1.9                                                     |       | 0.9 |   | 1.2 |   | 2.0 |   | 2.1 |   | 2.5 |   | 2.6 |   |
| Provision for  income taxes                   |       | 0.5                                                     |        | 0.7                                                     |       | 0.4 |   | 0.5 |   | 0.8 |   | 0.8 |   | 1.0 |   | 1.0 |   |
| Net income                                    |       | 1.3                                                     | %           | 1.1                                                     | %          | 0.5 | % | 0.7 | % | 1.2 | % | 1.3 | % | 1.6 | % | 1.7 | % |
| ** **                                    |       |                                                    |        |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **SELECTED  OPERATING DATA**                  |       |                                                    |        |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Average  commercial buyers per month          |       | 12,400                                                  |        | 12,200                                                  |       | 12,300 |   | 12,100 |   | 12,000 |   | 12,000 |   | 12,100 |   | 11,700 |   |
| Average consumer  buyers per month            |       | 2,300                                                   |        | 2,500                                                   |       | 3,900 |   | 4,200 |   | 6,300 |   | 6,600 |   | 7,700 |   | 7,700 |   |
| Return on assets  (2)                         |       | 4.7                                                     | %           | 4.2                                                     | %          | 2.0 | % | 2.6 | % | 4.6 | % | 4.9 | % | 5.4 | % | 5.6 | % |
| Return on equity  (3)                         |       | 11.6                                                    | %           | 10.9                                                    | %          | 5.0 | % | 6.0 | % | 11.2 | % | 13.0 | % | 12.2 | % | 11.2 | % |

 

----

(1)          All share and earnings per share numbers havebeen retroactively restated for all periods presented to reflect the November 29,2006 stock dividend in order to effect a three-for-two stock split.

(2)          Net income divided by the average totalassets.

(3)          Net income divided by the average totalequity.

 

20

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**Item 7.  Management’s Discussionand Analysis of Financial Condition and Results of Operations.**

 

ThisManagement’s Discussion and Analysis of Results of Operations and FinancialCondition (MD&A) should be read in conjunction with the other sections ofthis Annual Report on Form 10-K, including Part I, “Item 1: Business,”Part II, “Item 6: Selected Financial Data,” and Part II, “Item 8:Financial Statements and Supplementary Data.” The various sections of this MD&A contain a number offorward-looking statements, all of which are based on our current expectationsand could be affected by the uncertainties and risk factors describedthroughout this filing, including Part I, “Item 1A:  Risk Factors.”  Our actual results may differ materially fromthose described in any such forward-looking statement.

 

**BusinessOverview and Environment**

 

TESSCOTechnologies Incorporated (TESSCO) is a leading provider of integrated productand supply chain solutions to the professionals that design, build, run,maintain and use wireless mobile, fixed and in-building systems.  Although we sell products to customers inover 100 countries, approximately 96% of our sales are made to customers in theUnited States.  We have operations andoffice facilities in Hunt Valley, Maryland, Reno, Nevada and San Antonio, Texas.

 

We offer awide range of products that are classified into three business segments:network infrastructure; mobile devices and accessories; and installation, testand maintenance.  Network infrastructureproducts, which are sold to our commercial customers, are used to build, repairand upgrade wireless telecommunications, computing and Internet networks. Salesof traditional network infrastructure products, such as cable, transmissionlines and 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.  Mobile devices and accessory products include cellularphone and data device accessories, as well as two-way radios and relatedaccessories. Mobile devices and accessoryproducts are widely sold to commercial customers and consumers.  Commercial customers include retail stores,value-added resellers and dealers.  Consumersare primarily reached through our affinity partnerships, where we offerservices including customized order fulfillment, outsourced call centers, andbuilding and maintaining private label Internet sites. Installation, test andmaintenance products, which are sold to our commercial customers, are used toinstall, tune, maintain and repair wireless communications equipment.Approximately 50% of all of our installation, test and maintenance sales forfiscal year 2008 were generated from the sales of replacement parts andmaterials for original equipment manufacturers, primarily Nokia, Inc.(Nokia).  The remainder of this segmentis made up of sophisticated analysis equipment and various frequency-, voltage-and power-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 ourcustomer base in four major categories:

 

·                 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 individual subscribers.

·                 CommercialResellers.  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. Theseresellers include local and national proprietorships and retailers, as well assales and installation centers operated by cellular and paging carriers.

·                 Commercial Self-Maintained Users (SMUs) andGovernments.  SMUs and governmentcustomers include commercial entities such as major utilities andtransportation companies, federal agencies and state and local governments,including public safety organizations.

·                 Consumers. Consumers are customers buying through any of our affinity-partnerrelationships or directly from our consumer website, YourWirelessSource.comTM.

 

21

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The wireless communications distribution industry iscompetitive and fragmented, and is comprised of several national distributors.In addition, many manufacturers sell direct. Barriers to entry for distributorsare relatively low, particularly in the mobile devices and accessory market,and the risk of new competitors entering the market is high.  Consolidation of larger wireless carriers hasand will most likely continue to impact our current and potential customerbase.  In addition, the agreements orarrangements with our customers or vendors looking to us for product and supplychain solutions are typically of limited duration and are terminable by eitherparty upon several months or otherwise short notice.  Our ability to maintain these relationshipsis subject to competitive pressures and challenges.  We believe, however, that our strength inservice, the breadth and depth of our product offering, our information technologysystem, our large customer base and purchasing relationships with approximately360 manufacturers provide us with a significant competitive advantage over newentrants to the market.

 

### **Resultsof Operations**

### ** **

The following tablessummarize the results of our operations for fiscal years 2008, 2007 and 2006:

** **

(Dollars in thousands, except per share data)

** **
| ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | **2007 to 2008** | ** ** | ** **        | ** ** | **2006 to 2007** | ** ** |
|---------------------------------------------------------|------------|------------|------------|------------|------------|----------------------------|------------|-------------------|------------|----------------------------|------------|
| ** **                                              | ** ** | **2008**   | ** ** | **2007**   | ** ** | **$**** Change**      | ** ** | **% Change** | ** ** | **2006**                   | ** ** | **$**** Change** | ** ** | **% Change** | ** ** |
| Commercial  Revenues                                    |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Network Infrastructure:                                 |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Public Carriers  and Network Operators                  |       | $          | 46,977     |       | $          | 49,701                     |       | $                 | (2,724     | )                          | (5.5       | )% | $ | 53,049 |   | $ | (3,348 | ) | (6.3 | )% |
| Resellers                                               |       | 69,839     |       | 66,685     |       | 3,154                      |       | 4.7               | %          | 55,659                     |       | 11,026 |   | 19.8 | % |
| SMUs and  Governments                                   |       | 49,400     |       | 48,816     |       | 584                        |       | 1.2               | %          | 40,160                     |       | 8,656 |   | 21.6 | % |
| Total Network  Infrastructure                           |       | 166,216    |       | 165,202    |       | 1,014                      |       | 0.6               | %          | 148,868                    |       | 16,334 |   | 11.0 | % |
|                                                    |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Mobile Devices  and Accessories:                        |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Public Carriers  and Network Operators                  |       | 2,193      |       | 2,641      |       | (448                       | )          | (17.0             | )%         | 2,894                      |       | (253 | ) | (8.7 | )% |
| Resellers                                               |       | 243,549    |       | 205,581    |       | 37,968                     |       | 18.5              | %          | 98,723                     |       | 106,858 |   | 108.2 | % |
| SMUs and  Governments                                   |       | 13,746     |       | 14,356     |       | (610                       | )          | (4.2              | )%         | 14,967                     |       | (611 | ) | (4.1 | )% |
| Total Mobile  Devices and Accessories                   |       | 259,488    |       | 222,578    |       | 36,910                     |       | 16.6              | %          | 116,584                    |       | 105,994 |   | 90.9 | % |
|                                                    |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Installation,  Test and Maintenance:                    |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Public Carriers  and Network Operators                  |       | 13,199     |       | 14,293     |       | (1,094                     | )          | (7.7              | )%         | 16,997                     |       | (2,704 | ) | (15.9 | )% |
| Resellers                                               |       | 9,548      |       | 10,580     |       | (1,032                     | )          | (9.8              | )%         | 8,682                      |       | 1,898 |   | 21.9 | % |
| SMUs and  Governments                                   |       | 62,534     |       | 72,162     |       | (9,628                     | )          | (13.3             | )%         | 48,903                     |       | 23,259 |   | 47.6 | % |
| Total  Installation, Test and Maintenance               |       | 85,281     |       | 97,035     |       | (11,754                    | )          | (12.1             | )%         | 74,582                     |       | 22,453 |   | 30.1 | % |
| Total Commercial Revenues                               |       | 510,985    |       | 484,815    |       | 26,170                     |       | 5.4               | %          | 340,034                    |       | 144,781 |   | 42.6 | % |
| Consumer Revenues – Mobile Devices and Accessories |       | 9,983      |       | 7,513      |       | 2,470                      |       | 32.9              | %          | 137,295                    |       | (129,782 | ) | (94.5 | )% |
| Total Revenues                                          |       | $          | 520,968    |       | $          | 492,328                    |       | $                 | 28,640     |                       | 5.8        | % | $ | 477,329 |   | $ | 14,999 |   | 3.1 | % |

** **

22

----

 

(Dollars in thousands,except per share data)

 
| ** **                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | **2007 to 2008** | ** ** | ** **        | ** ** | **2006 to 2007** | ** ** |
|-------------------------------------------------------------|------------|------------|------------|------------|------------|----------------------------|------------|-------------------|------------|----------------------------|------------|
| ** **                                                  | ** ** | **2008**   | ** ** | **2007**   | ** ** | **$**** Change**      | ** ** | **% Change** | ** ** | **2006**                   | ** ** | **$**** Change** | ** ** | **% Change** | ** ** |
| Commercial Gross  Profit                                    |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Network  Infrastructure:                                    |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Public Carriers  and Network Operators                      |       | $          | 11,387     |       | $          | 11,869                     |       | $                 | (482       | )                          | (4.1       | )% | $ | 12,523 |   | $ | (654 | ) | (5.2 | )% |
| Resellers                                                   |       | 18,121     |       | 16,584     |       | 1,537                      |       | 9.3               | %          | 13,126                     |       | 3,458 |   | 26.3 | % |
| SMUs and  Governments                                       |       | 12,778     |       | 11,629     |       | 1,149                      |       | 9.9               | %          | 9,015                      |       | 2,614 |   | 29.0 | % |
| Total Network  Infrastructure                               |       | 42,286     |       | 40,082     |       | 2,204                      |       | 5.5               | %          | 34,664                     |       | 5,418 |   | 15.6 | % |
|                                                        |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Mobile Devices  and Accessories:                            |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Public Carriers  and Network Operators                      |       | 633        |       | 785        |       | (152                       | )          | (19.4             | )%         | 804                        |       | (19 | ) | (2.4 | )% |
| Resellers                                                   |       | 46,979     |       | 44,794     |       | 2,185                      |       | 4.9               | %          | 23,406                     |       | 21,388 |   | 91.4 | % |
| SMUs and  Governments                                       |       | 4,319      |       | 4,557      |       | (238                       | )          | (5.2              | )%         | 4,015                      |       | 542 |   | 13.5 | % |
| Total Mobile  Devices and Accessories                       |       | 51,931     |       | 50,136     |       | 1,795                      |       | 3.6               | %          | 28,225                     |       | 21,911 |   | 77.6 | % |
|                                                        |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Installation,  Test and Maintenance:                        |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Public Carriers  and Network Operators                      |       | 3,248      |       | 3,478      |       | (230                       | )          | (6.6              | )%         | 3,955                      |       | (477 | ) | (12.1 | )% |
| Resellers                                                   |       | 3,030      |       | 2,601      |       | 429                        |       | 16.5              | %          | 2,470                      |       | 131 |   | 5.3 | % |
| SMUs and  Governments                                       |       | 12,798     |       | 21,969     |       | (9,171                     | )          | (41.7             | )%         | 16,279                     |       | 5,690 |   | 35.0 | % |
| Total  Installation, Test and Maintenance                   |       | 19,076     |       | 28,048     |       | (8,972                     | )          | (32.0             | )%         | 22,704                     |       | 5,344 |   | 23.5 | % |
| Total Commercial Gross Profit                               |       | 113,293    |       | 118,266    |       | (4,973                     | )          | (4.2              | )%         | 85,593                     |       | 32,673 |   | 38.2 | % |
| Consumer Gross Profit – Mobile Devices and Accessories |       | 3,696      |       | 3,145      |       | 551                        |       | 17.5              | %          | 17,420                     |       | (14,275 | ) | (81.9 | )% |
| Total Gross Profit                                          |       | $          | 116,989    |       | $          | 121,411                    |       | $                 | (4,422     | )                          | (3.6       | )% | $ | 103,013 |   | $ | 18,398 |   | 17.9 | % |
|                                                        |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Selling, general  and administrative expenses               |       | $          | 108,875    |       | $          | 109,209                    |       | $                 | (334       | )                          | (0.3       | )% | $ | 94,269 |   | $ | 14,940 |   | 15.8 | % |
| Income from  operations                                     |       | 8,114      |       | 12,202     |       | (4,088                     | )          | (33.5             | )%         | 8,744                      |       | 3,458 |   | 39.5 | % |
| Interest, net                                               |       | 574        |       | 879        |       | (305                       | )          | (34.7             | )%         | 359                        |       | 520 |   | 144.8 | % |
| Income before  provision for income taxes                   |       | 7,540      |       | 11,323     |       | (3,783                     | )          | (33.4             | )%         | 8,385                      |       | 2,938 |   | 35.0 | % |
| Provision for  income taxes                                 |       | 2,721      |       | 4,281      |       | (1,560                     | )          | (36.4             | )%         | 3,270                      |       | 1,011 |   | 30.9 | % |
| Net income                                                  |       | $          | 4,819      |       | $          | 7,042                      |       | $                 | (2,223     | )                          | (31.6      | )% | $ | 5,115 |   | $ | 1,927 |   | 37.7 | % |
|                                                        |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Diluted earnings  per share                                 |       | $          | 0.88       |       | $          | 1.17                       |       | $                 | (0.29      | )                          | (24.8      | )% | $ | 0.80 |   | $ | (0.37 | ) | 46.3 | % |

 

**FiscalYear 2008 Compared to Fiscal Year 2007**

 

**Revenues.**  Revenues for fiscal year 2008 increased 5.8%as compared with fiscal year 2007, primarily due to a 5.4% increase incommercial revenues, and to a much lesser extent, a 32.9% increase in consumerrevenues.  The increase in commercialrevenues was driven primarily by growth in our mobile devices and accessoriescommercial line of business, and to a much lesser extent, by growth in ournetwork infrastructure line of business, and was partially offset by a declinein our installation, test, and maintenance commercial line of business.

 

Our mobile devices and accessoriesrevenues, including both commercial and consumer sales, increased 17.1% forfiscal year 2008 compared with fiscal year 2007.  We experienced significant growth incommercial sales of mobile devices and accessory products, and to a much lesserextent, an increase in consumer sales. Commercial revenues for mobile devices and accessories, which are soldprimarily to resellers, but are also sold to SMUs, governments and public carriers 

 

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and network operators,increased 16.6% over the prior year, due in part to new product introductions,enhanced merchandising and packaging programs and increased sales of accessoryproducts to carrier and independent retail customers.

 

The 0.6% increase in our network infrastructure salesfrom fiscal year 2007 to fiscal year 2008 is primarily attributable to anincrease in sales of radio frequency (RF) propagation and site supportproducts, partially offset by lower sales of broadband products.  Our growth in sales of network infrastructureproduct was in sales to resellers as well as SMUs and governments, as we havecontinued to focus on diversification beyond the traditional infrastructurecarrier customer.

 

Revenues from our installation, test and maintenanceline of business decreased 12.1% in fiscal year 2008 as compared to the priorfiscal year, primarily due to a decline in sales of repair parts related to ourmajor repair components relationship with Nokia, as well as decreased sales oftest and bench equipment partially offset by an increase in sales of shopsupplies.  While revenues and gross profits from thisNokia relationship were significantly higher in fiscal year 2007 compared tofiscal year 2008, revenues and gross profits decreased significantly in thelast six months of fiscal year 2007 as compared to the first six months of theyear.  We had previously anticipatedfiscal year 2008 revenues and profits from this business to approximate thelevels we experienced in the last half of the fiscal year 2007.

 

**Gross Profit.** Grossprofit decreased 3.6% in fiscal year 2008 compared with fiscal year 2007,driven by a decline in our installation, test and maintenance commercial lineof business, partially offset by growth in our network infrastructure andmobile devices and accessories commercial business segments.  Commercial gross profit declined 4.2% and waspartially offset by a 17.5% increase in consumer gross profit.  Gross profit margin decreased to 22.5% infiscal year 2008, from 24.7% in fiscal year 2007.  Except as noted below, our gross margins byproduct within each segment have been sustained and variations are related tosales mix within the segment product offerings.  Grossprofit margin increased to 25.4% in fiscal year 2008 in our network infrastructuresegment, from 24.3% in fiscal year 2007. In our installation, test and maintenance segment, gross profit margindecreased to 22.4% in fiscal year 2008, from 28.9% in fiscal year 2007.  This decline was due primarily to the returnto historical levels of gross profit attributable to our Nokia repair andreplacement parts relationship as a result of price changes.  Gross profit margin in our mobile devices andaccessories segment decreased to 20.6% in fiscal year 2008, from 23.2%in fiscal year 2007.  This decline isprimarily attributable to the commercial gross profit margin for our mobiledevices and accessories segment, which decreased from 22.5% for fiscal year2007 to 20.0% for fiscal year 2008, principally due to product mix in sales toa large tier-one carrier and other retail customers.  The gross profit margin for our consumersales decreased from 41.9% to 37.0% in fiscal year 2008.  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.

 

Duringfiscal year 2006, we began sourcing a significant portion of our privatebranded subscriber accessory product line directly from factories inChina.  All of such purchases are denominatedin U.S. dollars.  Although our totalgross profit percentage decreased for fiscal year 2008, primarily related toour arrangements with Nokia and our large tier-one carrier, we have beenincreasing the amount of products and services sold under TESSCO’s privatelabels, including our GigaWave training. While sales of these directly sourced products and services representedonly 9% of our total sales, we believe that this direct sourcing initiative hasallowed us to realize lower costs of goods sold on sales of these products,after accounting for additional supply chain costs and lead times.  Wealso believe that these cost savings have allowed us to be more competitive inthe market.

 

Our ongoing ability to earn revenues and gross profitsfrom customers and vendors looking to us for product and supply chain solutionsis dependent upon a number of factors. The terms, and accordingly the factors, applicable to each affinityrelationship often differ.  Among thesefactors are the strength of the customer’s or vendor’s business, the supply anddemand for the product or service, including price stability, changing customeror vendor requirements, and our ability to support the customer or vendor and to continuallydemonstrate that we can improve the way they do business.  In addition, the agreements or arrangementson which our affinity relationships are based are typically of limitedduration, and 

 

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areterminable by either party upon several months or otherwise short notice.  These affinity relationships could also beaffected by wireless carrier consolidation.

 

As total revenues and gross profits from largercustomer and vendor relationships, including AT&T Mobility (formerlyCingular) and Nokia, increase, we occasionally experience and expect tocontinue to experience pricing pressures that may adversely affect futureresults. In an effort to mitigate the overall effect of these pressures and tomeet these consistent challenges, we are focused on our continuing efforts togrow revenues and gross profits from other customer and vendor relationships.

 

**Selling, General and Administrative Expenses.** Totalselling, general and administrative expenses decreased by 0.3% during fiscalyear 2008 as compared with fiscal year 2007. Total selling, general and administrative expenses as a percentage ofrevenues decreased from 22.2% in fiscal year 2007 to 20.9% in fiscal year 2008,due to the decreases in expenses discussed below.

 

The largest factors contributing to the decrease intotal selling, general and administrative expenses during fiscal year 2008 weredecreased marketing, sales promotion, freight expense and bonus accruals,partially offset by increased labor costs.

 

Duringthe second quarter of fiscal year 2007, we began a media campaign utilizingdifferent marketing techniques to broaden our outreach.  We reduced the scope of this programsignificantly during fiscal year 2008. Also in fiscal year 2007, we had increased sales promotion expense dueto costs related to a one time racks and graphics expenditure associated withour large tier-one carrier.  Totalmarketing and sales promotion expenses decreased by approximately $3.0 millionfrom fiscal year 2007 to fiscal year 2008.

 

Freight costs in fiscal year 2008 decreasedapproximately $1.2 million over the prior year, primarily due to increasedproductivity in our distribution operations, partially offset by higher fuel surcharges.

 

Labor cost primarily related to business generationand fulfillment activities increased from fiscal year 2007 to fiscal year2008.  These increases are reflective of ourincreased focus on our commercial business. However, the increase in labor costs was partially offset bydecreased expenses related to our bonusprograms, including stock compensation expense. Total labor costs, including benefits, increased by approximately$4.0 million from fiscal year 2007 to fiscal year 2008, offset by anapproximately $2.7 million decrease in our bonus expense in fiscal year 2008compared with fiscal year 2007.

 

We continually evaluate the credit worthiness of ourexisting customer receivable portfolio and provide an appropriate reserve basedon this evaluation.  We also evaluate thecredit worthiness of prospective customers and make decisions regardingextension of credit terms to such prospects based on this evaluation.  Accordingly, we recorded a provision for bad debts of $937,900 and$999,900 for fiscal year 2008 and fiscal year 2007, respectively.

 

**Interest, Net. **Net interest expense decreased from $879,400in fiscal year 2007 to $574,100 in fiscal year 2008, primarily due to decreasedaverage balances on our revolving credit facility, as well as decreasedinterest rates on our revolving credit facility and our term bank loan. As notedbelow, beginning October 1, 2005, we entered into a receive variable/payfixed interest rate swap on our existing bank loan, thus fixing theinterest rate on this loan at 6.38%. Interest expense on our other debt instruments had only minor variancesfrom year-to-year in total.

 

**IncomeTaxes, Net Income and Diluted Earnings Per Share.** The effective tax rates in fiscal year 2008and 2007 were 36.1% and 37.8%, respectively. The effective tax rate for fiscalyear 2008 decreased due to changes in the relationship between non-deductibleexpenses and taxable income, as well as other minor differences in thetaxability of certain other items, including a reduction of $196,300 inunrecognized tax benefits due to the lapse of an applicable statute

 

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oflimitations.  As a result of the factorsdiscussed above, net income and diluted earnings per share for fiscal year 2008decreased 31.6% and 24.8%, respectively, compared with fiscal year 2007.  Diluted earnings per share was positivelyimpacted by the stock buyback program further discussed in the liquidity andcapital resources section below.

 

**Fiscal Year 2007 Compared to Fiscal Year 2006**

 

**Revenues.**  Revenues for fiscal year 2007 increased 3.1%as compared with fiscal year 2006, notwithstanding a 94.5% decrease in consumerrevenues related to the transition in the second quarter of fiscal year 2006 ofour T-Mobile relationship as discussed below. This decrease in consumer revenues was largely offset by a 42.6% increasein commercial revenues, driven by growth in each of our three commercial linesof business.

 

Ourmobile devices and accessories revenues, including both commercial and consumersales, decreased 9.4% for fiscal year 2007 compared with fiscal year 2006.  We experienced significant growth incommercial sales of mobile devices and accessory products, which was offset bya significant decline in consumer sales. Commercial revenues for mobile devices and accessories increased90.9% over the prior year, due in part to new product introductions, enhancedmerchandising and packaging programs and increased sales of accessory productsto carrier and independent retail customers. The decrease in consumer revenues from sales of mobile devices andaccessories was primarily due to the transition of our T-Mobile affinityrelationship in the second quarter of fiscal year 2006.  Our T-Mobile affinity relationship, which hassince terminated, accounted for approximately 26% of total revenues in fiscalyear 2006.

 

The 11.0% increase in ournetwork infrastructure sales from fiscal year 2006 to fiscal year 2007 isprimarily attributable to an increase in sales of wireless local area network(WLAN) products and radio frequency (RF) propagation products.  These increases were largely a result of ourfiscal year 2007 acquisition of TerraWave and GigaWave, which primarily offerWLAN products and training.

 

Revenues from ourinstallation, test and maintenance line of business increased 30.1% in fiscalyear 2007 as compared to the prior fiscal year, primarily due to large sales ofrepair parts related to our expanded major repair components relationship withNokia, as well as increased sales of tools, shop supplies, and safety appareland equipment.   While revenues and gross profits from thisNokia relationship were significantly higher than in fiscal year 2006, revenuesand gross profits decreased significantly in the last six months of fiscal year2007, as compared to the first six months of the year.

 

**Gross Profit.** Grossprofit grew 17.9% in fiscal year 2007 compared with fiscal year 2006, driven bygrowth in each of our three commercial business segments.  Commercial gross profit grew 38.2% and waspartially offset by an 81.9% decrease in consumer gross profit.  Gross profit margin increased to 24.7% infiscal year 2007, from 21.6% in fiscal year 2006.  Gross profit margin increased to 24.3% infiscal year 2007 in our network infrastructure segment, from 23.3% in fiscalyear 2006.  In our installation, test andmaintenance segment, gross profit margin decreased to 28.9% in fiscal year 2007from 30.4% in fiscal year 2006. Generally, our gross margins by product within these segments have beensustained and these variations are related to sales mix within the segmentproduct offerings.  Gross profitmargin in our mobile devices and accessories segment increased to 23.2% infiscal year 2007 from 18.0% in fiscal year 2006.  This increase is primarily attributable to alarge decrease in low margin consumer sales which had been related to theT-Mobile relationship, and is partially offset by a decrease in commercialgross profit margin for our commercial sales. The decrease in commercial gross profit margin for our mobile devicesand accessories segment, from 24.2% for fiscal year 2006 to 22.5% for fiscalyear 2007, is attributable to sales mix within the product offering.  The gross profit margin for our consumersales increased from 12.7% to 41.9% in fiscal year 2007 due to the loss oflower margin handset sales from our T-Mobile relationship which wastransitioned in the second quarter of fiscal year 2006.

 

**Selling, General and Administrative Expenses.** Totalselling, general and administrative expenses increased by 15.8% during fiscalyear 2007 as compared with fiscal year 2006. Total selling, general and administrative expenses as a percentage ofrevenues increased from 19.7% in fiscal year 2006 to 22.2% in fiscal year 2007due to the increases in expenses discussed below.

 

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Thelargest factors contributing to the increase in total selling, general andadministrative expenses were increased labor costs and expenses related tobusiness generation activities in support of our continued increased focus onour commercial business during fiscal year 2007.

 

Laborcost increases were primarily related to sales and product management, as wellas increased fulfillment costs. Labor costs were also impacted by the acquisition of TerraWave andGigaWave in April 2006. Finally, labor costs increased over theprior year period due to increasedexpenses related to our reward programs, including Performance Stock Units (PSU’s).Total labor costs, including benefits, increased by approximately $5.8million from fiscal year 2006 to fiscal year 2007.

 

Marketingexpenses also increased in fiscal year 2007 as compared with fiscal year 2006. Nearthe end of the first quarter of fiscal year 2006, we retained RTC RelationshipMarketing, a direct- and database- marketing firm to increase market awarenessof TESSCO’s value proposition and product and solutions offering amongpotential and existing customers. During the second quarter of fiscal year2007, we began a media campaign utilizing different marketing techniques tobroaden our outreach. Sales promotion expense also increased due to costsrelated to increased sales to retail customers. Total marketing andsales promotion expenses increased by approximately $6.5 million from fiscalyear 2006 to fiscal year 2007.

 

Freightcosts in fiscal year 2007 decreased approximately $3.5 million over the prioryear, primarily due to the loss of consumer sales associated with our T-Mobilerelationship which ended in the second quarter of fiscal year 2006. Thisdecrease was partially offset by the freight costs associated with the increasein commercial sales.

 

Wecontinually evaluate the credit worthiness of our existing customer receivableportfolio and provide an appropriate reserve based on this evaluation. We alsoevaluate the credit worthiness of prospective customers and make decisionsregarding extension of credit terms to such prospects based on this evaluation.Accordingly, we recorded a provisionfor bad debts of $999,900 and $742,800 for fiscal year 2007 and fiscal year2006, respectively.

 

**Interest, Net.**Net interest expense increased from $358,500in fiscal year 2006 to $879,400 in fiscal year 2007, primarily due to increasedaverage balances on our revolving credit facility, as well as increasedinterest rates on our revolving credit facility and our term bank loan. Asnoted below, beginning October 1, 2005, we entered into a receivevariable/pay fixed interest rate swap on our existing bank loan, thusfixing the interest rate on this loan at 6.38%. Interest expense on our otherdebt instruments had only minor variances from year-to-year in total.

 

**Income Taxes, Net Income andDiluted Earnings Per Share.**The effective tax rates in fiscal year 2007 and 2006 were 37.8% and39.0%, respectively. The effective tax rate for fiscal year 2007 decreased dueto changes in the relationship between non-deductible expenses and taxableincome, as well as other minor differences in the taxability of certain otheritems. As a result of the factors discussed above, net income and dilutedearnings per share for fiscal year 2007 increased 37.7% and 46.3%,respectively, compared with fiscal year 2006. Diluted earnings per share wasalso positively impacted by the stock buyback program further discussed in theLiquidity and Capital Resources section below.

 

**Liquidity and Capital Resources**

 

Insummary, our cash flows were as follows:

 
| ** **                                            | ** ** | **2008**   | ** ** | **2007**    | ** ** | **2006**   | ** ** |
|-------------------------------------------------------|------------|------------|------------|-------------|------------|------------|------------|
| Cash flow  provided by operating activities           |       | $          | 4,160,100  |        | $          | 28,025,800 |       | $ | 3,317,800 |   |
| Cash flow used  in investing activities               |       | (4,837,400 | )          | (8,684,700  | )          | (2,908,400 | )          |
| Cash flow used  in financing activities               |       | (1,412,800 | )          | (17,451,700 | )          | (2,003,300 | )          |
| Net (decrease)  increase in cash and cash equivalents |       | $          | (2,090,100 | )           | $          | 1,889,400  |       | $ | (1,593,900 | ) |

 

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Infiscal year 2008, our cash inflow from operating activities was driven by netincome, net of depreciation and amortization and non-cash stock compensationexpense, as well as a significant increase in trade accounts payable, partiallyoffset by significant increases in both account receivable and productinventory and a significant decrease in the accrual for payroll, benefits andtaxes. The increase in accounts payable and inventory is largely a result ofsignificant inventory purchases as we increased our stocked product offering, includingwireless broadband products and phone accessories. Trade accounts receivableincreased due to the timing of sales and collections. The accrual for payroll,benefits and taxes decreased primarily due to a significant decrease in bonusaccruals in fiscal year 2008 as compared to fiscal year 2007.

 

Cashflows used in investing activities included capital expenditures, whichprimarily consisted of investment in information technology. On July 2,2007, we acquired the net assets and business of NetForce Solutions, Inc.(NetForce), a provider of technical and sales training solutions to wireless,telecommunications, and networking industries. The purchase includedsubstantially all of the non-cash business assets for an initial cash paymentof approximately $659,500 and additional potential cash earn-out payments of upto approximately $2.8 million over a four-year period, contingent on theachievement of certain earnings thresholds. For the period of July 2, 2007through March 30, 2008, there was no accrual for additional earn-outpayments, because applicable fiscal year 2008 targets were not met.

 

On April 21, 2006, we acquired substantiallyall the non-cash net assets of TerraWave Solutions, Ltd. and its commonly ownedaffiliate, GigaWave Technologies, Ltd. for an initial cash payment ofapproximately $3.9 million, and potential additional cash earn-out paymentsover a four-year period, contingent on the achievement of certain minimumearnings thresholds ($1.5 million of the $3.8 million cash amount paid atclosing is a non-refundable prepayment against future earn-out payments, ifearned, amortizable over the four-year period). To the extent that certainminimum earnings thresholds are not achieved over the remaining two years, wewill not be able to recover the reminder of this prepayment ($750,000). Themaximum amount of contingent future earn-out payments as of March 30, 2008(after subtracting the $1.5 million prepayment) is $13.3 million. Contingentpayments made under the terms of the purchase agreement are treated as anadditional cost of the acquired businesses and additional goodwill has been andwill continue to be recorded, if earnings targets are achieved. During fiscalyear 2008, approximately $1.7 million in earn-out payments were made, based onthe achievement of certain earnings thresholds in accordance with the terms ofthe purchase agreement. As of March 30, 2008, an additional $1.2 millionin earn out payments had been accrued. This amount has since been paid in thefirst quarter of fiscal year 2009. In accordance with the acquisitionagreement, all earn-out amounts are net of $375,000 (one quarter of the $1.5million prepayment) of the non-refundable prepayment against future earn-outpayments discussed above.

 

Cashflows used in financing activities is primarily related to treasury stockpurchases. During fiscal year 2008, we purchased 346,107 shares of ouroutstanding common stock pursuant to our stock buyback program, compared with1,043,813 shares purchased in fiscal year 2007. From the beginning of our stockbuyback program (the first quarter of fiscal year 2004), through the end offiscal year 2008, a total of 2,140,974 shares have been purchased under thisprogram for approximately $28.3 million, or an average price of $13.20 per share.The Board of Directors has authorized the purchase of up to 2,395,567 shares inthe aggregate, and therefore, 254,593 shares remained available to be purchasedas of the end of fiscal year 2008. We expect to fund future purchases, if any,from working capital and/or our revolving credit facility. No timetable hasbeen set for the completion or expiration of this program. We also purchaseshares from our employees and directors from time to time to facilitateemployees minimum federal and state tax withholdings related to vestedperformance stock units. For fiscal year 2008 and 2007 this totaled $1,406,400and $2,500, respectively. Cash flow from financing activities was also impactedby a $3.4 million increase in our revolving credit facility to fund theincrease in working capital discussed below.

 

Wehave a term loan in the original principal amount of $4.5 million with WachoviaBank, N.A. and SunTrust Bank that is payable in monthly installments ofprincipal and interest with the balance due at maturity, June 30, 2011.The note bears interest at a floating rate of LIBOR plus 1.75%. The note issecured by a first position deed of trust encumbering the Company-owned realproperty in Hunt Valley, Maryland. The loan is subject to generally the samefinancial covenants

 

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as our revolving creditfacility, which, as discussed below, has recently been replaced with a newfacility, the covenants under which also apply to the term loan. This loan hada balance of $3,675,000 as of March 30, 2008.

 

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 bank loandiscussed above, and to eliminate the variability in the cash outflow forinterest payments. The interest rate swap agreement locks the interest rate forthe outstanding principal balance of the loan at 6.38% through June 30,2011. There was no payment due or received at inception of the swap. No hedgeineffectiveness will be recognized as the interest rate swap provisions matchthe applicable provisions of the term bank loan. This cash flow hedge qualifiedfor hedge accounting using the short-cut method since the swap terms match thecritical terms of the hedged debt.

 

On May 31, 2007, we replaced our then existing$30 million revolving line of credit facility with a new $50 million revolvingline of credit facility with SunTrust Bank and Wachovia Bank, N.A. The previousfacility had been established in September 2003 and had a term expiring inSeptember 2007, was unsecured and had provided for monthly payments ofinterest accruing at a LIBOR rate plus an applicable margin ranging from 1.5%to 2.0%. The new facility has a term expiring May 2010, with interestpayable monthly at the LIBOR rate plus an applicable margin, which ranges from1.25% to 2.75%. Like the replaced facility, borrowing availability under thisnew facility is determined in accordance with a borrowing base. This newfacility includes financial covenants, including a minimum tangible net worth,minimum cash flow coverage of debt service, and a maximum funded debt to EBITDAratio. These financial covenants also apply to a separate but related term loansecured by our Hunt Valley, Maryland facility. The terms applicable to the newrevolving line of credit facility and term loan also limit our ability toengage in certain transactions or activities, including (but not limited to)investments and acquisitions, sales of assets, payment of dividends, issuanceof additional debt and other matters. As of March 30, 2008, we had $46.6million available on our revolving line of credit facility subject to thelimitations imposed by the borrowing base and our continued compliance with theother applicable terms, including the covenants discussed above. At March 30,2008, the principal balance of the outstanding term loan secured by our HuntValley facility was $3,675,000.

 

Workingcapital increased to $36.7 million as of March 30, 2008, from $33.5million as of April 1, 2007, primarily due to the increase in stockedinventory product offering and accounts receivable partially offset byincreased accounts payable. Shareholders’ equity increased to $60.2 million asof March 30, 2008, from $57.2 million as of April 1, 2007, primarilydue to increased retained earnings due to fiscal year 2008 net income and netincreases in additional paid-in capital, partially offset by the repurchase ofour stock in fiscal year 2007.

 

Webelieve that our existing cash, payments from customers, and availability underour revolving line of credit facility will be sufficient to support ouroperations for at least the next twelve months. To minimize interest expense,our policy is to use excess available cash to pay down any balance on ourrevolving line of credit facility. We expect to meet short-term and long-termliquidity needs through operating cash flow, supplemented by our revolvingcredit facility. In doing so, the balance on our revolving credit facilitycould increase depending on our working capital and other cash needs. If wewere to undertake an acquisition or other major capital purchases that requirefunds in excess of its existing sources of liquidity, we would look to sourcesof funding from additional credit facilities, debt and/or equity issuances. Therecan be no assurances that such additional future sources of funding would beavailable on terms acceptable to us, if at all.

 

Infiscal year 2007, our cash inflow from operating activities was driven by netincome, net of depreciation and amortization and non-stock compensationexpense, as well as a significant decrease in product inventory and an increasein accrued expenses and other current liabilities. The decrease in productinventory was primarily due to our amended repair components relationship withNokia. Under the relationship, we continue to manage marketing, sales anddistribution of repair components for Nokia, and we continue to be the primaryobligor to the respective customers, but now we maintain inventory onconsignment. Accrued expense increased primarily due to increased accruals forour reward program and tax accruals.

 

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Capitalexpenditures totaled $4.3 million in fiscal year 2007, primarily related toinvestments in information technology, as well as the acquisition of TerraWaveSolutions, Ltd. and its commonly owned affiliate, Gigawave Technologies, Ltd. Infiscal year 2006, capital expenditures totaled $2.9 million, comprisedprimarily of investments in information technology.

 

Duringfiscal year 2007, we purchased 1,043,813 shares of our outstanding common stockpursuant to our stock buyback program, compared with 200,700 shares purchasedin fiscal year 2006.

 

**CriticalAccounting Policies and Estimates**

 

Our discussion and analysis of our financial conditionand results of our operations are based on our consolidated financialstatements, which have been prepared in accordance with accounting principlesgenerally accepted in the United States. The preparation of these financialstatements requires us to make estimates and judgments that affect the reportedamount of assets, liabilities, revenues and expenses and related disclosure ofcontingent assets and liabilities. Actual results may differ from theseestimates under different assumptions or conditions.

 

We have identified the policies below as critical toour business operations and the understanding of our results of operations:

 

*Revenue Recognition.*We recordrevenue when 1) persuasive evidence of an arrangement exists, 2) delivery hasoccurred or services have been rendered, 3) our price to the buyer is fixed anddeterminable, and 4) collectibility is reasonably assured. Our revenuerecognition policy includes evidence of arrangements for significant revenuetransactions through either receipt of a customer purchase order or a web-basedorder. We record revenue when risk of loss has passed to the customer. In mostcases, shipments are made using FOB shipping terms. For a small portion of oursales, we use FOB destination terms and record the revenue when the product isreceived by the customer. Our prices are generally fixed at the time of sale. Historically,there have not been any material concessions provided to or by customers,future discounts, or other incentives subsequent to a sale. We sell undernormal commercial terms and, therefore, we only record sales on transactionswhere collectibilty is reasonably assured.

 

Because our sales transactions meet the conditions setforth in Statement of Financial Accounting Standard (SFAS) No. 48, “RevenueRecognition When Right of Return Exists,” we recognize revenues from salestransactions containing sales returns provisions at the time of the sale. Theseconditions require that 1) our price be substantially fixed and determinable atthe date of sale, 2) the buyer is obligated to pay us, and such obligation isnot contingent on their resale of the product, 3) the buyer’s obligation to usdoes not change in the event of theft or physical destruction or damage of theproduct, 4) the buyer has economic substance apart from us, 5) we do not havesignificant obligations for future performance to directly bring about resaleof the product by the buyer, and 6) the amount of future returns can bereasonably estimated. Because our normal terms and conditions of sale areconsistent with conditions 1-5 above, and we are able to perform condition 6,we make a reasonable estimate of product returns in sales transactions andaccrue a sales return reserve based on this estimate.

 

Our current and potential customers are continuing tolook for ways to reduce their inventories and lower their total costs,including distribution, order taking and fulfillment costs, while stillproviding their customers excellent service. 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 these solutions, we assume varying levels ofinvolvement in the transactions and varying 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. Whenapplying this guidance in accordance with Emerging Issues Task Force (EITF) No. 99-19,“Reporting Revenue Gross as a Principal versus Net as an Agent,” we look at thefollowing indicators: whether we are the primary obligor in the transaction;whether we have general inventory risk; whether we have latitude in

 

30

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establishing price; theextent to which we change the product or perform part of the service; whetherwe have responsibility 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 customer relationships is independently evaluated based onthe above guidance and revenue is recorded on the appropriate basis. Based on areview of the factors above, in the majority of our sales relationships, wehave concluded that we are the principal in the transaction and we recordrevenue based upon the gross amounts earned and booked. However, we do havecertain relationships where we are not the principal and we record revenue on anet fee basis, regardless of amounts billed (less than 5% of our totalrevenue). If applying this revenue recognition guidance resulted in recordingrevenue on a different basis from which we have previously concluded, or if thefactors above change significantly, revenues could increase or decrease;however, our gross profit and net income would remain constant.

 

*Allowance for Doubtful Accounts.*Weuse estimates to determine the amount of the allowance for doubtful accountsnecessary to reduce accounts receivable and unbilled receivables to theirexpected net realizable value. We estimate the amount of the required allowanceby reviewing the status of past-due receivables and analyzing historical baddebt trends. Actual collection experience has not varied significantly fromestimates, due primarily to credit policies, collection experience and ourstability as it relates to our current customer base. Typical payments fromcommercial customers are due 30 days from the date of the invoice. Wecharge-off receivables deemed to be uncollectible to the allowance for doubtfulaccounts. Accounts receivable balances are not collateralized.

 

*Inventory Reserves.*We establishinventory reserves for excess and obsolete inventory. We regularly reviewinventory to evaluate continued demand and identify any obsolete or excessquantities of inventory. We record a provision for the difference betweenexcess and obsolete inventory and its estimated realizable value. Estimatedrealizable value is based on anticipated future product demand, marketconditions and liquidation values. Actual results differing from theseprojections could have a material effect on our results of operations.

 

*Impairment of Long-Lived and Indefinite-LivedAssets.*Our Consolidated Balance Sheet includes goodwill ofapproximately $6.3 million and other indefinite lived intangible assets of$850,000. We perform annual impairment tests for goodwill and other indefinitelived assets on the first day of our fourth quarter. We also periodicallyevaluate our long-lived assets for potential impairment indicators. Ourjudgments regarding the existence of impairment indicators are based onestimated future cash flows, market conditions, operational performance andlegal factors. Future events, such as significant changes in cash flowassumptions, could cause us to conclude that impairment indicators exist andthat the net book value of goodwill, long-lived assets or intangible assets areimpaired. Had the determination been made that the goodwill and otherindefinite lived intangible assets were impaired, the value of these assetswould have been reduced by an amount up to $7.2 million, resulting in acorresponding charge to operations.

 

*Classificationof Expenses.*Our cost of goods sold includes cost of productsand freight from vendors to our distribution centers. Product management,distribution, purchasing, receiving/inspection, warehousing and corporateoverhead costs are included in selling, general and administrative expenses. Accordingly,our gross margins may not be comparable to other entities that may includethese costs in cost of goods sold.

 

*Income Taxes.*Effective April 2,2007, we adopted the FinancialAccounting Standards Board (FASB) Interpretation No. 48 (FIN 48), “Accountingfor Uncertainty in Income Taxes –An Interpretation of FASB Statement No. 109,” which clarifies theaccounting for uncertainty in income taxes recognized in an enterprise’sfinancial statements in accordance with FASB Statement No. 109, “Accountingfor Income Taxes.”  FIN 48 prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken in atax return. FIN 48 also provides guidance on derecognition, measurement,classification, interest and penalties, accounting in interim periods,disclosure and transition. As a result of the adoption, we recognized a $72,100decrease in beginning retained earnings as of April 2, 2007. As of April 2,2007, we had total gross unrecognized tax benefits of approximately $319,000,all of which, if recognized, would favorably affect the effective income taxrate in future periods.

 

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We recognize deferred tax assets and liabilities basedon the differences between the financial statement carrying amounts and the taxbases of assets and liabilities. We regularly review our deferred tax assetsfor recoverability. This review is based on historical taxable income,projected future taxable income and the expected timing of the reversals ofexisting temporary differences. Based on this review, we have not established avaluation allowance. If we are unable to generate sufficient taxable income, orif there is a material change in the actual effective tax rates or time periodwithin which the underlying temporary differences become taxable or deductible,we could be required to establish a valuation allowance against all or asignificant portion of our deferred tax assets, resulting in a substantialincrease in our effective tax rate and a material adverse impact on ouroperating results.

 

*Stock-Based Compensation.*Effective March 27, 2006, we adoptedSFAS No. 123R, “Share-Based Payment,” using the modified prospectiveapplication transition method. Because the fair value recognition provisions ofSFAS No. 123, “Accounting for Stock-Based Compensation,” which we hadpreviously adopted effective March 29, 2004, and SFAS No. 123R aregenerally consistent with respect to our share-based payments (other than asdescribed below), the adoption of SFAS No. 123R did not have a materialimpact on our financial position, results of operations or cash flows.

 

SFASNo. 123R requires us to include in our calculation of periodic stockcompensation expense an estimate of future forfeitures. Prior to fiscal year2007, in accordance with SFAS No. 123, we only included forfeitures in ourcalculation of stock compensation expense when the awards were actuallyforfeited. The inclusion of estimated in lieu of actual forfeitures did nothave a material impact on our financial position or results of operations forthe year ended March 30, 2008. SFAS No. 123R also requires stockawards granted or modified after the adoption of SFAS No. 123R thatinclude both performance conditions and graded vesting to be amortized over anaccelerated method. Prior to the adoption of SFAS No. 123R, benefits oftax deductions in excess of recognized compensation costs were reported asoperating cash flows. SFAS No. 123R requires excess tax benefits bereported as a financing cash flow.

 

**Off-BalanceSheet Arrangements**

 

Wehave no material off-balance sheet arrangements.

 

**RecentAccounting Pronouncements**

 

In September 2006, theFASB issued FASB Statement No. 157, “Fair Value Measurements” (FASB 157),which provides guidance for using fair value to measure assets and liabilities.The standard also responds to investors’ requests for expanded informationabout the extent to which companies measure assets and liabilities at fairvalue, the information used to measure fair value, and the effect of fair valuemeasurements on earnings. The standard applies whenever other standards require(or permit) assets or liabilities to be measured at fair value. The standarddoes not expand the use of fair value in any new circumstances. In February 2008,the FASB partially deferred the effective date of SFAS No. 157 for certainnon-financial assets and liabilities that are recognized or disclosed at fairvalue in the financial statements on a nonrecurring basis until November 15,2008. We will adopt FASB 157 effective March 31, 2008. We do not believe thatthe new standard will have a material impact on the consolidated financialstatements.

 

In February 2007, the FASB issued SFAS No. 159, “The FairValue Option for Financial Assets and Financial Liabilities — Including anAmendment of FASB Statement No. 115.” SFAS No. 159 permits an entity to measure many financialinstruments and certain other items at fair value that are not currentlyrequired to be measured at fair value. Entities that elect the fair valueoption will report unrealized gains and losses in earnings at each subsequentreporting date. We will adopt SFAS No. 159 effective as of March 31,2008. We are currently assessing the potential impact of the standard and donot believe that it will have a material impact on the consolidated financialstatements.

 

In December 2007, theFASB issued SFAS No. 141(R), “Business Combinations,” which replaces SFAS No. 141.The standard retains the fundamental requirements of SFAS No. 141 that theacquisition method of accounting (labeled the purchase method under SFAS No. 141)be used for all business combinations and for an acquirer to be identified foreach

 

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businesscombination. SFAS No. 141(R) requires the assets, liabilities,noncontrolling interests, certain acquired contingencies and contingentconsideration acquired during abusiness combination to be measured at their fair value as of the acquisitiondate. SFAS No. 141(R) is effective for fiscal years beginning on orafter December 15, 2008. We will adopt SFAS No. 141(R) for any acquisitionafter March 30, 2009.

 

**Forward-LookingStatements**

 

This Report contains anumber of forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995, all of which are based on currentexpectations. These forward-looking statements may generally be identified bythe use of the words “may,” “will,” “believes,” “should,” “expects,” “anticipates,”“estimates,” and similar expressions. Our future results of operations andother forward-looking statements contained in this report involve a number ofrisks and uncertainties, including those described throughout this AnnualReport on Form 10-K and in Item 1A above. For a variety of reasons, actualresults may differ materially from those described in any such forward-lookingstatement. Consequently, the reader is cautioned to consider allforward-looking statements in light of the risks to which they are subject.

 

### **Available Information**

### ** **

Our Internet Web site address is: www.tessco.com. Wemake available free of charge through our Web site, our annual report on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K andamendments to those reports filed or furnished pursuant to Section 13 or15(d) of the Exchange Act as soon as reasonably practicable after suchdocuments are electronically filed with, or furnished to, the Securities andExchange Commission. Also available on our Web site is our Code of BusinessConduct and Ethics. We have not incorporated herein by reference theinformation on our Web site, and it should not be considered a part of thisfiling.

 

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**Item 8. Financial Statements and SupplementaryData.**

 

**Consolidated Balance Sheets**

 
| ** **                                                                                                                                                                                                                                | ** ** | **March 30, 2008** | ** **  | **April 1, 2007** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|-------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                                | ** ** | ** **                   | ** **  | ** **                  | ** ** |
| Current assets:                                                                                                                                                                                                                           |       |                         |        |                        |       |
| Cash and cash  equivalents                                                                                                                                                                                                                |       | $                            | 2,086,200   |                        | $          | 4,176,300 |   |
| Trade accounts  receivable, net of allowance for doubtful accounts of $1,200,700 and  $910,400, respectively                                                                                                                              |       | 55,698,600                   |        | 44,859,600                  |       |
| Product  inventory                                                                                                                                                                                                                        |       | 49,057,300                   |        | 37,448,800                  |       |
| Deferred tax  assets                                                                                                                                                                                                                      |       | 4,048,800                    |        | 3,460,100                   |       |
| Prepaid expenses  and other current assets                                                                                                                                                                                                |       | 1,827,500                    |        | 1,959,500                   |       |
| Total current  assets                                                                                                                                                                                                                     |       | 112,718,400                  |        | 91,904,300                  |       |
|                                                                                                                                                                                                                                      |       |                         |        |                        |       |
| Property and  equipment, net                                                                                                                                                                                                              |       | 22,233,600                   |        | 24,256,300                  |       |
| Goodwill, net                                                                                                                                                                                                                             |       | 6,310,100                    |        | 5,008,300                   |       |
| Other long-term  assets                                                                                                                                                                                                                   |       | 2,536,500                    |        | 2,513,800                   |       |
| Total assets                                                                                                                                                                                                                              |       | $                            | 143,798,600 |                        | $          | 123,682,700 |   |
| ** **                                                                                                                                                                                                                                |       |                         |        |                        |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                                            |       |                         |        |                        |       |
| Current  liabilities:                                                                                                                                                                                                                     |       |                         |        |                        |       |
| Trade accounts  payable                                                                                                                                                                                                                   |       | $                            | 64,433,400  |                        | $          | 47,257,700 |   |
| Payroll,  benefits and taxes                                                                                                                                                                                                              |       | 3,014,400                    |        | 6,658,500                   |       |
| Income and sales  tax liabilities                                                                                                                                                                                                         |       | 3,588,700                    |        | 2,960,800                   |       |
| Accrued expenses  and other current liabilities                                                                                                                                                                                           |       | 1,253,600                    |        | 1,143,800                   |       |
| Revolving line  of credit                                                                                                                                                                                                                 |       | 3,353,500                    |        | —                      |       |
| Current portion  of long-term debt                                                                                                                                                                                                        |       | 360,400                      |        | 356,200                     |       |
| Total current  liabilities                                                                                                                                                                                                                |       | 76,004,000                   |        | 58,377,000                  |       |
|                                                                                                                                                                                                                                      |       |                         |        |                        |       |
| Deferred tax  liabilities                                                                                                                                                                                                                 |       | 2,189,300                    |        | 2,700,400                   |       |
| Long-term debt,  net of current portion                                                                                                                                                                                                   |       | 3,842,600                    |        | 4,203,200                   |       |
| Other long-term  liabilities                                                                                                                                                                                                              |       | 1,611,100                    |        | 1,250,800                   |       |
| Total  liabilities                                                                                                                                                                                                                        |       | 83,647,000                   |        | 66,531,400                  |       |
| Commitments and  contingencies                                                                                                                                                                                                            |       |                         |        |                        |       |
|                                                                                                                                                                                                                                      |       |                         |        |                        |       |
| Shareholders’  equity:                                                                                                                                                                                                               |       |                         |        |                        |       |
| Preferred stock,  $0.01 par value, 500,000 shares authorized and no shares issued and  outstanding                                                                                                                                        |       | —                       |        | —                      |       |
| Common stock,  $0.01 par value, 15,000,000 shares authorized; 7,832,094 shares issued and  5,173,979 shares outstanding as of March 30, 2008, and 7,584,199 shares  issued and 5,325,067 shares outstanding as of April 1, 2007 |       | 78,200                       |        | 75,800                      |       |
| Additional  paid-in capital                                                                                                                                                                                                               |       | 32,087,400                   |        | 27,463,700                  |       |
| Treasury stock,  at cost, 2,658,115 shares as of March 30, 2008, and 2,259,132 shares as  of April 1, 2007                                                                                                                      |       | (33,454,300                  | )           | (27,216,200                 | )          |
| Retained  earnings                                                                                                                                                                                                                        |       | 61,552,900                   |        | 56,806,300                  |       |
| Accumulated  other comprehensive (loss) income                                                                                                                                                                                            |       | (112,600                     | )           | 21,700                      |       |
| Total  shareholders’ equity                                                                                                                                                                                                          |       | 60,151,600                   |        | 57,151,300                  |       |
| Total  liabilities and shareholders’ equity                                                                                                                                                                                          |       | $                            | 143,798,600 |                        | $          | 123,682,700 |   |

 

*Theaccompanying Notes to the Consolidated Financial Statements are an integralpart of these consolidated statements.*

 

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### ** **

### **ConsolidatedStatements of Income**

** **
| ** **                                    | ** ** | **Fiscal Years Ended** | ** **  |
|-----------------------------------------------|------------|----------------------------------|-------------|
| ** **                                    | ** ** | **March 30, 2008**     | ** **  | **April 1, 2007** | ** ** | **March 26, 2006** | ** ** |
|                                          |       |                             |        |   |   |   |   |
| Revenues                                      |       | $                                | 520,968,200 |   | $ | 492,327,800 |   | $ | 477,329,300 |   |
| Cost of goods  sold                           |       | 403,978,800                      |        | 370,916,400 |   | 374,316,300 |   |
|                                          |       |                             |        |   |   |   |   |
| Gross profit                                  |       | 116,989,400                      |        | 121,411,400 |   | 103,013,000 |   |
| Selling, general  and administrative expenses |       | 108,875,700                      |        | 109,208,800 |   | 94,268,800 |   |
|                                          |       |                             |        |   |   |   |   |
| Income from  operations                       |       | 8,113,700                        |        | 12,202,600 |   | 8,744,200 |   |
|                                          |       |                             |        |   |   |   |   |
| Interest  expense, net                        |       | 574,100                          |        | 879,400 |   | 358,500 |   |
|                                          |       |                             |        |   |   |   |   |
| Income before  provision for income taxes     |       | 7,539,600                        |        | 11,323,200 |   | 8,385,700 |   |
|                                          |       |                             |        |   |   |   |   |
| Provision for  income taxes                   |       | 2,720,900                        |        | 4,281,100 |   | 3,270,500 |   |
|                                          |       |                             |        |   |   |   |   |
| Net income                                    |       | $                                | 4,818,700   |   | $ | 7,042,100 |   | $ | 5,115,200 |   |
|                                          |       |                             |        |   |   |   |   |
| Basic earnings  per share                     |       | $                                | 0.92        |   | $ | 1.22 |   | $ | 0.81 |   |
| Diluted earnings  per share                   |       | $                                | 0.88        |   | $ | 1.17 |   | $ | 0.80 |   |
| Basic weighted  average shares outstanding    |       | 5,264,100                        |        | 5,753,900 |   | 6,296,700 |   |
| Diluted weighted  average shares outstanding  |       | 5,463,400                        |        | 6,016,000 |   | 6,411,500 |   |

 

*Theaccompanying Notes to these Consolidated Financial Statements are an integralpart of these consolidated statements.*

 

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**ConsolidatedStatements of Changes in Shareholders’ Equity**

 
| ** **                                                        | ** ** | **Common Stock** | ** ** | **Additional****Paid-in** | ** ** | **Treasury** | ** ** | **Retained** | ** ** | **Accumulated  Other****Comprehensive  (Loss)** | ** **  | **Total****Shareholders’** | ** ** |
|-------------------------------------------------------------------|------------|-----------------------|------------|---------------------------|------------|--------------|------------|--------------|------------|-------------------------------------------------|-------------|---------------------------------|------------|
| ** **                                                        | ** ** | **Shares**            | ** ** | **Amount**                | ** ** | **Capital**  | ** ** | **Stock**    | ** ** | **Earnings**                                    | ** **  | **Income**                      | ** ** | **Equity** | ** ** |
| Balance at  March 27, 2005                                   |       | 6,316,752             |       | $                         | 48,900     |         | $          | 23,578,600   |       | $                                               | (7,454,400  | )                               | $          | 44,649,000 |   | $ | — |   | $ | 60,822,100 |   |
| Proceeds from  issuance of stock                                  |       | 112,824               |       | 700                       |       | 424,100      |       | —       |       | —                                          |        | —                          |       | 424,800 |   |
| Treasury stock  purchase                                          |       | (200,700              | )          | —                    |       | —       |       | (2,066,700   | )          | —                                          |        | —                          |       | (2,066,700 | ) |
| Non-cash stock  compensation expense                              |       | —                |       | —                    |       | 746,000      |       | —       |       | —                                          |        | —                          |       | 746,000 |   |
| Comprehensive  Income:                                            |       |                  |       |                      |       |         |       |         |       |                                            |        |                            |       |   |   |
| Net income                                                        |       | —                |       | —                    |       | —       |       | —       |       | 5,115,200                                       |        | —                          |       | 5,115,200 |   |
| Other  comprehensive income, net of tax                           |       | —                |       | —                    |       | —       |       | —       |       | —                                          |        | 65,400                          |       | 65,400 |   |
| Balance at  March 26, 2006                                   |       | 6,228,876             |       | 49,600                    |       | 24,748,700   |       | (9,521,100   | )          | 49,764,200                                      |        | 65,400                          |       | 65,106,800 |   |
| Proceeds from issuance  of stock                                  |       | 125,119               |       | 8,200                     |       | 430,100      |       | —       |       | —                                          |        | —                          |       | 438,300 |   |
| Treasury stock  purchase                                          |       | (1,043,813            | )          | —                    |       | —       |       | (17,695,100  | )          | —                                          |        | —                          |       | (17,695,100 | ) |
| Non-cash stock  compensation expense                              |       | 14,885                |       | 18,000                    |       | 2,037,300    |       | —       |       | —                                          |        | —                          |       | 2,055,300 |   |
| Excess tax benefit  from stock-based compensation                 |       | —                |       | —                    |       | 247,600      |       | —       |       | —                                          |        | —                          |       | 247,600 |   |
| Comprehensive  Income:                                            |       |                  |       |                      |       |         |       |         |       |                                            |        |                            |       |   |   |
| Net income                                                        |       | —                |       | —                    |       | —       |       | —       |       | 7,042,100                                       |        | —                          |       | 7,042,100 |   |
| Other  comprehensive (loss), net of tax                           |       | —                |       | —                    |       | —       |       | —       |       | —                                          |        | (43,700                         | )          | (43,700 | ) |
| Balance at  April 1, 2007                                    |       | 5,325,067             |       | 75,800                    |       | 27,463,700   |       | (27,216,200  | )          | 56,806,300                                      |        | 21,700                          |       | 57,151,300 |   |
| Cumulative effect  of adoption of FASB Interpretation No. 48 |       | —                |       | —                    |       | —       |       | —       |       | (72,100                                         | )           | —                          |       | (72,100 | ) |
| Proceeds from  issuance of stock                                  |       | 232,895               |       | 2,200                     |       | 666,500      |       | —       |       | —                                          |        | —                          |       | 668,700 |   |
| Treasury stock  purchase                                          |       | (398,983              | )          | —                    |       | —       |       | (6,238,100   | )          | —                                          |        | —                          |       | (6,238,100 | ) |
| Non-cash stock  compensation expense                              |       | 15,000                |       | 200                       |       | 2,797,700    |       | —       |       | —                                          |        | —                          |       | 2,797,900 |   |
| Excess tax  benefit from stock-based compensation                 |       | —                |       | —                    |       | 1,159,500    |       | —       |       | —                                          |        | —                          |       | 1,159,500 |   |
| Comprehensive  Income:                                            |       |                  |       |                      |       |         |       |         |       |                                            |        |                            |       |   |   |
| Net income                                                        |       | —                |       | —                    |       | —       |       | —       |       | 4,818,700                                       |        | —                          |       | 4,818,700 |   |
| Other  comprehensive (loss), net of tax                           |       | —                |       | —                    |       | —       |       | —       |       | —                                          |        | (134,300                        | )          | (134,300 | ) |
| Balance at  March 30, 2008                                   |       | 5,173,979             |       | $                         | 78,200     |         | $          | 32,087,400   |       | $                                               | (33,454,300 | )                               | $          | 61,552,900 |   | $ | (112,600 | ) | $ | 60,151,600 |   |

 

*Theaccompanying Notes to these Consolidated Financial Statements are an integralpart of these consolidated statements.*

 

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### ** **

### **ConsolidatedStatements of Cash Flows**

 
| ** **                                                                         | ** ** | **Fiscal Years Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **March 30, 2008**     | ** ** | **April 1, 2007** | ** ** | **March 26, 2006** | ** ** |
|                                                                               |       |                             |       |   |   |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                             |       |                             |       |   |   |   |   |
| Net income                                                                         |       | $                                | 4,818,700  |   | $ | 7,042,100 |   | $ | 5,115,200 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |       |                             |       |   |   |   |   |
| Depreciation and  amortization                                                     |       | 4,814,300                        |       | 4,763,100 |   | 4,498,700 |   |
| Non-cash stock  compensation expense                                               |       | 2,797,900                        |       | 2,055,300 |   | 746,000 |   |
| Deferred income  taxes and other                                                   |       | (798,000                         | )          | (1,159,200 | ) | (890,100 | ) |
| Change in trade  accounts receivable                                               |       | (10,541,000                      | )          | 402,400 |   | 17,330,900 |   |
| Change in  product inventory                                                       |       | (11,608,500                      | )          | 12,240,900 |   | 13,216,900 |   |
| Change in  prepaid expenses and other current assets                               |       | 132,000                          |       | (320,500 | ) | 29,200 |   |
| Change in trade  accounts payable                                                  |       | 17,535,400                       |       | (22,300 | ) | (37,634,000 | ) |
| Change in  payroll, benefits and taxes                                             |       | (3,656,300                       | )          | 1,412,900 |   | 777,500 |   |
| Change in income  and sales tax liabilities                                        |       | 555,800                          |       | 1,773,200 |   | 525,300 |   |
| Change in  accrued expenses and other current liabilities                          |       | 109,800                          |       | (162,100 | ) | (397,800 | ) |
| Net cash  provided by operating activities                                         |       | 4,160,100                        |       | 28,025,800 |   | 3,317,800 |   |
|                                                                               |       |                             |       |   |   |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                             |       |                             |       |   |   |   |   |
| Acquisition of  property and equipment                                             |       | (2,507,400                       | )          | (4,251,400 | ) | (2,908,400 | ) |
| Acquisition of  business in purchase transaction                                   |       | (2,330,000                       | )          | (4,433,300 | ) | — |   |
| Net cash used in  investing activities                                             |       | (4,837,400                       | )          | (8,684,700 | ) | (2,908,400 | ) |
|                                                                               |       |                             |       |   |   |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                             |       |                             |       |   |   |   |   |
| Net borrowings  from revolving line of credit                                      |       | 3,353,500                        |       | — |   | — |   |
| Payments on  long-term debt                                                        |       | (356,400                         | )          | (442,500 | ) | (361,400 | ) |
| Proceeds from  issuance of stock                                                   |       | 668,700                          |       | 438,300 |   | 424,800 |   |
| Purchase of  treasury stock                                                        |       | (6,238,100                       | )          | (17,695,100 | ) | (2,066,700 | ) |
| Excess tax  benefit from stock-based compensation                                  |       | 1,159,500                        |       | 247,600 |   | — |   |
| Net cash used in  financing activities                                             |       | (1,412,800                       | )          | (17,451,700 | ) | (2,003,300 | ) |
|                                                                               |       |                             |       |   |   |   |   |
| Net (decrease)  increase in cash and cash equivalents                              |       | (2,090,100                       | )          | 1,889,400 |   | (1,593,900 | ) |
|                                                                               |       |                             |       |   |   |   |   |
| CASH AND CASH  EQUIVALENTS, beginning of period                                    |       | 4,176,300                        |       | 2,286,900 |   | 3,880,800 |   |
|                                                                               |       |                             |       |   |   |   |   |
| CASH AND CASH  EQUIVALENTS, end of period                                          |       | $                                | 2,086,200  |   | $ | 4,176,300 |   | $ | 2,286,900 |   |

 

*Theaccompanying Notes to the Consolidated Financial Statements are an integralpart of these consolidated statements.*

 

37

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** **

**Notes to Consolidated Financial Statements**

 

**Note 1. Organization**

 

TESSCO TechnologiesIncorporated, a Delaware corporation (TESSCO or the Company), is a leadingprovider 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 chainmanagement, product-solution delivery and control systems utilizingextensive Internet and information technology. Approximately 96% of the Company’s sales are made to customers in theUnited States.  The Company takes ordersin several ways, including phone, fax, online and through electronic datainterchange.

 

**Note 2. Summary of Significant Accounting Policies**

 

***Principles of Consolidation***

 

The ConsolidatedFinancial Statements include the accounts of the Company and its wholly-ownedsubsidiaries. Significant intercompany accounts and transactions have beeneliminated in consolidation.

 

***Fiscal Year***

 

The Company’s fiscal yearis the 52 or 53 weeks ending on the Sunday falling on or between March 26and April 1 to allow the financial year to better reflect the Company’snatural weekly accounting and business cycle. The fiscal year ended March 30, 2008 contained 52 weeks, fiscalyear ended April 1, 2007 contained 53 weeks and fiscal year ended March 26,2006 contained 52 weeks.

 

***Cash and Cash Equivalents***

 

Cash and cash equivalentsinclude cash and highly liquid investments with an original maturity of90 days or less.

 

***Allowance for Doubtful Accounts***

 

The Company usesestimates to determine the amount of the allowance for doubtful accountsnecessary to reduce accounts receivable and unbilled receivables to theirexpected net realizable value. The Company estimates 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, collection experienceand the Company’s stability as it relates to its current customer base.  Typical payments from a large majority ofcommercial customers are due 30 days from the date of the invoice.  The Company charges-off receivables deemed tobe uncollectible to the allowance for doubtful accounts. Accounts receivablebalances are not collateralized.

 

***Product Inventory***

 

Productinventory, consisting entirely of finished goods, is stated at the lower ofcost or market, cost being determined on the first-in, first-out (“FIFO”)method and includes certain charges directly and indirectly incurred inbringing product inventories to the point of sale. Inventory is written down for estimatedobsolescence equal to the difference between the cost of inventory and theestimated market value, based upon specifically known inventory-related risks(such as technological obsolescence and the nature of vendor terms surroundingprice protection and product returns), and assumptions about future demand. Atfiscal year end 2008 and 2007, the Company has recorded a reserve for excessand/or obsolete inventory of $2,655,600 and $2,984,100 respectively.

 

38

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**Notes to Consolidated Financial Statements**

 

***Property and Equipment***

 

Property and equipment isstated at cost. Depreciation is recorded using the straight-line method overthe estimated useful lives of the assets as follows:

 
| ** **                                                  | ** ** | **Useful lives** | ** ** |
|-------------------------------------------------------------|------------|-----------------------|------------|
|                                                        |       |                  |       |
| Information  technology equipment and software              |       | 1-5 years             |       |
| Configuration,  Fulfillment and Delivery technology system  |       | 7 years               |       |
| Furniture,  telephone system, equipment and tooling         |       | 3-10 years            |       |
| Building,  building improvements and leasehold improvements |       | 2-40 years            |       |

 

The Configuration,Fulfillment and Delivery (CFD) technology system, which was initiallyimplemented during fiscal year 2005, is a major automated materials-handlingsystem that is integrated with the Company’s product planning and procurementsystem.  The Company believes this CFDsystem has an estimated useful life that is longer than its other softwareassets, and thus, is depreciating the system over a seven-year life.

 

The Company capitalizescomputer software costs that meet both the definition of internal-use softwareand defined criteria for capitalization in accordance with American Instituteof Certified Public Accountants Statement of Position No. 98-1, “Accountingfor the Cost of Computer Software Developed or Obtained for Internal Use.”

 

Leasehold improvementsare amortized over the shorter of their useful lives or the remaining leaseterm.

 

***Impairment of Long-Lived Assets***

 

Long-lived assets, including amortizable intangibleassets, are reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of an asset or group of assets may not befully recoverable.  These events orchanges in circumstances may include a significant deterioration of operatingresults, changes in business plans, or changes in anticipated future cashflows.  If an impairment indicator ispresent, the Company evaluates recoverability by a comparison of the carryingamount of the assets to future undiscounted net cash flows expected to begenerated by the assets.  Assets aregrouped at the lowest level for which there are identifiable cash flows thatare largely independent of the cash flows generated by other asset groups.  If the assets are impaired, the impairmentrecognized is measured by the amount by which the carrying amount exceeds thefair value of the assets.  Fair value isgenerally determined by estimates of discounted cash flows.  The discount rate used in any estimate ofdiscounted cash flows would be the rate required for a similar investment oflike risk.

 

Assets to be disposed of are reported at the lower ofcarrying value or fair values, less estimated costs of disposal.

 

***Goodwill and Other IntangibleAssets***

 

Goodwill represents the excess of the purchase pricein a business combination over the fair value of net tangible and intangibleassets acquired. Goodwill amounts and indefinite lived intangible assets arenot amortized, but rather are tested for impairment at least annually orwhenever an impairment indicator is identified. The Company performs its annualimpairment test on the first day of its fourth quarter.  Intangible assets that are not considered tohave an indefinite useful life are amortized over their useful life of 4 to 6years using the straight-line method. Intangible assets other than goodwill are recorded within other longterm assets in the Company’s consolidated balance sheets.  The goodwill impairment test involves atwo-step approach. Under the first step, the Company determines the fair valueof each reporting unit to which goodwill has been assigned. The Company thencompares the fair value of each reporting unit to its carrying value, includinggoodwill. The Company estimates the fair value of each reporting unit byestimating the present value of the reporting unit’s future cash flows. If thefair value exceeds the carrying value, no impairment loss is recognized. If thecarrying value exceeds the fair value, the goodwill of the reporting unit isconsidered potentially impaired and the second step is completed in order tomeasure the impairment loss. 

 

39

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**Notes to Consolidated Financial Statements**

 

Under the second step, the Company calculates the implied fair value ofgoodwill by deducting the fair value of all tangible and intangible net assets,including any unrecognized intangible assets, of the reporting unit from the fairvalue of the reporting unit as determined in the first step. The Company thencompares the implied fair value of goodwill to the carrying value of goodwill.If the implied fair value of goodwill is less than the carrying value ofgoodwill, the Company recognizes an impairment loss equal to the difference.

 

The indefinite livedintangible asset impairment test requires the determination of the fair valueof the intangible asset. If the fair value of the intangible asset is less thanits carrying value, an impairment loss is recognized for an amount equal to thedifference. The intangible asset is then carried at its new fair value. Fairvalue is determined using estimates of discounted cash flows. These estimatesof discounted cash flows will likely change over time as impairment tests areperformed. Estimates of fair value are also adversely affected by increases ininterest rates and the applicable discount rate.  Based on the Company’s impairment testingperformed, the Company did not recognize an impairment loss on goodwill orother indefinite lived intangible assets in fiscal year 2008, 2007 or 2006.

 

***Revenue Recognition***

 

The Company records revenue when 1) persuasiveevidence of an arrangement exists, 2) delivery has occurred or services havebeen rendered, 3) price to the buyer is fixed and determinable, and 4)collectibility is reasonably assured. The Company’s revenue recognition policyincludes evidence of arrangements for significant revenue transactions througheither receipt of a customer purchase order or a web-based order.  The Company records revenue when risk of losshas passed to the customer.  In mostcases, shipments are made using FOB shipping terms.  FOB destination terms are used for a smallportion of sales, and revenue is recorded when the product is received by thecustomer.  Prices are always fixed at thetime of sale.  Historically, there havenot been any material concessions provided to or by customers, futurediscounts, or other incentives subsequent to a sale.  The Company sells undernormal commercial terms and, therefore, only records sales on transactionswhere collectibilty is reasonably assured. The Company recognizes sales net of sales tax.

 

Because the Company’s sales transactions meet theconditions set forth in Statement of Financial Accounting Standard (SFAS) No. 48,“Revenue Recognition When Right of Return Exists,” it recognizes revenues fromsales transactions containing sales returns provisions at the time of thesale.  These conditions require that 1)the price be substantially fixed and determinable at the date of sale, 2) thebuyer is obligated to pay, and is not contingent on their resale of theproduct, 3) the buyer’s obligation to the Company does not change in the eventof theft or physical destruction or damage of the product, 4) the buyer haseconomic substance apart from the Company, 5) the Company does not havesignificant obligations for future performance to directly bring about resaleof the product by the buyer, and 6) the amount of future returns can bereasonably estimated.  Because theCompany’s normal terms and conditions of sale are consistent with conditions1-5 above, and the Company is able to perform condition 6, it makes areasonable estimate of product returns in sales transactions and accrues asales return reserve based on this estimate.

 

Certain companies have turned to TESSCO to implementsupply chain solutions, including purchasing inventory, assisting in demandforecasting, configuring, packaging, kitting and delivering products and managingcustomer relations, from order taking through cash collections.  Inperforming these solutions, the Company assumes varying levels of involvementin the transactions and varying levels of credit and inventory risk.  Asthe Company’s solutions offerings continually evolve to meet the needs of itscustomers, the Company constantly evaluates its revenue accounting based on theguidance set forth in accounting standards generally accepted in the UnitedStates.  When applying this guidance in accordance with Emerging IssuesTask Force (EITF) No. 99-19, “Reporting Revenue Gross as a Principalversus Net as an Agent,” the Company looks at the following indicators: whetherit is the primary obligor in the transaction; whether it has general inventoryrisk; whether it has latitude in establishing price; the extent to which itchanges the product or performs part of the service; whether it hasresponsibility for supplier selection; whether it is involved in thedetermination of product and service specifications; whether it has physicalinventory risk; whether it has credit risk; and whether the amount it earns isfixed.  Each of the Company’s customer relationships is independentlyevaluated based on the above guidance and revenue is recorded on theappropriate basis. 

 

40

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**Notes to Consolidated Financial Statements**

 

Based on a review of the factors above, in the majority of theCompany’s sales relationships, the Company has concluded that it is theprincipal in the transaction and records revenue based upon the gross amountsearned and booked.  However, the Companyhas several smaller relationships where it is not the principal and recordsrevenue on a net fee basis, regardless of amounts billed (less than 5% of totalrevenue).  If applying this revenuerecognition guidance resulted in recording revenue on a different basis fromwhich the Company has previously concluded, or if the factors above changesignificantly, revenues could increase or decrease; however, gross profit andnet income would remain constant.

 

Service revenue associated with training and other services isrecognized when the training or work is complete and the four criteria discussed above havebeen met. Service revenues have represented less than 10% of total net salesfor fiscal years 2008, 2007 and 2006.

 

Other than subscriber accessory sales relating to theCompany’s private brand, Wireless Solutions®, TESSCO offers noproduct warranties in excess of original equipment manufacturers’ warranties. TheCompany’s warranty expense is estimated and accrued at the time of sale.  Warranty expense was immaterial for thefiscal years 2008, 2007 and 2006.

 

***Vendor Programs***

 

Funds received fromvendors for price protection, product rebates and marketing/promotion arerecorded to revenue, cost of goods sold or selling, general and administrativeexpenses in the Consolidated Statements of Income depending on the nature ofthe program.  The Company accrues rebatesor vendor incentives as earned based on the contractual terms with the vendor.

 

***Classification of Expenses***

 

Cost of goods sold includes cost of products andfreight from vendors to our distribution centers.  Product management, distribution, purchasing,receiving/inspection, warehousing and corporate overhead costs are included inselling, general and administrative expenses.

 

***Shipping and Handling Costs***

 

Shipping and handlingcosts are included in selling, general and administrative expenses in theConsolidated Statements of Income and totaled $16,226,700, $17,392,600, and$20,916,500 for the fiscal years ended March 30, 2008, April 1, 2007and March 26, 2006, respectively.

 

***AdvertisingCosts***

 

The Company expenses the production costs ofadvertising the first time the advertising takes place, except for the cost ofdirect-response advertising, primarily catalog production costs, which arecapitalized and amortized over their expected period of future benefits (i.e.,the life of the catalog, generally less than one year). Direct catalogproduction costs included in prepaid and other assets totaled $629,600 at March 30,2008 and $798,700 at April 1, 2007. The Company tracks orders and revenuedirectly sourced from its catalog.  Totaladvertising and marketing expense was $1,474,200, $2,046,400 and $838,400 forfiscal years 2008, 2007 and 2006, respectively.

 

***Stock Compensation Awards Granted to Team Members***

 

EffectiveMarch 27, 2006, the Company adopted SFAS No. 123R, “Share-BasedPayment,” using the modified prospective transition method. Because the fairvalue recognition provisions of SFAS No. 123, “Accounting for Stock-BasedCompensation,” which the Company had previously adopted effective March 29,2004, and SFAS No. 123R are generally consistent with respect to theCompany’s share-based payments (other than as described below), the adoption ofSFAS No. 123R did not have a material impact on the financial position,results of operations or cash flows.

 

41

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**Notes to Consolidated FinancialStatements**

 

SFAS No. 123R requiresthe Company to include in its calculation of periodic stock compensationexpense an estimate of future forfeitures. Prior to fiscal year 2007, in accordance with SFAS No. 123, theCompany only included forfeitures in its calculation of stock compensationexpense when the awards were actually forfeited.  The inclusion of estimated in lieu of actualforfeitures did not have a material impact on our financial position or resultsof operations for the year ended April 1, 2007.  SFAS No. 123R also requires stock awardsgranted or modified after the adoption of SFAS No. 123R that include bothperformance conditions and graded vesting to be amortized over an acceleratedmethod. Prior to the adoption of SFAS No. 123R, benefits of tax deductionsin excess of recognized compensation costs were reported as operating cashflows. SFAS No. 123R requires excess tax benefits be reported as afinancing cash flow.

 

***Income Taxes***

 

The Company accounts for income taxes under theprovisions of SFAS No. 109, “Accounting for Income Taxes.”  Under the asset and liability method of SFAS No. 109,deferred income tax assets and liabilities arise from differences between thetax basis of assets or liabilities and their reported amounts in the financialstatements.  Deferred tax balances aredetermined by using the tax rate expected to be in effect when the taxes arepaid or refunds received.

 

In June 2006, the FASB issued FIN 48, “Accounting for Uncertainty inIncome Taxes – An Interpretation of FASB Statement No. 109,” which clarifiesthe accounting for uncertainty in income taxes recognized in an enterprise’sfinancial statements in accordance with FASB Statement No. 109, “Accountingfor Income Taxes.”  FIN 48 prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return.  FIN 48 also providesguidance on de-recognition, measurement, classification, interest and penalties,accounting in interim periods, disclosure and transition.  The Company adopted FIN 48 effective as of April 2,2007.  As a result of the adoption, theCompany recognized a $72,100 decrease in beginning retained earnings as of April 2,2007.  As of April 2, 2007, theCompany had total gross unrecognized tax benefits of approximately $319,000,all of which, if recognized, would favorably affect the effective income taxrate in future periods.  See Note 12 forfurther discussion of FIN 48 and its impact on the Company’s consolidatedfinancial statements.

 

***Use of Estimates***

 

The preparation offinancial statements in conformity with U.S. generally accepted accountingprinciples (GAAP) requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities as of the date of the financial statementsand the reported amounts of revenues and expenses during the reporting period.Actual results could significantly differ from those estimates.

 

***Impact of Recently IssuedAccounting Standards***

 

In September 2006,the FASB issued SFAS No. 157, “Fair Value Measurements,” which providesguidance for using fair value to measure assets and liabilities.  The standard also responds to investors’requests for expanded information about the extent to which companies measureassets and liabilities at fair value, the information used to measure fairvalue, and the effect of fair value measurements on earnings. The standardapplies whenever other standards require (or permit) assets or liabilities tobe measured at fair value. The standard does not expand the use of fair valuein any new circumstances.  In February 2008,the FASB partially deferred the effective date of SFAS No. 157 for certainnon-financial assets and liabilities that are recognized or disclosed at fairvalue in the financial statements on a nonrecurring basis until November 15,2008.  The Company will adopt SFAS No. 157effective as of March 31, 2008.  TheCompany does not believe that the new standard will have a material impact onits consolidated financial statements.

 

In February 2007,the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assetsand Financial Liabilities – Including an Amendment of FASB Statement No. 115.”  SFAS No. 159 permits an entity tomeasure many 

 

42

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**Notes to Consolidated Financial Statements**

 

financial instruments and certain other items at fair value that arenot currently required to be measured at fair value. Entities that elect thefair value option will report unrealized gains and losses in earnings at eachsubsequent reporting date. The Company will adopt SFAS No. 159 effectiveas of March 31, 2008.  The Companyis currently assessing the potential impact of the standard and does notbelieve that it will have a material impact on its consolidated financialstatements.

 

In December 2007, theFASB issued SFAS No. 141(R), “Business Combinations,” which replaces SFAS No. 141.  The standard retains the fundamentalrequirements of SFAS No. 141 that the acquisition method of accounting(labeled the purchase method under SFAS No. 141) be used for all businesscombinations and for an acquirer to be identified for each businesscombination.  SFAS No. 141(R) requiresthe assets, liabilities, noncontrolling interests, certain acquiredcontingencies and contingent consideration acquired during a businesscombination to be measured at their fair value as of the acquisition date.  SFAS No. 141(R) is effective forfiscal years beginning on or after December 15, 2008.  The Company will adopt SFAS No. 141(R) forany acquisition after March 30, 2009.

 

**Note 3. Stock Split Effected in the Form of aDividend**

 

OnNovember 29, 2006, the Company issued a stock dividend in order to effecta three-for-two stock split of the Company’s common stock.  All share and earnings per share numbersprior to the November 29, 2006 stock split (including without limitationall share and share-related numbers included in Notes 11, 14 and 15 below) havebeen retroactively restated to reflect the stock dividend for all periodspresented.  The number of authorizedshares of common stock remains at 15 million.

 

**Note 4. Acquisitions**

 

On July 2, 2007, the Company acquired thenet assets and business of NetForce Solutions, Inc. (NetForce), a providerof technical and sales training solutions to wireless, telecommunications, andnetworking industries in order to further expand the Company’s trainingoffering.  The purchase includedsubstantially all of the non-cash business assets for an initial cash paymentof $659,500 and potential additional cash earn-out payments of up toapproximately $2.8 million over a four-year period, contingent on theachievement of certain minimum earnings thresholds.  The unaudited revenues earned by NetForce forcalendar year 2006, prior to the acquisition, amounted to less than 1 percentof the amount of the Company’s total revenue for fiscal year 2007.

 

The Company has included the financialresults of NetForce in its consolidated financial statements beginning July 2,2007 (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 business is included in theinstallation, test and maintenance segment.

 

Forthe period of July 2, 2007 through March 30, 2008, no additionalearn-out has been accrued, because the applicable annual fiscal year 2008earnings targets have not been met as of March 30, 2008.

 

This acquisition has beenaccounted for as a business combination in accordance with SFAS No. 141, “BusinessCombinations.”  Under businesscombination accounting, the total purchase price was allocated to Netforce’snet tangible and identifiable intangible assets based on their estimated fair valuesas of July 2, 2007.  The initialpurchase price was allocated as set forth below:

 
| Trade accounts  receivable      |   | $       | 298,000 |   |
|---------------------------------|--------|---------|---------|--------|
| Identifiable  intangible assets |   | 293,700 |    |
| Fixed assets                    |   | 89,000  |    |
| Trade accounts  payable         |   | (9,000  | )       |
| Accrued expenses                |   | (12,200 | )       |
| Total purchase  price           |   | $       | 659,500 |   |

 

43

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**Notes to Consolidated Financial Statements**

 

In performing itspurchase price allocation, the Company considered, among other factors, itsintention for future use of acquired assets, analyses of historical financialperformance and estimates of future performance of Netforce.  As part of the purchase price allocation, theCompany identified two intangible assets, the customer contacts which wereestimated to have an approximate fair value of $206,100 and an estimated usefullife of six years and covenants not to compete which were estimated to have anapproximate fair value of $87,600 and an estimated useful life of six years.

 

On April 21, 2006,the Company acquired substantially all the non-cash net assets of TerraWaveSolutions, Ltd. (TerraWave) and its commonly owned affiliate, GigaWaveTechnologies, Ltd. (GigaWave) for an initial cash payment of approximately $3.9million, and potential additional cash earn-out payments over a four-yearperiod, contingent on the achievement of certain minimum earnings thresholds($1.5 million of the $3.8 million cash amount paid at closing is anon-refundable prepayment against future earn-out payments, if earned,amortizable over the four-year period). To the extent that certain minimum earnings thresholds are not achieved,the Company will not be able to recover this prepayment ($750,000 remainsunearned at March 30, 2008).  Themaximum amount of contingent future earn-out payments as of March 30, 2008(after subtracting the $1.5 million prepayment) is $13.3 million.  Contingent payments made under the terms ofthe purchase agreement are treated as an additional cost of the acquiredbusinesses and additional goodwill is recorded. Additionally, acquisition related transaction costs, primarily comprisedof legal and accounting fees totaled $89,500. TerraWave and GigaWave provide products and training related to WirelessLocal Area Network applications.  Thisacquisition was a part of our growth strategy to increase our product andservice offering.

 

The Company has includedthe financial results of TerraWave and GigaWave in its consolidated financialstatements beginning April 21, 2006 (Acquisition Date).  Pro forma results have not been presented asthe impact of the acquisition is not material and did not involve a significantamount of assets.

 

This acquisition has beenaccounted for as a business combination in accordance with SFAS No. 141, “BusinessCombinations.”  Under businesscombination accounting, the total purchase price was allocated to TerraWave andGigaWave’s net tangible and identifiable intangible assets based on theirestimated fair values as of April 21, 2006.  The excess of the purchase price over the nettangible and identifiable intangible assets was recorded as goodwill.  The initial purchase price was allocated asset forth below:

 
| Trade accounts  receivable      |   | $         | 1,685,500 |   |
|---------------------------------|--------|-----------|-----------|--------|
| Product  inventory              |   | 896,600   |      |
| Prepaid expenses                |   | 17,200    |      |
| Identifiable  intangible assets |   | 1,630,000 |      |
| Goodwill                        |   | 519,000   |      |
| Fixed assets                    |   | 139,600   |      |
| Trade accounts  payable         |   | (758,900  | )         |
| Accrued expenses                |   | (195,700  | )         |
| Total purchase  price           |   | $         | 3,933,300 |   |

 

In performing itspurchase price allocation, the Company considered, among other factors, its intentionfor future use of acquired assets, analyses of historical financial performanceand estimates of future performance of TerraWave and GigaWave. The Company’sestimate of the fair value of intangible assets was based, in part, on avaluation completed by an independent valuation specialist, and estimates andassumptions provided by management. The identified intangible assets consistedof service-marks, covenants not to compete and customer contracts andrelationships.  Based upon the purchaseprice allocation, the trademarks were estimated to have an approximate fairvalue of $850,000 and an indefinite life, the customer contacts were estimatedto have an approximate fair value of $490,000 and an estimated useful life offour years and the covenants not to compete were estimated to have anapproximate fair value of $290,000 and an estimated useful life of sixyears.  Goodwill noted above andadditional goodwill resulting from earn-out payments are expected to bedeductible for tax purposes.  The primaryfactors contributing to a purchase price that resulted in the recognition ofgoodwill included expansion of the WLAN product line, expansion of markets forTESSCO’s existing products, the acquired employee force and the expansion ofTESSCO’s training business.

 

44

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**Notes to Consolidated Financial Statements**

 

Infiscal year 2008, the Company increased goodwill by $1.3 million, correspondingto additional earn-outs based on achievement of certain earnings thresholds inaccordance with the terms of the purchase agreement.  Of this amount $1.2 million was accrued as ofyear-end and was paid in May 2008. The remaining amount had been paid in May 2007.  In accordance with the purchase agreement,these earn-out amounts are net of $375,000 per year (one quarter of the $1.5 millionprepayment) of the non-refundable prepayment against future earn-out paymentsdiscussed above.  As of March 30,2008, $3,857,800 has been recorded as goodwill relating to this acquisition.

 

**Note 5. Property and Equipment**

 

All of the Company’sproperty and equipment is located in the United States.  Property and equipment, excluding land, isdepreciated using the straight-line method, and is summarized as follows:

 
| ** **                                                  | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|-------------------------------------------------------------|------------|-------------|------------|-------------|------------|
|                                                        |       |        |       |        |       |
| Land                                                        |       | $           | 4,803,200  |        | $          | 4,803,200 |   |
| Building,  building improvements and leasehold improvements |       | 14,781,100  |       | 14,504,500  |       |
| Information  technology equipment and computer software     |       | 18,103,600  |       | 24,037,300  |       |
| Furniture,  telephone system, equipment and tooling         |       | 5,502,600   |       | 4,790,500   |       |
|                                                        |       | 43,190,500  |       | 48,135,300  |       |
| Less accumulated  depreciation and amortization             |       | (20,956,900 | )          | (23,879,000 | )          |
| Property and  equipment, net                                |       | $           | 22,233,600 |        | $          | 24,256,300 |   |

 

Depreciation of propertyand equipment was $4,606,800, $4,597,600 and $4,438,700 for fiscal years 2008,2007 and 2006, respectively.

 

Unamortized computersoftware as of March 30, 2008 and April 1, 2007 was $2,404,700 and$2,839,500, respectively.  Depreciationof unamortized computer software was $1,083,600, $1,353,700 and $1,783,300 forfiscal years 2008, 2007 and 2006, respectively.

 

**Note 6.Goodwill and Other Intangible Assets**

 

Other intangible assets asof March 30, 2008 and April 1, 2007 are summarized as follows:

 

45

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**Notes to Consolidated Financial Statements**

 
| ** **                      | ** ** | **2008**                    | ** ** | **2007**                      | ** ** |
|---------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| ** **                      | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
| Amortized  Intangible Assets:   |       |                        |       |                          |       |   |   |   |   |
| Customer  contracts             |       | $                           | 696,100    |                          | $          | 260,500 |   | $ | 490,000 |   | $ | 112,200 |   |
| Covenants not to  compete       |       | 377,600                     |       | 103,500                       |       | 290,000 |   | 44,300 |   |
| Other                           |       | 878,500                     |       | 878,500                       |       | 878,500 |   | 878,500 |   |
|                            |       | 1,952,200                   |       | 1,242,500                     |       | 1,658,500 |   | 1,035,000 |   |
| Unamortized  Intangible Assets: |       |                        |       |                          |       |   |   |   |   |
| Trademarks                      |       | 850,000                     |       | —                        |       | 850,000 |   | — |   |
|                            |       |                        |       |                          |       |   |   |   |   |
| Total Other  Intangible Assets  |       | $                           | 2,802,200  |                          | $          | 1,242,500 |   | $ | 2,508,500 |   | $ | 1,035,000 |   |

 

Amortization expenserelating to other intangible assets was $207,500 for fiscal year 2008, $165,500for fiscal year 2007 and $60,000 for fiscal year 2006. At March 30, 2008,amortizable intangible assets have an average remaining life of 3.8 years.  Other intangibles assets primarily relate totrademarks, but also include the value of customer contacts and covenants notto complete related to our acquisitions in fiscal years 2008 and 2007 (see Note4).  Estimated amortization expense forcurrent intangible assets for the next five years is follows:

 
| **Fiscal year:** | ** ** | ** ** | ** ** |
|-----------------------|------------|------------|------------|
| 2009                  |       | $          | 219,800    |   |
| 2010                  |       | 219,800    |       |
| 2011                  |       | 107,500    |       |
| 2012                  |       | 97,300     |       |
| 2013                  |       | 53,000     |       |
|                  |       | $          | 697,400    |   |

 

All of the Company’s goodwill is recorded in itsinfrastructure segment.  The changes inthe carrying amount of goodwill for the years ended March 30, 2008 and April 1,2007 are as follows:

 
| ** **                       | ** ** | **Net Carrying  Amount** | ** ** |
|----------------------------------|------------|-------------------------------|------------|
| Balance at  March 26, 2006: |       | $                             | 2,452,200  |   |
| Current year  acquisitions       |       | 519,000                       |       |
| Earn-outs on  acquisitions       |       | 2,037,100                     |       |
| Balance at  April 1, 2007:  |       | $                             | 5,008,300  |   |
| Current year acquisitions        |       | —                        |       |
| Earn-outs on  acquisitions       |       | 1,301,800                     |       |
| Balance at  March 30, 2008: |       | $                             | 6,310,100  |   |

 

**Note 7. Borrowings Under Revolving CreditFacility**

 

On May 31, 2007, wereplaced our then existing $30 million revolving line of credit facility with anew $50 million revolving line of credit facility with both Wachovia Bank, N.A.and SunTrust Bank.  The previous facilitywas established in September 2003 and had a term expiring September 2007,was unsecured and had provided for monthly payments of interest accruing at aLIBOR rate plus an applicable margin ranging from 1.5% to 2.0%.  The new facility has a term expiring May 2010,with interest payable monthly at the LIBOR rate plus an applicable margin,which ranges from 

 

46

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**Notes to Consolidated Financial Statements**

 

1.25% to 2.75%. AtMarch 30, 2008, the Company had an outstanding balance of $3,353,500 on itsrevolving line of credit facility. At April 1, 2007, the Company had nooutstanding balances on its revolving credit facility.

 

The weighted averageinterest rate on borrowings under the Company’s revolving credit facilities was5.73%, 7.04% and 6.00% for fiscal years 2008, 2007 and 2006, respectively.Interest expense on this revolving credit facility for fiscal years 2008, 2007and 2006 totaled $364,000, $616,000 and $151,500, respectively. Averageborrowings under this revolving credit facility totaled $3,274,100, $5,473,400and $1,689,300 and maximum borrowings totaled $19,353,100, $17,968,400 and$10,961,000, for fiscal years 2008, 2007 and 2006, respectively.

 

The terms of the new lineof credit facility, like the replaced line of credit facility, requires theCompany to meet certain financial covenants and ratios and contain otherlimitations including a restriction on dividend payments. The new facility isalso subject to a borrowing base, based on levels of trade accounts receivableand inventory.  The Company was incompliance with the terms of each facility, as applicable, at the end of fiscalyears 2008, 2007 and 2006.

 

**Note 8. Long-Term Debt**

 

On June 30, 2004,the Company refinanced its previously existing term loan with a bank.  Thenew term loan had an original principal amount of $4.5 million and is payablein monthly installments of principal and interest with the balance due atmaturity, June 30, 2011.  The notebears interest at a floating rate of LIBOR plus 1.75%. The note is secured by afirst position deed of trust encumbering the Company-owned real property inHunt Valley, Maryland.  The loan isgenerally subject to the same financial covenants as the Company’s revolvingcredit facility (see Note 7), which requires the Company to meet certainfinancial covenants and ratios and contains other limitations, including arestriction on dividend payments.  Thebalance of this note at March 30, 2008 and April 1, 2007 was$3,675,000 and $3,900,000, respectively. The weighted average interest rate on borrowings under this notewas 5.82%, 6.95% and 6.68% for fiscal years 2008, 2007 and 2006,respectively.  Interest expense under this note was $265,900, $280,600 and $230,700 forfiscal years 2008, 2007 and 2006,respectively.

 

On October 1,2005, the Company entered into a receive variable/pay fixed interest rate swapon a total notional amount of $4.2 million with Wachovia Bank, N.A. to avoidthe risks associated with fluctuating interest rates on the Company’s existingterm bank loan, which bears interest at a floating rate of LIBOR plus 1.75%,and to eliminate the variability in the cash outflow for interestpayments.  The interest rate swapagreement locks the interest rate for the outstanding principal balance of theloan at 6.38% through June 30, 2011. There was no payment 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. The fair value of this interest rate swap, net of tax, at March 30,2008 and April 1, 2007 of $(112,600) and $21,700, respectively, isincluded in Other Long-Term Assets and Accumulated Other Comprehensive (Loss)Income on the Company’s Consolidated Balance Sheet.

 

At March 26,2006, the Company had a note payable outstanding to Baltimore County, Marylandof $90,200.  The balance of the note waspaid during the third quarter of fiscal year 2007.  The note bore interest at 4.75% per annum.Interest expense under this note was $500 and $4,300 for fiscal years 2007 and 2006 respectively. Thenote was secured by a subordinate position on Company-owned real propertylocated in Hunt Valley, Maryland.

 

At March 30, 2008and April 1, 2007, the Company had a note payable outstanding to theMaryland Economic Development Corporation of $528,000 and $659,400,respectively.  The note is payable inequal quarterly installments of principal and interest of $37,400, with thebalance due at maturity, October 10, 2011. The note bears interest at3.00% per annum. Interest expense under this note was $18,100, $22,200 and$25,900 for fiscal years 2008, 2007 and 2006, respectively.  The note is secured by a subordinate positionon Company-owned real property located in Hunt Valley, Maryland.

 

47

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**Notes to Consolidated Financial Statements**

 

As of March 30,2008, scheduled annual maturities of long-term debt are as follows:

 
| **Fiscal year:** | ** ** | ** ** | ** ** |
|-----------------------|------------|------------|------------|
| 2009                  |       | $          | 360,400    |   |
| 2010                  |       | 364,200    |       |
| 2011                  |       | 368,500    |       |
| 2012                  |       | 3,109,900  |       |
| Thereafter            |       | —     |       |
|                  |       | $          | 4,203,000  |   |

 

**Note 9. Commitments and Contingencies**

 

The Company is committedto making rental payments under noncancelable operating leases covering variousfacilities and equipment. Rent expense for fiscal years 2008, 2007 and 2006totaled $2,560,200, $1,905,500 and $1,393,800, respectively.

 

The Company entered intoan Agreement of Lease, dated November 3, 2003, between the Company andAtrium Building LLC, under which the Company leases office space where theCompany’s sales, marketing and administrative offices are located.  The Agreement of Lease provided for a termbeginning June 1, 2004 and expiring May 31, 2007.  On January 23, 2007, the Company enteredinto a First Amendment to Agreement of Lease, which among other things,provided for a six month extension, until November 30, 2007, of the leaseterm provided for under the Agreement of Lease. The Company entered into aSecond Amendment of Agreement of Lease, dated May 1, 2007, which amongother things, provided for an extension, from November 30, 2007 to December 31,2012, of the lease term provided for under the Agreement of Lease.  The monthly rental fee ranges from $124,700to $144,600 throughout the lease term.

 

On June 1, 2007, theCompany entered into a Lease with MERRITT/BAVAR-VA, LLC, a Maryland limitedliability company, under which the Company leases approximately 66,000 squarefeet of office and warehouse space in Hunt Valley, Maryland, adjacent to theCompany’s Global Logistic Center, for a term beginning July 1, 2007 andexpiring July 31, 2011.  The monthlyrental fee ranges from $35,700 to 38,500 throughout the lease term.

 

                The Company’s minimumfuture obligations as of March 30, 2008 under existing operating leasesare as follows:

 
| **Fiscal year:** | ** ** | ** ** | ** ** |
|-----------------------|------------|------------|------------|
| 2009                  |       | $          | 2,371,400  |   |
| 2010                  |       | 2,193,200  |       |
| 2011                  |       | 2,112,900  |       |
| 2012                  |       | 1,842,600  |       |
| 2013                  |       | 1,281,000  |       |
| Thereafter            |       | —     |       |
|                  |       | $          | 9,801,100  |   |

 

Lawsuits and claims arefiled against the Company from time to time in the ordinary course ofbusiness.  The Company does not believethat any lawsuits or claims pending against the Company, individually or in theaggregate, are material, or will have a material adverse affect on the Company’sfinancial condition or results of operations. In addition, from time to time, the Company is also subject to reviewfrom federal and state taxing authorities in order to validate the amounts ofincome, sales and/or use taxes which have been claimed and remitted.

 

48

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**Notes to Consolidated Financial Statements**

 

**Note 10. Business Segments**

 

 The Company evaluates revenue, gross profit and inventory in threebusiness 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); (2) Mobile devices and accessoryproducts, which include data devices, pagers and two-way radios and relatedaccessories such as replacement batteries, cases, speakers, mobile amplifiers,power supplies, headsets, mounts, car antennas and various wireless datadevices; and (3) Installation, test and maintenance products, which areused to install, tune, maintain and repair wireless communicationsequipment.  Within the mobile devices andaccessories line of business, the Company sells to both commercial and consumermarkets.  The network infrastructure andinstallation, test and maintenance lines of business sell primarily tocommercial markets.  Beginning in fiscalyear 2008, the Company expanded its regular review of its commercial results ofoperations to three customer categories. These three 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 include systems operators that aregenerally responsible for building and maintaining the infrastructure systemand provide airtime service to individual subscribers.

·                  Commercial Resellers. Resellers include dealers and resellers that sell, install and servicecellular telephone, paging and two-way radio communications equipment primarilyfor 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.

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

·                   Consumers.Consumers include customers that buy through any of our affinity partnerrelationships or directly from our consumer website, YourWirelessSource.comTM.

 

The Company measuressegment performance based on segment gross profit.  The segment operations develop their productoffering, pricing and strategies, which are collaborative with one another andthe centralized sales and marketing function. Therefore, the Company does not segregate assets, other than inventory,for internal reporting, evaluating performance or allocating capital.  In addition, the Company has allocated allgoodwill and indefinite lived intangible assets to the applicable segment forpurposes of its annual impairment tests. Product delivery revenue and certain cost of sales expenses have beenallocated to each segment based on a percentage of revenues and/or grossprofit, as applicable.

 

49

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**Notes to Consolidated Financial Statements**

 

Segment activity for the fiscal years2008, 2007 and 2006 is as follows:

 
| **(in thousands)**                | ** ** | **Network  Infrastructure** | ** ** | **Mobile Devices  and Accessories** | ** ** | **Installation, Test  and Maintenance** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|-----------------------------|------------|-----------------------------------------------|------------|---------------------------------------------------|------------|-----------|------------|
| **Year  ended March 30, 2008**    |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial  Revenues:                  |       |                        |       |                                          |       |                                              |       |      |       |
| Public Carriers  and Network Operators |       | $                           | 46,977     |                                          | $          | 2,193                                             |       | $         | 13,199     |   | $ | 62,369 |   |
| Resellers                              |       | 69,839                      |       | 243,549                                       |       | 9,548                                             |       | 322,936   |       |
| SMUs and Governments                   |       | 49,400                      |       | 13,746                                        |       | 62,534                                            |       | 125,680   |       |
| Total Commercial  Revenue              |       | 166,216                     |       | 259,488                                       |       | 85,281                                            |       | 510,985   |       |
| Consumer  Revenues                     |       | —                      |       | 9,983                                         |       | —                                            |       | 9,983     |       |
| Total Revenue                          |       | $                           | 166,216    |                                          | $          | 269,471                                           |       | $         | 85,281     |   | $ | 520,968 |   |
|                                   |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial Gross  Profit:              |       |                        |       |                                          |       |                                              |       |      |       |
| Public Carriers  and Network Operators |       | $                           | 11,387     |                                          | $          | 633                                               |       | $         | 3,248      |   | $ | 15,268 |   |
| Resellers                              |       | 18,121                      |       | 46,979                                        |       | 3,030                                             |       | 68,130    |       |
| SMUs and  Governments                  |       | 12,778                      |       | 4,319                                         |       | 12,798                                            |       | 29,895    |       |
| Total Commercial  Gross Profit         |       | 42,286                      |       | 51,931                                        |       | 19,076                                            |       | 113,293   |       |
| Consumer Gross  Profit                 |       | —                      |       | 3,696                                         |       | —                                            |       | 3,696     |       |
| Total Gross  Profit                    |       | $                           | 42,286     |                                          | $          | 55,627                                            |       | $         | 19,076     |   | $ | 116,989 |   |
|                                   |       |                        |       |                                          |       |                                              |       |      |       |
| Product  Inventory                     |       | $                           | 22,875     |                                          | $          | 22,168                                            |       | $         | 4,014      |   | $ | 49,057 |   |
|                                   |       |                        |       |                                          |       |                                              |       |      |       |
| **Year  ended April 1, 2007**     |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial  Revenues:                  |       |                        |       |                                          |       |                                              |       |      |       |
| Public Carriers  and Network Operators |       | $                           | 49,701     |                                          | $          | 2,641                                             |       | $         | 14,293     |   | $ | 66,635 |   |
| Resellers                              |       | 66,685                      |       | 205,581                                       |       | 10,580                                            |       | 282,846   |       |
| SMUs and  Governments                  |       | 48,816                      |       | 14,356                                        |       | 72,162                                            |       | 135,334   |       |
| Total Commercial  Revenue              |       | 165,202                     |       | 222,578                                       |       | 97,035                                            |       | 484,815   |       |
| Consumer  Revenues                     |       | —                      |       | 7,513                                         |       | —                                            |       | 7,513     |       |
| Total Revenue                          |       | $                           | 165,202    |                                          | $          | 230,091                                           |       | $         | 97,035     |   | $ | 492,328 |   |
|                                   |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial Gross  Profit:              |       |                        |       |                                          |       |                                              |       |      |       |
| Public Carriers  and Network Operators |       | $                           | 11,869     |                                          | $          | 785                                               |       | $         | 3,478      |   | $ | 16,132 |   |
| Resellers                              |       | 16,584                      |       | 44,794                                        |       | 2,601                                             |       | 63,979    |       |
| SMUs and  Governments                  |       | 11,629                      |       | 4,557                                         |       | 21,969                                            |       | 38,155    |       |
| Total Commercial  Gross Profit         |       | 40,082                      |       | 50,136                                        |       | 28,048                                            |       | 118,266   |       |
| Consumer Gross  Profit                 |       | —                      |       | 3,145                                         |       | —                                            |       | 3,145     |       |
| Total Gross  Profit                    |       | $                           | 40,082     |                                          | $          | 53,281                                            |       | $         | 28,048     |   | $ | 121,411 |   |
|                                   |       |                        |       |                                          |       |                                              |       |      |       |
| Product  Inventory                     |       | $                           | 14,184     |                                          | $          | 19,480                                            |       | $         | 3,785      |   | $ | 37,449 |   |

 

50

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**Notes to Consolidated Financial Statements**

 
| ** **                             | ** ** | **Network  Infrastructure** | ** ** | **Mobile Devices  and Accessories** | ** ** | **Installation, Test  and Maintenance** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|-----------------------------|------------|-----------------------------------------------|------------|---------------------------------------------------|------------|-----------|------------|
| **Year  ended March 26, 2006**    |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial  Revenues:                  |       |                        |       |                                          |       |                                              |       |      |       |
| Public Carriers  and Network Operators |       | $                           | 53,049     |                                          | $          | 2,894                                             |       | $         | 16,997     |   | $ | 72,940 |   |
| Resellers                              |       | 55,659                      |       | 98,723                                        |       | 8,682                                             |       | 163,064   |       |
| SMUs and  Governments                  |       | 40,160                      |       | 14,967                                        |       | 48,903                                            |       | 104,030   |       |
| Total Commercial  Revenue              |       | 148,868                     |       | 116,584                                       |       | 74,582                                            |       | 340,034   |       |
| Consumer  Revenues                     |       | —                      |       | 137,295                                       |       | —                                            |       | 137,295   |       |
| Total Revenue                          |       | $                           | 148,868    |                                          | $          | 253,879                                           |       | $         | 74,582     |   | $ | 477,329 |   |
|                                   |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial Gross  Profit:              |       |                        |       |                                          |       |                                              |       |      |       |
| Public Carriers  and Network Operators |       | $                           | 12,523     |                                          | $          | 804                                               |       | $         | 3,955      |   | $ | 17,282 |   |
| Resellers                              |       | 13,126                      |       | 23,406                                        |       | 2,470                                             |       | 39,002    |       |
| SMUs Governments                       |       | 9,015                       |       | 4,015                                         |       | 16,279                                            |       | 29,309    |       |
| Total Commercial  Gross Profit         |       | 34,664                      |       | 28,225                                        |       | 22,704                                            |       | 85,593    |       |
| Consumer Gross  Profit                 |       | —                      |       | 17,420                                        |       | —                                            |       | 17,420    |       |
| Total Gross  Profit                    |       | $                           | 34,664     |                                          | $          | 45,645                                            |       | $         | 22,704     |   | $ | 103,013 |   |
|                                   |       |                        |       |                                          |       |                                              |       |      |       |
| Product  Inventory                     |       | $                           | 17,596     |                                          | $          | 15,565                                            |       | $         | 15,632     |   | $ | 48,793 |   |

 

**Note 11. Stock Buyback**

 

On April 28, 2003,the Company’s Board of Directors approved a stock buyback program.  As of March 30, 2008, the Board ofDirectors has authorized the purchase of up to 2,395,567 share of outstandingcommon stock under the buyback program. Shares may be purchased from time to time in the open market, by blockpurchase, or through negotiated transactions, or possibly other transactionsmanaged by broker-dealers.  No time limithas been set for completion or expiration of the program.  As of March 30, 2008, the Company hadpurchased 2,140,974 shares for approximately $28.3 million, or an average of$13.20 per share.  Of the total sharesrepurchased, 346,107 shares were repurchased in fiscal year 2008 at an averageprice of $13.96 per share, 1,043,813 shares were repurchased in fiscal year2007 at an average price of $16.95 per share and 200,700 shares wererepurchased in fiscal year 2006 at an average price of $10.30 per share.  The Company also purchases shares from it’semployees and directors from time to time to facilitate employees minimumfederal and state tax withholdings related to vested performance stockunits.  For fiscal year 2008 and 2007this totaled $1,406,400 and $2,500, respectively.

 

**Note 12. Income Taxes**

 

A reconciliation of thedifference between the provision for income taxes computed at statutory ratesand the provision for income taxes provided in the Consolidated Statements ofIncome is as follows:

 
| ** **                           | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                 |       |     |       |     |       |     |       |
| Statutory  federal rate              |       | 34.0     | %          | 34.0     | %          | 34.0     | %          |
| State taxes, net  of federal benefit |       | 1.4      |       | 2.4      |       | 2.4      |       |
| Non-deductible  expenses             |       | 2.1      |       | 0.7      |       | 1.5      |       |
| Other                                |       | (1.4     | )          | 0.7      |       | 1.1      |       |
| Effective rate                       |       | 36.1     | %          | 37.8     | %          | 39.0     | %          |

 

51

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**Notes to Consolidated Financial Statements**

 

The provision for incometaxes was comprised of the following:

 
| ** **                  | ** ** | **2008** | ** ** | **2007**  | ** ** | **2006**  | ** ** |
|-----------------------------|------------|----------|------------|-----------|------------|-----------|------------|
|                        |       |     |       |      |       |      |       |
| Federal:                    | Current    |     | $          | 3,625,800 |       | $         | 4,907,200  |   | $ | 3,858,700 |   |
|                        | Deferred   |     | (1,024,000 | )         | (1,065,400 | )         | (939,000   | ) |
| State:                      | Current    |     | 194,900    |      | 522,900    |      | 421,600    |   |
|                        | Deferred   |     | (75,800    | )         | (83,600    | )         | (70,800    | ) |
| Provision for  income taxes |       | $        | 2,720,900  |      | $          | 4,281,100 |       | $ | 3,270,500 |   |

 

Total deferred tax assetsand deferred tax liabilities as of March 30, 2008 and April 1, 2007,and the sources of the differences between financial accounting and tax basisof the Company’s assets and liabilities which give rise to the deferred taxassets and liabilities are as follows:

 
| ** **                     | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Deferred tax  assets:          |       |     |       |     |       |
| Accrued expenses  and reserves |       | $        | 3,231,800  |     | $          | 2,823,500 |   |
| Stock based  compensation      |       | 817,000  |       | 636,600  |       |
|                           |       | $        | 4,048,800  |     | $          | 3,460,100 |   |
| Deferred tax  liabilities:     |       |     |       |     |       |
| Depreciation                   |       | $        | 1,675,500  |     | $          | 2,114,600 |   |
| Other assets                   |       | 513,800  |       | 585,800  |       |
|                           |       | $        | 2,189,300  |     | $          | 2,700,400 |   |

 

Effective April 2, 2007, the Company adopted FIN 48, “Accounting forUncertainty in Income Taxes.”  As aresult of the adoption, the Company recognized a $72,100 decrease in beginningretained earnings as of April 2, 2007. Asof March 30, 2008, the gross amount of unrecognized tax benefits was$266,400. If the Company were to prevail on all uncertain tax positions, thenet effect would be a benefit to the Company’s effective tax rate of $192,200.The remaining $74,200 represents federal tax benefits that would be received inthe event that the Company did not prevail on all uncertain tax positions. The Company does not reasonably expectany material changes in the estimated amount of unrecognized tax benefits forthe next twelve months.

 

The Company’s historical accounting policy with respect to interest andpenalties related to tax uncertainties has been to classify these amounts asincome taxes, and the Company continued this classification upon the adoptionof FIN 48.  The total amount of interestand penalties related to tax uncertainties recognized in the statement ofincome for fiscal year 2008 was $40,000 and the total amount included in theunrecognized tax benefits liability was $65,600.

 

Areconciliation of the changes in the gross balance of unrecognized tax benefitsamounts during fiscal 2008 is as follows:

 
| Beginning  balance of unrecognized tax benefit                              |   | $        | 319,000 |   |
|-----------------------------------------------------------------------------|--------|----------|---------|--------|
| Increases  related to prior period tax positions                            |   | 143,700  |    |
| Reductions as a  result of a lapse in the applicable statute of limitations |   | (196,300 | )       |
| Ending balance  of unrecognized tax benefits                                |   | $        | 266,400 |   |

 

TheCompany files income tax returns in U.S. federal, state and localjurisdictions.  Income tax returns filedfor fiscal years 2004 and earlier are no longer subject to examination by U.S.federal, state and local tax authorities. No federal, state and local income tax returns are currently underexamination. Certain income tax returns for fiscal years 2005 

 

52

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**Notes to Consolidated Financial Statements**

 

through2007 remain open to examination by U.S. federal, state and local taxauthorities.

 

**Note 13. Retirement Plans**

 

The Company has a 401(k) planthat covers all eligible employees. Contributions to the plan can be made by employees, and the Company maymake matching contributions at its discretion. Expense related to this matching contribution was $505,800, $165,600 and$129,000 during fiscal years 2008, 2007 and 2006, respectively. As of March 30,2008 plan assets included 69,508 shares of common stock of the Company.

 

The Company maintains anonqualified deferred compensation plan that covers directors and certainmanagement personnel as determined by the Board of Directors’ appointed BenefitPlans Committee.  Effective January 1,2005, the plan was closed to all new contributions and balances in the old plannow continue to exist under the prior plan structure.  All amounts in this plan are employeecontributions, as the Company has never made any contributions to this plan.All plan assets are held in an irrevocable Rabbi trust.  These assets and the related liabilities areincluded in other long-term assets and other long-term liabilities,respectively, in the Company’s Consolidated Balance Sheets.

 

The Company maintains aSupplemental Executive Retirement Plan for Robert B. Barnhill, Jr.,chairman, president and CEO of the Company. This plan is funded through a life insurance policy for which theCompany is the sole beneficiary.  Thecash surrender value of the life insurance policy and the net present value ofthe benefit obligation of approximately $751,400 and $594,500, respectively,are included in other long-term assets and other long-term liabilities,respectively, in the Company’s Consolidated Balance Sheets.

 

**Note 14. Earnings Per Share**

 

The dilutive effect ofall options and Performance Stock Units outstanding has been determined byusing the treasury stock method. The weighted average shares outstanding iscalculated as follows:

 
| ** **                                               | ** ** | **2008**  | ** ** | **2007**  | ** ** | **2006**  | ** ** |
|----------------------------------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
|                                                     |       |      |       |      |       |      |       |
| Basic weighted  average shares outstanding               |       | 5,264,100 |       | 5,753,900 |       | 6,296,700 |       |
| Effect of  dilutive common stock equivalents outstanding |       | 199,300   |       | 262,100   |       | 114,800   |       |
| Diluted weighted  average shares outstanding             |       | 5,463,400 |       | 6,016,000 |       | 6,411,500 |       |

 

As of March 30,2008, stock options with respect to 135,000 shares of common stock wereoutstanding.  All outstanding options andearned but not yet vested PSUs were included in the computation of dilutedearnings per share because all such instruments were dilutive.

 

**Note 15. Stock-Based Compensation**

 

Effective March 27,2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R,“Share-Based Payment,” using the modified prospective application transitionmethod.  Because the fair valuerecognition provisions of SFAS No. 123, “Accounting for Stock-BasedCompensation,” which the Company had previously adopted effective March 29,2004, and SFAS No. 123R are generally consistent with respect to theCompany’s share-based payments (other than as described below), the adoption ofSFAS No. 123R did not have a material impact on the Company’s financialposition, results of operations or cash flows.

 

SFAS No. 123Rrequires the Company to include in its calculation of periodic stockcompensation expense an estimate of future forfeitures.  Prior to fiscal year 2007, in accordance withSFAS No. 123, the Company only included forfeitures in its calculation ofstock compensation expense when the awards 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 

 

53

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**Notes to Consolidated Financial Statements**

 

operations for thefiscal year ended April 1, 2007 or March 30, 2008.  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. 123Ralso requires stock awards granted after the adoption of SFAS No. 123Rthat include both performance conditions and graded vested to be amortized overan accelerated method. SFAS No. 123R requires excess tax benefitsbe reported as a financing cash flow.

 

The Company’s selling,general and administrative expenses for the fiscal years ended March 30,2008, April 1, 2007 and March 26, 2006 include $2,797,900, $2,055,300and $702,300, respectively, of stock compensation expense.  Provision for income taxes for the fiscalyears ended March 30, 2008, April 1, 2007 and March 26, 2006includes $1,010,000, $776,900 and $273,900, respectively, of income taxbenefits related to our stock-based compensation arrangements.  Stock compensation expense is primarilyrelated to our Performance Stock Unit Program as described below.

 

The Company’s stockincentive plan is the Amended and Restated 1994 Stock and Incentive Plan (the1994 Plan). The 1994 Plan allows for the grant of awards in respect of anaggregate of 1,758,750 shares of the Company’s common stock. As of March 30,2008, 391,589 shares were available for issue in respect of awards availablefor future grant under the 1994 Plan. However, in April 2008, based on fiscal year 2008 results, 188,000shares related to PSUs were cancelled, and as a result, those shares were madeavailable for future grants.  Also in April 2008,as discussed below, additional PSUs were issued, providing recipients with theopportunity to earn up to 275,000 additional shares of the Company’s commonstock in the aggregate. Accordingly, on May 1, 2008, an aggregate of304,589 shares were available for issue pursuant to future awards under the1994 Plan.  The 1994 Plan allows for thegrant of incentive stock options, nonqualified stock options, stockappreciation rights, restricted stock and restricted stock units and otherperformance awards.  No additional awardscan be made under the 1994 Plan after July 22, 2009, without shareholderapproval of an extension of the plan term. Options, restricted stock and Performance Stock Unit (PSU) awards havebeen granted as awards under the 1994 Plan.  Shares which are subject to outstanding PSU orother awards under the 1994 Plan, and which are not earned, are returned to the1994 Plan and become available for future issuance in accordance with andotherwise subject to the terms of the 1994 Plan.

 

**Performance Stock Units:**  Beginning in fiscal year 2005, the Company’sequity-based compensation philosophy and practice shifted away from awardingstock options to granting performance-based and time-vested stock grants.  Accordingly, in April 2004, the Company’sBoard of Directors established a Performance Stock Unit Award Program under the1994 Plan.  Under the program,Performance Stock Units (PSUs) have been granted to selected individuals. EachPSU entitles the participant to earn TESSCO common stock, but only afterearnings per share and, for non-director employee participants, individualperformance targets are met over a defined performance cycle. Performancecycles, which are fixed for each grant at the date of grant, range from one tothree years.  Once earned, shares vestand are issued over a specified period of time determined at the time of thegrant, provided that the participant remains employed by or associated with theCompany at the time of share issuance. Earnings per share targets, which take into account the earnings impactof this program, are set by the Board of Directors in advance for the completeperformance cycle at levels designed to grow shareowner value.  If actual performance does not reach theminimum annual or threshold targets, no shares are issued. Under SFAS No. 123R,the Company records compensation expense on its PSUs over the service period,based on the number of shares management estimates will ultimately beissued.  Accordingly, the Companydetermines the periodic financial statement compensation expense based upon thestock price at the PSU grant date, management’s projections of future EPSperformance over the performance cycle, and the resulting amount of estimatedshare issuances, net of estimated forfeitures. The Company estimated the forfeiture rate primarily based on historicalexperience and expectations of future forfeitures. The Company’s calculatedestimated forfeiture rate was approximately 5%.

 

54

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** **

**Notes to Consolidated Financial Statements**

** **

The following tablesummarizes the activity under the Company’s PSU program for fiscal years 2008,2007 and 2006:

 
| ** **                                   | ** ** | **2008**   | ** ** | **2007**                                               | ** ** | **2006**   | ** ** |
|----------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                                   | ** ** | **Shares** | ** ** | **Weighted-  Average  Fair Value  at Grant** | ** ** | **Shares** | ** ** | **Weighted-  Average  Fair Value  at Grant** | ** ** | **Shares** | ** ** | **Weighted-  Average  Fair Value  at Grant** | ** ** |
| Outstanding,  non-vested beginning of period |       | 870,172    |       | $                                                      | 10.15      |       | 1,067,742  |   | $ | 9.07 |   | 935,626 |   | $ | 9.16 |   |
| Granted                                      |       | 188,000    |       | 23.95                                                  |       | 228,000    |       | 13.04 |   | 248,195 |   | 8.79 |   |
| Vested                                       |       | 164,831    |       | 10.67                                                  |       | 79,313     |       | 9.05 |   | 51,579 |   | 9.18 |   |
| Forfeited/canceled                           |       | (454,310   | )          | 9.25                                                   |       | (346,257   | )          | 8.99 |   | (64,500 | ) | 9.19 |   |
| Outstanding,  non-vested end of period       |       | 439,031    |       | $                                                      | 16.79      |       | 870,172    |   | $ | 10.15 |   | 1,067,742 |   | $ | 9.07 |   |

 

As of March 30,2008, there was approximately $0.5 million of total unrecognized compensationcosts related to PSUs. These costs are expected to be recognized over aweighted average period of 1 year.

 

Subsequent to the Company’s fiscal yearend, PSUs covering 188,000 shares were cancelled in April, 2008 based on fiscalyear 2008 activity.  The PSUs werecancelled because fiscal year 2008 earnings per share performance of theCompany did not reach the threshold performance targets set forth in the PSUgrants.  The remaining 251,031 shareshave been earned based on past performance, but have not yet vested as of March 30,2008.  Assuming the respectiveparticipants remain employed by or affiliated with the Company on these dates,these shares will vest on or about May 1, of 2008, 2009, and 2010 asfollows:

 
| ** ** | ** ** | **Number of Shares** | ** ** |
|------------|------------|--------------------------------|------------|
| 2008       |       | 147,617                        |       |
| 2009       |       | 51,707                         |       |
| 2010       |       | 51,707                         |       |
|       |       | 251,031                        |       |

 

On April 24, 2008, the CompensationCommittee, with the concurrence of the full Board of Directors, grantedadditional PSUs to selected key individuals, providing them with theopportunity to earn up to 275,000 additional shares of the Company’s commonstock in the aggregate, depending upon whether certain threshold or goalearnings per share targets are met and individual performance metrics aresatisfied in fiscal year 2009.  ThesePSUs have only one measurement year (fiscal year 2009), with any shares earnedat the end of fiscal year 2009 to vest 25% on or about each of May 1 of2009, 2010, 2011 and 2012, provided that the participant remains employed by orassociated with the Company on each such date.

 

**Stock Options**:  In accordance with SFAS No. 123R, thefair value of the Company’s stock options have been determined using theBlack-Scholes-Merton option pricing model, based upon facts and assumptionsexisting at the date of grant.  Stockoptions granted have exercise prices equal to the market price of the Company’scommon stock on the grant date.

 

The value of each option atthe date of grant is amortized as compensation expense over the option serviceperiod.  This occurs without regard tosubsequent changes in stock price, volatility or interest rates over time,provided that the option remains outstanding. The following table summarizes the pertinent option information foroutstanding options:

 

55

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**Notes to Consolidated Financial Statements**

 
| ** **                      | ** ** | **Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted Average  Remaining  Contractual Life** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|---------------------------------|------------|------------|------------|------------------------------------------------|------------|-------------------------------------------------------------|------------|-------------------------------------|------------|
| Outstanding,  beginning of year |       | 185,000    |       | $                                              | 8.07       |                                                        |       |                                |       |   |
| Granted                         |       | —     |       | —                                         |       |                                                        |       |                                |       |
| Exercised                       |       | (50,000    | )          | 7.33                                           |       |                                                        |       |                                |       |
| Cancelled                       |       | —     |       | —                                         |       |                                                        |       |                                |       |
| Outstanding, end  of year       |       | 135,000    |       | $                                              | 8.35       |                                                        | 3.83       |                                | $          | 907,000 |   |
| Exercisable, end  of year       |       | 135,000    |       | $                                              | 8.35       |                                                        | 3.83       |                                | $          | 907,000 |   |

 

The aggregate intrinsic value in the table aboverepresents the total pre-tax intrinsic value (the difference between theclosing stock price on the last trading day of fiscal year 2008 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 March 30, 2008.  Thisamount changes based on the fair market value of the Company’s common stock.

 

There were no options granted during fiscal years2008, 2007 and 2006.  The total intrinsicvalue of options exercised during fiscal years 2008, 2007 and 2006 was$815,100, $676,500 and $138,900.

 

Asof March 30, 2008, there was no unrecognized compensation costs related tostock options.

 

**RestrictedStock:**  During the second quarter of fiscalyear 2007, the Company granted 150,000 shares of the Company’s common stock toits Chairman and Chief Executive Officer as a restricted stock award under the1994 Plan.  These shares vest ratablyover ten fiscal years based on service, beginning on the last day of fiscalyear 2007 and ending on the last day of fiscal year 2016, subject, however, tothe terms applicable to the award, including terms providing for possibleacceleration of vesting upon death, disability, change in control or certainother events.  The weighted average fairvalue for these shares at the grant date was $15.84.  No other shares of restricted stock arecurrently issued as awards under the 1994 Plan. On both March 30, 2008 and April 1, 2007, 15,000 shares ofrestricted stock were released and vested. As of March 30, 2008, there was approximately $1.9 million of totalunrecognized compensation costs related to restricted stock.  Unrecognized compensation costs are expectedto be recognized ratably over a period of approximately 8 years.

 

**TeamMember Stock Purchase Plan:**  During fiscal year 2000, the Company adoptedthe Team Member Stock Purchase Plan. This plan permits eligible employees topurchase up to an aggregate of 300,000 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 thefiscal year ended March 30, 2008 related to SFAS No. 123R was$29,100.  During the fiscal year ended March 30,2008, 6,408 shares were sold to employees under this plan, having a weightedaverage market value of $13.18.

 

**Note 16.Fair Value of Financial Instruments**

 

 The carrying amounts of cash and cash equivalents, trade accountsreceivable, product inventory, trade accounts payable, accrued expenses andother current liabilities and the note payable to a bank, which bears interestat variable rates, approximate their fair value as of March 30, 2008 and April 1,2007.

 

 Fair value of long-term debt, calculated using current interestrates and future principal payments, excluding the note payable to a bank, asof March 30, 2008 and April 1, 2007 is as follows:

 

56

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**Notes to Consolidated Financial Statements**

 
| ** **                                                     | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                           |       |     |       |     |       |
| Note payable to  the Maryland Economic Development Corporation |       | $        | 521,800    |     | $          | 611,700 |   |
|                                                                |            |          |            |          |            |  |  |

 

**Note 17.Supplemental Cash Flow Information**

 

 Cash paid for interest during fiscal years 2008, 2007 and 2006totaled $634,100, $906,300 and $260,600, respectively. Cash paid for income taxes,net of refunds, for fiscal years 2008, 2007 and 2006 totaled $2,790,900,$3,367,900 and $3,143,100, respectively.

 

**Note 18.Concentration of Risk**

 

 The Company is dependent on third-party equipment manufacturers,distributors and dealers for all of its supply of wireless communicationsequipment. For fiscal years 2008, 2007 and 2006, sales of products purchasedfrom the Company’s top ten vendors accounted for 49%, 43% and 55% of totalrevenues, respectively.  In fiscal years2008 and 2007, sales of product purchased from the Company’s largest vendor,Motorola Inc., accounted for approximately 16% and 19% of total revenues,respectively.  Sales of product purchasedfrom the Company’s second largest vendor, Nokia Inc., accounted forapproximately 8% and 11% of our revenues in fiscal years 2008 and 2007,respectively.  In fiscal year 2006, salesof products purchased from the Company’s then largest vendor, T-Mobile, whichconsisted primarily of handset sales, accounted for approximately 24% of totalrevenues. The Company is dependent on the ability of its vendors to provideproducts on a timely basis and on favorable pricing terms. Although the Companybelieves that alternative sources of supply are available for many of theproduct types it carries, the loss of certain principal suppliers, or the lossof one or more of certain ongoing affinity relationships, could have a materialadverse effect on the Company.

 

 The Company’s future results could also be negatively impacted bythe loss of certain customers, and/or the loss of one or more of certainongoing affinity relationships. For fiscal years 2008, 2007 and 2006, sales ofproducts to the Company’s top ten customer relationships accounted for 31%, 30%and 35% of total revenues, respectively. In fiscal years 2008 and 2007, sales to the Company’s largest customerrelationship, AT&T Mobility, a top tier cellular carrier purchasing phoneaccessories, accounted for approximately 26% and 22% of total revenues,respectively.  In fiscal year 2006, salesto the Company’s then largest customer relationship, T-Mobile, accounted forapproximately 26% of total revenues. Sales under the T-Mobile customerrelationship included handsets purchased from T-Mobile, phone accessoriespurchased from third-party vendors, and other supply chain service billings.

 

 In mid-September 2005, T-Mobile, previously the largestaffinity and overall customer relationship, completed the transition from theTESSCO provided e-commerce marketing and sales system to an in-house websolution and alternative third-party logistics provider, and thus revenuesthen ceased from this relationship.

 

**Note 19. Stockholder Rights Plan**

 

OnFebruary 1, 2008, the Board of Directors of the Company unanimouslyadopted a shareholder rights plan. In connection with the Rights Agreement,dated as of February 1, 2008, by and between the Company and MellonInvestor Services, LLC, as Rights Agent, one preferred stock purchase right wasissued for each outstanding share of common stock of the Company tostockholders of record as of February 11, 2008. Each of the new rightsentitles the registered holder to purchase from the Company one one-thousandthof a share of Series A Junior Participating Preferred Stock, par value$.01, at a price of $65.00, subject to certain adjustments. The rights,however, will not become exercisable unless and until, among other things andsubject to certain exceptions, any person acquires 20 percent or more of theoutstanding common stock of the Company. If a person acquires 20 percent or moreof the outstanding common stock of the Company (subject to certain conditionsand exceptions more fully described in the Rights Agreement), each right willentitle the holder (other than the person who acquired 20 percent or more ofthe outstanding common stock) to purchase common stock of the Company having amarket value equal to twice the exercise price of a right.  The holdings of Mr. Barnhill, the Chairman,President and Chief Executive Officer of the Company, and certain of hisaffiliates are stated to not trigger the 

 

57

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**Notes to Consolidated Financial Statements**

 

rightsso long as he and certain persons related to him do not acquire 30% or more ofthe outstanding shares of common stock of the Company.  As of March 30, 2008, except Mr. Barnhill,no individuals have acquired 20 percent or more of our outstanding commonstock.  The rights are redeemable at the Company’soption under certain circumstances at $.01 per right and will expire, unlessearlier redeemed, on February 11, 2011.

 

58

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**Report of Independent RegisteredPublic Accounting Firm**

 

The Board of Directors and Stockholders of

TESSCO Technologies Incorporated:

 

We have auditedthe accompanying consolidated balance sheets of TESSCO TechnologiesIncorporated and subsidiaries as of March 30, 2008 and April 1, 2007,and the related consolidated statements of income, changes in shareholders’equity, and cash flows for each of the three years in the period ended March 30,2008.  Our audits also included thefinancial statement schedule listed in the Index at Item 15(a).  These financial statements and schedule arethe responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements and schedule based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement.  We werenot engaged to perform an audit of the Company’s internal control overfinancial reporting.  Our audit includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no suchopinion. An audit also includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the consolidated financial position of TESSCO TechnologiesIncorporated and subsidiaries at March 30, 2008 and April 1, 2007,and the consolidated results of their operations and their cash flows for eachof the three years in the period ended March 30, 2008, in conformity withU.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, whenconsidered in relation to the basic financial statements taken as a whole,presents fairly in all material respects the information set forth therein.

 

As discussed in Note 12of the notes to the consolidated financial statements, the Company adopted theprovisions of Financial Accounting Standards Board Interpretation No. 48, “Accountingfor Uncertainties in Income Taxes, an interpretation of FASB Statement No. 109,effective April 2, 2007. Also, as discussed in Note 15 of the notes toconsolidated financial statements, the Company changed the manner in which itaccounts for stock-based compensation upon adoption of Statement of FinancialAccounting Standards No. 123(R), “Share-Based Payment” effective March 27,2006.

 
|                | /s/ Ernst &  Young, LLP |
|---------------------|----------------------------------|
|                |                             |
| Baltimore, Maryland |                             |
| June 9, 2008   |                             |

 

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**Item 9. Changes in and Disagreements withAccountants on Accounting and Financial Disclosure.**

 

Not applicable.

 

**Item 9A(T).********Controls andProcedures.**

 

*Disclosure Controls and Procedures*

 

We maintain a system ofdisclosure controls and procedures that is designed to provide reasonableassurance that information, which is required to be disclosed by the Company inthe reports that it files or submits under the Securities and Exchange Act of1934, as amended, is recorded, processed, summarized and reported within thetime periods specified in the rules and forms of the Securities and ExchangeCommission, and is accumulated and communicated to management in a timelymanner.  Our chief executive officer andchief financial officer have evaluated this system of disclosure controls andprocedures as of the end of the period covered by this annual report, and haveconcluded that the system is effective.

 

*Internal Control over Financial Reporting*

 

**Management’sAnnual Report on Internal Control over Financial Reporting**

 

Ourmanagement is responsible for establishing and maintaining adequate internalcontrol over financial reporting as defined in Rule 13(a)-15(f) underthe Securities Exchange Act of 1934, as amended.  Our system of internal control is designed toprovide reasonable assurance to management and the Board of Directors regardingthe reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally acceptedaccounting principles.

 

Anysystem of internal control over financial reporting, no matter how welldesigned, has inherent limitations and may not prevent or detectmisstatements.  Therefore, internalcontrol systems determined to be effective can only provide reasonableassurance with respect to financial statement preparation andpresentation.  Also, projections of anyevaluation of effectiveness to future periods are subject to the risk thatcontrols may be inadequate because of changes in conditions, or the degree ofcompliance with the policies or procedures may deteriorate.

 

Underthe supervision and with the participation of our management, including ourChairman and Chief Executive Officer and our Chief Financial Officer, weconducted an evaluation of the effectiveness of our internal control overfinancial reporting based on the framework in Internal Control-IntegratedFramework issued by the Committee of Sponsoring Organizations of the TreadwayCommission.  This evaluation includedreview of the documentation of controls, evaluation of the design effectivenessof controls, testing of the operating effectiveness of controls, and theconclusion of this evaluation.  Based onour evaluation, we have concluded that our internal control over financialreporting was effective as of March 30, 2008.

 

This annual report does notinclude an attestation report of our independent registered public accountingfirm regarding internal control over financial reporting.  Management’s report is not subject toattestation by our independent registered public accounting firm pursuant totemporary rules of the Securities and Exchange Commission that permit usto provide only management’s report in this annual report.

 

*Changes in Internal Control overFinancial Reporting*

 

There has not been anychange in our internal control over financial reporting during the fourthquarter of fiscal year 2008 that has materially affected, or is reasonablylikely to materially affect, our internal control over financial reporting.

 

60

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**Item 9B. Other Information.**

 

None.

 

**Part III**

 

**Items 10, 11, 12, 13 and 14.**

 

The information with respect to the identity andbusiness experience of executive officers of the Company as required to beincluded in Item 10 to this Form 10-K is set forth in Part I of this Form 10-K.  The information otherwise required byItems 10 through 14 will be contained in a definitive proxy statement forour Annual Meeting of Shareholders, which we anticipate will be filed no laterthan 120 days after the end of our fiscal year pursuant toRegulation 14A and accordingly these items have been omitted in accordancewith General Instruction G(3) to Form 10-K.

 

**Part IV**

 

**Item 15. Exhibits and Financial StatementSchedules.**

 

(a)                                  Thefollowing documents are filed as part of this report:

 

1.               The followingconsolidated financial statements are included in Item 8 of this report:

 

Consolidated Balance Sheets as of March 30, 2008and April 1, 2007

Consolidated Statements of Income for the fiscal yearsended March 30, 2008, April 1, 2007, and March 26, 2006

Consolidated Statements of Changes in Shareholders’Equity for the fiscal years ended March 30, 2008, April 1, 2007, and March 26,2006

Consolidated Statements of Cash Flows for the fiscalyears ended March 30, 2008, April 1, 2007, and March 26, 2006

Notes to Consolidated Financial Statements

Report of Independent Registered Public AccountingFirm

 

2.               The followingfinancial statement schedules are required to be filed by Item 8 and paragraph (d) ofthis Item 15 included herewith:

 

Schedule II                            Valuationand Qualifying Accounts

 

                Schedulesnot listed above have been omitted because the information required to be setforth therein is not applicable.

 

3.               Exhibits

 
|   3.1.1 | Amended and  Restated Certificate of Incorporation of the Registrant (incorporated by  reference to Exhibit 3.1.1 to the Company’s Registration Statement on  Form S-1 (No. 33-81834)).                                                        |
|-------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   3.1.2 | Certificate of  Retirement of the Registrant (incorporated by reference to Exhibit 3.1.2  to the Company’s Registration Statement on Form S-1  (No. 33-81834)).                                                                                |
|   3.1.3 | First  Certificate of Amendment to Certificate of Incorporation of the Registrant  (incorporated by reference to Exhibit 3.1.3 to the Company’s  Registration Statement on Form S-1 (No. 33-81834)).                                           |
|   3.1.4 | Certificate of  Amendment to Certificate of Incorporation of the Registrant filed  September 6, 1996 (incorporated by reference to Exhibit 3.1.4 to  the Company’s Annual Report on Form 10-K for the fiscal year ended  March 28, 1997). |

 

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|   3.1.5 | Certificate of  Correction filed with the Secretary of State of Delaware on February 7,  2007 to Certificate of Amendment to Certificate of Incorporation of the  Registrant filed with the Secretary of State of Delaware on September 6,  1999 (incorporated by reference to Exhibit 3.1.5 to the Company’s  Quarterly Report on Form 10-Q filed February 7, 2007).                                                                                                                                                                                                                         |
|-------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   3.1.6 | Certificate of Designations of Series A Junior Participating  Preferred Stock, dated February 1, 2008 (incorporated by reference to  the Company’s registration statement on Form 8-A, filed with the  Securities and Exchange Commission on February 1, 2008).                                                                                                                                                                                                                                                                                                                                    |
|   3.2.1 | Third Amended  and Restated Bylaws of the Registrant (incorporated by reference to  Exhibit 3.2.1 to the Company’s Current Report on Form 8-K filed on  February 1, 2008).                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   4.1.1 | Rights Agreement, dated as of February 1, 2008, between the  Company and Mellon Investor Services, LLC, as rights agent (which includes  the Form of Rights Certificate as Exhibit B) (incorporated by  reference to the Company’s Registration Statement on Form 8-A, filed  with the Securities and Exchange Commission on February 1, 2008).                                                                                                                                                                                                                                               |
| 10.1.1            | Employment  Agreement dated August 31, 2006 with Robert B. Barnhill, Jr.  (incorporated by reference to Exhibit 10.1 to the Company’s Current  Report on Form 8-K filed on September 1, 2006).                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.3.1            | Employment  Letter Agreement between TESSCO Technologies Incorporated and Douglas A. Rein  (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly  Report on Form 10-Q for the fiscal quarter ended September 26,  1999).                                                                                                                                                                                                                                                                                                                                                               |
| 10.3.2            | Termination of  Employment Agreement between TESSCO Technologies Incorporated and Douglas A.  Rein (incorporated by reference to Exhibit 10.10 to the Company’s  Quarterly Report on Form 10-Q for the fiscal quarter ended  September 26, 1999).                                                                                                                                                                                                                                                                                                                                                       |
| 10.5.1            | Employee  Incentive Stock Option Plan, as amended (incorporated by reference to  Exhibit 10.21 to the Company’s Registration Statement on Form S-1  (No. 33-81834)).                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.7.1            | Team Member  Stock Purchase Plan (incorporated by reference to Appendix No. 2 to the  Company’s Definitive Proxy Statement filed with the Commission on  July 15, 1999).                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.8.1            | Credit Agreement  effective as of September 30, 2003, by and among (a) TESSCO  Technologies Incorporated, Cartwright Communications Company, TESSCO Service  Solutions, Inc., TESSCO Incorporated, Wireless Solutions Incorporated  and TESSCO Business Services LLC and (b) Wachovia Bank, National  Association and SunTrust Bank (incorporated by reference to Exhibit 4.1  to the Company’s Current Report on Form 8-K dated September 30,  2003).                                                                                                                              |
| 10.8.2            | First Modification  Agreement made as of February 28, 2005, by and among (a) TESSCO  Technologies Incorporated, Cartwright Communications Company, TESSCO Service  Solutions, Inc. TESSCO Incorporated, Wireless Solutions Incorporated and  TESSCO Business Services, LLC, (b) the lenders who are or who may become  a party to the First Modification Agreement, (c) Wachovia Bank, National  Association, and (d) SunTrust Bank (incorporated by reference to  Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with  the Commission on March 4, 2005). |
| 10.12.1           | Agreement of Lease By  and Between Atrium Building, LLC and TESSCO Technologies Incorporated  (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly  Report on Form 10-Q for the fiscal quarter ended September 28, 2003).                                                                                                                                                                                                                                                                                                                                                              |
| 10.13.1           | TESSCO Technologies  Incorporated Performance Share Unit Agreement – Officer and Employees  (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly  Report on Form 10-Q for the fiscal quarter ended June 27, 2004).                                                                                                                                                                                                                                                                                                                                                                |
| 10.13.2           | TESSCO Technologies  Incorporated Performance Share Unit Agreement – Non-employee Director  (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly  Report on Form 10-Q for the fiscal quarter ended June 27, 2004).                                                                                                                                                                                                                                                                                                                                                                |
| 10.14.1           | TESSCO Technologies  Incorporated Amended and Restated 1994 Stock and Incentive Plan (incorporated  by reference to Exhibit 4.1.1 to The Company’s Registration Statement on  Form S-8 File No. 333-118177 filed with the United States  Securities and Exchange Commission on August 12, 2004).                                                                                                                                                                                                                                                                                                   |
| 10.15.1           | Credit Agreement dated  June 30, 2004, by and among the Registrant and affiliates, and Wachovia  Bank, National Association, SunTrust Bank and the lenders party thereto from  time to time (incorporated by                                                                                                                                                                                                                                                                                                                                                                                                           |

 

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|    | reference to  Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the  fiscal quarter ended September 26, 2004).                                                                                                                                                                                                                                                                                 |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.15.2 | Term Note of Registrant  and affiliates dated June 30, 2004, payable to Wachovia Bank, N.A. and  SunTrust Bank (incorporated by reference to Exhibit 10.3 to the  Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended  September 26, 2004).                                                                                                                                            |
| 10.15.3 | Guaranty Agreement  dated June 30, 2004, of TESSCO Incorporated, to and for the benefit of  Wachovia Bank, N.A., as agent (incorporated by reference to Exhibit 10.4  to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter  ended September 26, 2004).                                                                                                                                 |
| 10.16.1 | 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. (incorporated  by reference to Exhibit 10.1 to the Company’s Quarterly Report on  Form 10-Q for the fiscal quarter ended June 24, 2006).                                                                          |
| 10.16.2 | Joinder,  Assumption, Ratification and Modification Agreement, dated as of  August 29, 2006 by and among the Registrant, various affiliates of the  Registrant and Wachovia Bank, N.A. and SunTrust Bank, as lenders (Revolving  Line of Credit Facility) (incorporated by reference to Exhibit 10.1 to the  Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended  September 24, 2006). |
| 10.16.3 | Joinder,  Assumption, Ratification and Modification Agreement, dated as of  August 29, 2006 by and among the Registrant, various affiliates of the  Registrant and Wachovia Bank, N.A. and SunTrust Bank, as lenders (Term Loan)  (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly  Report on Form 10-Q for the fiscal quarter ended September 24,  2006).                         |
| 11.1.1  | Statement re:  Computation of Per Share Earnings (filed herewith).                                                                                                                                                                                                                                                                                                                                                               |
| 21.1.1  | Subsidiaries of the  Registrant (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                |
| 23.1.1  | Consent of  Ernst & Young, LLP, Independent Registered Public Accounting Firm  (filed herewith).                                                                                                                                                                                                                                                                                                                        |
| 31.1.1  | Rule 15d-14(a) Certification  of Robert B. Barnhill, Jr., Chief Executive Officer (filed herewith).                                                                                                                                                                                                                                                                                                               |
| 31.2.1  | Rule 15d-14(a) Certification  of David M. Young, Chief Financial Officer (filed herewith).                                                                                                                                                                                                                                                                                                                             |
| 32.1.1  | Section 1350  Certification of Robert B. Barnhill, Jr., Chief Executive Officer (filed  herewith).                                                                                                                                                                                                                                                                                                                     |
| 32.2.1  | Section 1350  Certification of David M. Young, Chief Financial Officer (filed herewith).                                                                                                                                                                                                                                                                                                                                    |

 

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# **Schedule II: Valuation and Qualifying Accounts**

 
| **For  the fiscal years ended:**    | ** ** | **2008** | ** ** | **2007** | ** ** | **2006**   | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|------------|------------|
| *Allowance  for doubtful accounts:* |       |     |       |     |       |       |       |
| Balance,  beginning of period       |       | $        | 910,400    |     | $          | 853,600    |       | $ | 1,196,400 |   |
| Provision for  bad debts            |       | 937,900  |       | 999,900  |       | 742,800    |       |
| Write-offs and  other adjustments   |       | (647,600 | )          | (943,100 | )          | (1,085,600 | )          |
| Balance, end of  period             |       | $        | 1,200,700  |     | $          | 910,400    |       | $ | 853,600 |   |

 
| ** **                      | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|---------------------------------|------------|------------|------------|------------|------------|------------|------------|
| *Inventory  Reserve:*           |       |       |       |       |       |       |       |
| Balance,  beginning of period   |       | $          | 2,984,100  |       | $          | 3,301,300  |       | $ | 2,065,800 |   |
| Inventory  reserve expense      |       | 3,285,800  |       | 1,928,200  |       | 2,437,300  |       |
| Reduction to  inventory reserve |       | (3,614,300 | )          | (2,245,400 | )          | (1,201,800 | )          |
| Balance, end of  period         |       | $          | 2,655,600  |       | $          | 2,984,100  |       | $ | 3,301,300 |   |

 

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**Signatures**

 

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.

 
|   | TESSCO  TECHNOLOGIES INCORPORATED |
|--------|-----------------------------------|
|   | By:                               | /s/ Robert B.  Barnhill, Jr. |
|   |                              | Robert  B. Barnhill, Jr., PresidentJune 12, 2008 |

 

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the datesindicated.

 
| ** **                            | ** ** | **Chairman of the Board, President and Chief Executive**                  | ** ** | **June 12, 2008** |
|---------------------------------------|------------|---------------------------------------------------------------------------|------------|------------------------|
| **/s/  Robert B. Barnhill, Jr.** | ** ** | **Officer (principal executive officer)**                                 | ** ** | ** **             |
| **Robert  B. Barnhill, Jr.**     | ** ** | ** **                                                                | ** ** | ** **             |
|                                  |       | Senior Vice  President, Chief Financial Officer, and  Corporate Secretary |       | June 12, 2008     |
| /s/ David M. Young                    |       | (principal  financial and accounting officer)                             |       |                   |
| David M. Young                        |       |                                                                      |       |                   |
|                                  |       |                                                                      |       |                   |
| /s/ Jay G. Baitler                    |       | Director                                                                  |       | June 12, 2008     |
| Jay G. Baitler                        |       |                                                                      |       |                   |
|                                  |       |                                                                      |       |                   |
| /s/ John D. Beletic                   |       | Director                                                                  |       | June 12, 2008     |
| John D. Beletic                       |       |                                                                      |       |                   |
|                                  |       |                                                                      |       |                   |
| /s/ Benn R. Konsynski                 |       | Director                                                                  |       | June 12, 2008     |
| Benn R. Konsynski                     |       |                                                                      |       |                   |
|                                  |       |                                                                      |       |                   |
| /s/ Daniel Okrent                     |       | Director                                                                  |       | June 12, 2008     |
| Daniel Okrent                         |       |                                                                      |       |                   |
|                                  |       |                                                                      |       |                   |
| /s/ Dennis J. Shaughnessy             |       | Director                                                                  |       | June 12, 2008     |
| Dennis J. Shaughnessy                 |       |                                                                      |       |                   |
|                                  |       |                                                                      |       |                   |
| /s/ Morton F. Zifferer                |       | Director                                                                  |       | June 12, 2008     |
| Morton F. Zifferer                    |       |                                                                      |       |                   |

 

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