**UNITED**STATES SECURITIESAND EXCHANGE COMMISSION

**Washington, D.C. 20549**

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**FORM 10-K**

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**x**                               ANNUAL REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED APRIL 1,2007

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**o**                                  TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIODFROM  ______ TO ______

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**Commission file number 0-24746**

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**TESSCO Technologies Incorporated**

(Exact name of registrantas 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, including zip code, of principal executiveoffices)

 

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

 

Securitiesregistered pursuant to Section 12(b) of the Act:

 

|                               | **Title of each class** | ** **           |   | ** ** | **Name of each exchange on which registered** | ** ** |
|-------------------------------|-------------------------|----------------------|--------|------------|-----------------------------------------------|------------|
| Common Stock,  $.01 par value |                    | NASDAQ Global Market |

 

Securities registered pursuant to Section 12(g) of theAct:

 

None

 

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Indicate by checkmark if the registrant is a  well-knownseasoned issuer (as defined in Rule 405 of the Act). Yes o  No x

Indicate by checkmark if the registrant is not required to file reports pursuant toSection 13 or 15(d) of the Act. Yes o  No x

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes x  No o

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-Kis not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or other information statements incorporated byreference in Part III of this Form 10-K or any amendment to thisForm 10-K.  o

Indicate by check mark ifthe registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer (as defined in Rule 12b-2 of the Act). Large acceleratedfiler  o  Accelerated filer  o  Non-Accelerated Filer  x

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

The aggregatemarket value of Common Stock, $.01 par value, held by non-affiliates of theregistrant based on the closing sales price of the Common Stock as quoted on theNASDAQ Global Market as of September 24, 2006, was $53,205,391**.**

The number ofshares of the registrant’s Common Stock, $.01 par value, outstanding as of June4, 2007, was 5,458,312.

**DOCUMENTS INCORPORATED BY REFERENCE: **Portions of thedefinitive Proxy Statement to be delivered to stockholders in connection withthe 2007 Annual Meeting of Shareholders scheduled to be held July 26, 2007, areincorporated by reference 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 7A.     |       | Quantitative and Qualitative Disclosures About Market  Risk                                                         |       |
| Item 8.      |       | Financial Statements and Supplementary Data                                                                         |       |
| Item 9.      |       | Changes in and Disagreements With Accountants on  Accounting and Financial Disclosure                               |       |
| Item 9A.     |       | 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 and Financial Statement Schedules                                                                          |       |
| Schedule II: |       | Valuation and Qualifying Accounts                                                                                   |       |
| Signatures   |       |                                                                                                                |       |

 

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# **Part I**

**Item 1.**                          Business.

**General**

TESSCOTechnologies Incorporated (TESSCO, or the Company) is a leading provider ofintegrated product and supply chain solutions to the professionals that design,build, run, maintain and use wireless mobile, fixed and in-building systems.

We link customers with integrated product and supplychain solutions configured from product choices made by world-classmanufacturers.  While creating Your TotalSource® opportunity for our customers to improve theway business is done, we present, market, sell, supply, and supportmanufacturers’ products as a part of a total customer solution, thus providinga cost-effective channel to a broad and diverse customer base.

Our operational platform, which we refer to as ourKnowledge, Configuration, Delivery and Control System (KCDCTM), allows customers andmanufacturers the opportunity to streamline the supply chain process and lowertotal inventories and costs by providing guaranteed availability and complete,on-time delivery to the point of use.

Webegan our “total source” operations in 1982, reincorporated as a Delawarecorporation in 1987 and have been listed on the NASDAQ Stock Market, now theNASDAQ Global Market (symbol: TESS), since 1994.  Today, we operate 24 hours a day, seven daysa week, under ISO 9001:2000 registration. Our Global Logistics Center in Hunt Valley, Maryland and Americas Sales& Logistics Center in Reno, Nevada, configure orders for complete, on-timedelivery throughout the world.  Oursolution offering falls within the broad business segment categories of networkinfrastructure, mobile devices and accessories, and installation, test andmaintenance products.

We currently serve approximately 8,400 commercialcustomers whose purchases each exceed $250 per month, and 6,400 consumers permonth, including a diversified mix of carrier and public network operators,infrastructure site owners, program managers, contractors and integrators,industrial and enterprise self-maintained users, governments, manufacturers,repair centers, retailers, dealers and value-added resellers, affinity partnersand consumers.

On November 29, 2006, weissued a stock dividend in order to effect a 3-for-2 stock split of our commonstock.  The share prices and number ofshares included in this Annual Report on Form 10-K prior to the November 29,2006 stock split have been retroactively restated to reflect the stock dividendfor all periods presented.

**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 testequipment, with per item prices ranging from less than $1 to $100,000 and grossprofit margins ranging from less than 5% to over 95%.  During fiscal year 2007, we offered productsclassified into our three business segments: network infrastructure, mobiledevices and accessories and installation, test and maintenance products, whichaccounted for approximately 33%, 47% and 20% of revenues, respectively. Networkinfrastructure products 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). Products include base stationantennas, cable and transmission lines, fixed broadband equipment, filteringsystems, small towers, lightning protection devices, connectors andmiscellaneous hardware. Our network infrastructure service offering includesconnector installation, custom jumper assembly, filter product tuning, sitekitting and logistics integration. Mobile devices and accessory productsinclude cellular telephones and other data devices, pagers and two-way radiosand related accessories, such as replacement batteries, cases, speakers, mobileamplifiers, power supplies, headsets, mounts, car antennas and various wirelessdata devices. 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

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of tools, hardware,replacement and component parts and supplies required by servicetechnicians.   For more detailedfinancial information regarding our business segments for each of the pastthree fiscal years, see Note 10 to the Consolidated Financial Statementsincluded in Item 8 to this Annual Report on Form 10-K for the fiscal year endedApril 1, 2007.

While we principally provide manufacturer brand-nameproducts, a variety of products, which are primarily subscriber accessory productsand infrastructure accessory components, are developed and offered under TESSCOowned-brands, Wireless SolutionsÒ, TerraWave ® and Airstream. Also, our WLAN certificationtraining is offered under our GigaWave® trade name. We have not incurred significant research and development expendituresin each of the last three fiscal years.

Our products are sold as part of our integratedproduct and supply chain solutions. Our supply chain services for all productareas are grouped under Knowledge, Configuration, Delivery and Control.Knowledge solutions include 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.  Our delivery system allows the customer toselect 1-, 3- or 5-day “just-in-time” delivery, to specific delivery locations,designed to eliminate thecustomer’s need for staging and warehousing. We guarantee on-time,complete and error-free delivery. Our services that increase customer controlinclude predetermined monthly pricing levels, the ability to monitor multi-sitepurchasing with pre-approved, customized parameters indicating who is able toorder how much of which specific products, order delivery tracking, product andusage tracking and history 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 April 1, 2007, weoffered products purchased from approximately 350 manufacturers.  A substantial portion of our inventorypurchases are concentrated with a small number of vendors.  In fiscal year 2007, products purchased fromour largest vendor, Motorola, generated approximately 19% of our revenue and11% of our gross profit.  Our next ninetop vendors accounted for approximately 26% of our fiscal year 2007 revenuesand 28% of our gross profits, thus resulting in revenue and gross profit fromsales of products purchased from our top ten vendors of approximately 45% and 39%of our total revenues and gross profits, respectively.  Although we do not maintain long-term supplycontracts with our vendors, we believe that, for other than those productspurchased by us as part of our affinity relationships as described below,alternative sources of supply are available for many of the product types wecarry. The agreements and arrangements onwhich most of our affinity relationships are based, are of limited duration andterminable 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 and replacement materials toauthorized service centers for Nokia Inc. (Nokia) in the United States, Canadaand Latin America.  Sales of the Nokiarepair and replacement materials, that we purchase from Nokia and sell toapproximately 1,200 separate and distinct service centers, accounted forapproximately 11% of our total revenues in fiscal year 2007.  This relationship is a complete supply chainrelationship and, therefore, we have no alternative sources of supply, and ourpurchases, and ultimately our resale of these products, is dependent upon thecontinuation of the Nokia relationship. We also sell products other than Nokia repair and replacement materialsto many of these customers.  Absent thisarrangement 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**

Ourcustomer base consists of commercial customers and consumers, which accountedfor approximately 98% and 2%, respectively, of fiscal year 2007 revenues.  Commercial customers share the characteristicthat they are organizations that design, install, operate, repair or sell sometype of wireless communications system. Our commercial customers are categorized into two differentmarkets:  1) public carriers and networkoperators and 2) self-maintained users (SMUs), governments and resellers, whichaccounted for approximately 14% and 86%, respectively, of fiscal year 2007commercial revenues. Public carriers and network operators are system operatorsthat are generally responsible for building and maintaining the infrastructuresystem and providing airtime service to individual subscribers.  SMUs, government and reseller customersinclude:

·                  SMUs and government customers includecommercial entities such as major utilities and transportation companies,federal agencies and state and local governments, including public safety organizations;and

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

Consumersplace orders for wireless phones, data devices, and related accessories viatelephone and the Internet primarily through our affinity-marketingprograms.  Under these programs, wecollaborate with our affinity-marketing clients to market to their customersunder their brands.  In many cases, weact as the merchant on behalf of the affinity-marketing client, interfacingwith the customer, accepting the order, shipping from our inventory andcollecting payment.  Ouraffinity-marketing programs create a high level of customer service andsupplementary income for the client through revenue share payments.  In addition to our affinity programs, wemaintain our own internally developed consumer Web site, YourWirelessSource.comTM, which offers cellular phone accessories from OEMsand Wireless Solutions®, our own private brand, and othercomplementary consumer wireless products.

Our largest customer relationship, AT&T Mobility (formerly CingularWireless), a top tier cellular carrier purchasing phone accessories, accountedfor approximately 22% of our revenues and 18% of gross profits during fiscalyear 2007.  Our next nine largestcustomer relationships accounted for 8% and 10% of our total revenues and grossprofits, respectively, during fiscal year 2007, and therefore, our top tencustomer relationships totaled 30% and 28% of our total revenues and grossprofits, respectively.

Althoughwe currently service customers in over 100 countries, approximately 97% of oursales have been made to customers in the United States during each of the pastthree years.  Due to our diverse productsegments and our wide customer base, our business is not significantly affectedby seasonality.  However, sales to ourretailers generally peak in our second and third quarters in preparation forthe winter holiday season.  Also, ournetwork infrastructure sales are typically affected by weather conditions inthe United States, especially in our first quarter.

**Method of Operation**

Webelieve that we have developed a highly integrated, technologically advancedand efficient method of operation based on the following 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-basedSolution 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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Weoperate as a team of teams structured to enhance marketing innovation, customerfocus and operational excellence and consist of these 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,governments, resellers (e.g., self-maintained users, governments, manufacturers,repair centers, retailers, dealers, value-added resellers); and consumers(e.g., affinity programs, Web store programs and fulfillment and consumerservices). This organization allows for the development of unique product andsolution offerings to meet the needs of our diverse customer base.

We attempt tounderstand and anticipate customers’ needs and to build solutions bycultivating lasting relationships.  Ourcommercial customer database contains detailed information on approximately215,000 existing and potential customers, including the names of key personnel,past contacts, inquiries, and buying and credit histories.  This extensive customer database enables usto identify and target potential customers and to market specific products tothese targeted customers.  Potentialcustomers are identified 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.  Customer relationship representatives pursuethese customer inquiries through distribution of our knowledge tools andthrough phone contact, electronic communications 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 customer relationship is established,we carefully analyze purchasing patterns and identify opportunities toencourage customers to make more frequent purchases of a broader array ofproducts.  Scheduled contacts are made toeach regularly purchasing customer for the purpose of informationdissemination, order generation, database maintenance and the overallenhancement of the business relationship. The process is aimed at the attraction of prospects to TESSCO, theconversion of these prospects to buying customers, and the ultimate migrationto 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.

Inaddition to determining the product offering, our product and solutionsdevelopment teams provide the technical foundation for both customers and ourpersonnel.  The Wireless ProductKnowledge System (WPKS) is continually updated to add new products andadditional technical information in response to manufacturer specificationchanges and customer inquiries. WPKS contains detailed information on each SKUoffered, including full product descriptions, category classifications,technical specifications, illustrations, product cost, pricing and deliveryinformation, alternative and associated products, and purchase and saleshistories.  This information is availableon 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-basedand customized product information materials. These materials are designed to encourage both existing and potentialcustomers to realize the value we provide in their product and supply chaindecisions.  These Knowledge Tools are anintegrated suite of informational print and electronic media.  They include: *The Wireless Guide*, which isdistributed at least annually to more than 60,000 current and prospectivebuyers; *The Wireless Journal**®*, whichis distributed bi-monthly to more than 117,000 individuals and is designed tointroduce the reader to our capabilities and product offerings and containsinformation on significant industry trends and product reviews; *The Wireless Update*, which is emailed monthly to more than76,000 different individuals, and is uniquely produced for various portions ofour customer base;  *The Wireless Bulletin for Resellers*, whichis distributed bi-monthly to more than 17,000 retailers and is designedspecifically to learn about the latest trends and technologies in mobiledevices and accessories; Technical Application Notes and White Papers,which provide in-depth planning and installation instructions and diagrams;Tech Tips, which offer suggestions and ideas from TESSCO customers; andTESSCO.com®.

TESSCO.com® is our Internet-based commerce site.  Itoffers online access to a real-time system of Knowledge, Configuration,Delivery and Control of product and supply chain solutions.  Intended for our commercial customers whodesign, build, run, maintain and use everything wireless, its feature-richcapabilities include:

·                  Electronicversions of various Knowledge Tools, including: *The Wireless Update*, *The Wireless Journal*®, and *The WirelessBulletin for Retailers*;

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·                  Twelve product search options, ranging fromkey word searches to product category browsing;

·                  Real-timepricing and product availability;

·                  Easy ordering capabilities, including aworksheet ordering tool which allows for the construction and configuration ofa total source order; additionally, worksheets can be saved with or withoutprotection, 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 onour tiered pricing levels tied to a customer’s aggregate purchase volume;

·                  Comprehensive, targeted marketing pages formore than 150 product solutions;

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

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

OurKnowledge Tools empower our customers to make better decisions by deliveringproduct knowledge, rather than just information.  These tools also afford our manufacturers theopportunity to develop their brands and to promote their products to a broad anddiverse 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.

Weuse our information technology system to monitor and manage our inventory.  Historical sales results, sales projectionsand information regarding vendor lead times are all used to determineappropriate inventory levels.  Theinformation technology system also provides early warning reports regardingupcoming inventory requirements.  As ofApril 1, 2007 and March 26, 2006, we had an immaterial level of backlogorders.  All backlog orders as of April1, 2007, are expected to be filled within 90 days of fiscal year-end. Forthe fiscal years ended April 1, 2007 and March 26, 2006, inventory write-offswere 1.0% and 0.5% of total purchases, respectively.  Generally, we have been able to returnslow-moving inventory to our vendors pursuant to stock rotation agreements.  Inventory turns for fiscal years 2007 and2006 were 8.6 and 6.9, respectively. This increase is largely due to an amended repair parts and componentsarrangement with Nokia in the fourth quarter of fiscal year 2007, in whichinventory formerly owned by us, became held by us on a consignment basis, thussignificantly reducing our on hand owned inventory.

*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 continuallymonitor our customer service performance through report cards included witheach product delivery, customer surveys and regular interaction withcustomers.  By combining our broadproduct offering with a commitment to superior customer service, we seek toreduce a customer’s overall procurement costs by enabling the customer toconsolidate the number of suppliers from which it obtains products, while alsoreducing the customer’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.  The information technology system increasessales productivity by enabling any customer support representative to provideany customer with personalized service and also allows non-technical personnelto provide a high level of technical product information and order assistance.

Webelieve that our commitment to providing prompt, friendly and efficientcustomer service before, during and after the sale enables us to maximizesales, customer satisfaction and customer retention.  The average number of commercial customerswhose purchases each exceed $250 per month increased from 7,500 in fiscal year2006 to 8,400 in fiscal year 2007. An average of 7,100 consumer end-userswere served per month in fiscal year 2007 as compared with 20,600 in fiscalyear 2006.  This decline in consumers isdue to the T-Mobile transition discussed above.

*Fu**lfillment andDistribution:*  Orders arereceived at our Hunt Valley, Reno and San Antonio customer sales supportcenters.  As orders are received,customer representatives have access to technical information, alternative and 

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complementaryproduct selections, product availability and pricing information, as well ascustomer purchasing and credit histories and recent inquiry summaries.  An automated materials-handling system, whichis integrated with the product planning and procurement system, allows us toensure inventory control, minimize multiple product shipments to complete anorder and limit inventory duplication. Bar-coded labels are applied to every product, allowing distributioncenter personnel to utilize radio frequency scanners to locate products, fillorders and update inventory records in real-time, thus reducing overheadassociated with the distribution functions. Orders are delivered to customers by a variety of freight line andparcel transportation carriers with whom we contract.  During fiscal year 2005, we made asubstantial investment in this system, which we refer to as our Configuration,Fulfillment and Delivery technology system, at our Global LogisticsCenter.   This system was alsoimplemented at our America’s Logistics Center during fiscal year 2007.

Delivery chargesare calculated on the basis of the weight of the products ordered and on thedelivery service requested, not distance to the customer.  We believe that this approach, combined withour 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.  Wehave made substantial investments in the development of this system, whichintegrates cataloging, marketing, sales, fulfillment, inventory control andpurchasing, financial control and internal and external communications.  The information technology system includeshighly developed customer and product databases and is integrated with ourConfiguration, Fulfillment and Delivery system. The information contained in the system is available on a real-timebasis to all of our employees and is utilized 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, product filtering and purchaseauthorization limits that allow us to seamlessly interact with the customer,fulfill online orders and provide required information to these affinitypartners.

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 April 2006, weacquired the non-cash assets and businesses of TerraWave Solutions, Ltd. andits commonly owned affiliate, GigaWave Technologies, Ltd. for an initial cashpayment of approximately $3.8 million, and 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 prepayment against future earn-out payments, if any). To theextent that certain minimum earnings thresholds are not achieved, we will notbe able to recover this prepayment.  Themaximum amount of contingent future earn-out payments (after subtracting the$1.5 million prepayment) is $15.5 million.

The TerraWave business, nowowned by TESSCO, designs, configures and offers 802.11 Wi-Fi products andaccessories, many of which are branded under TerraWave’s private label. Some ofthe TerraWave-branded products are sold with products of Cisco Systems underCisco’s Strategic Technology Integrator program.  The GigaWave business, now owned by TESSCO,provides curriculum development and hands-on, instructor-led training coursesfor the Wireless Local Area Network (WLAN) industry. GigaWave develops anddelivers wireless networking courseware for Cisco Systems, allowing ITprofessionals to obtain Cisco Wireless Certifications.

**Competition**

The wirelesscommunications distribution industry is competitive and fragmented, and iscomprised of several national distributors, such as Hutton Communications,Cellstar, Brightpoint, Embarq Logistics, Anixter, Westcon, Comstor, Tech Data,Ingram Micro, Superior Communications, Site Pro 1 and Wincomm, as well asnumerous regional distributors, including Talley Communications.  In addition, many manufacturers sell andfulfill directly to customers.  Barriersto entry for distributors are relatively low, particularly in the mobiledevices and accessory market, and the risk of new competitors entering themarket is high.  In addition, theagreements or arrangements with our customers or vendors 

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looking to us for product and supply chain solutions, are typically oflimited duration and are terminable by either party upon several months orotherwise short notice.  Accordingly, ourability to maintain these relationships is subject to competitive pressures andchallenges.  We believe, however, thatour strength in service, the breadth and depth of our product offering, ourinformation technology system, our large customer base and purchasingrelationships with approximately 350 manufacturers provide us with asignificant competitive advantage over new entrants to the market.  Some of our current competitors, particularlycertain manufacturers, have substantially greater capital resources and salesand distribution capabilities.  Inresponse to competitive pressures from any of our current or futurecompetitors, we may be required to lower selling prices in order to maintain orincrease market share, and such measures could adversely affect our operatingresults.

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.  In addition, we view the rapid expansion ofInternet technology as a positive business opportunity; however, thistechnology and evolving Internet business models could also present additionalcompetitive pressures and challenges.

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 competefavorably with respect to each of these factors.  In particular, we believe we differentiateourselves from our competitors based on the breadth of our product offering,our ability to quickly provide products and supply chain solutions in responseto customer demand and technological advances, the level of our customerservice and the reliability 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, we have generally sought to protectour intellectual property, including our product data and information, customerinformation and information technology systems, through trademark filings andnondisclosure, confidentiality and trade secret agreements.  We typically require our employees,consultants and others having access to our technology to sign confidentialityand nondisclosure agreements.  There canbe no assurance that these confidentiality and nondisclosure agreements will behonored, or whether they can be fully enforced, or that other entities may notindependently develop systems, technologies or information similar to that onwhich we rely.

TESSCO Communications Incorporated, a wholly-ownedsubsidiary of TESSCO Technologies Incorporated, maintains a number ofregistered trademarks and service marks in connection with our businessactivities, including “TESSCOÒ,”“Delivering What You Need...When and Where You Need ItÒ,”“Your Total SourceÒ,”“Your Virtual InventoryÒ,”“*The Wireless Journal**Ò*,” “Wireless SolutionsÒ,” “The Vital Link to a Wireless WorldÒ,” “Transmitter®,”  “T-Flash®,” “Techdirect®,”“A Simple Way of Doing Business Better®,”“TerraWave Solutions®,” and“GigaWave Technologies®.” Ourgeneral policy is to file for trademark and service mark protection for each ofour trademarks and trade names and to enforce our rights against anyinfringement.

Although we currently hold no patents, we intend, ifand when appropriate, to seek patent protection for patentable technology.  The ability to obtain patent protectioninvolves complex legal and factual questions. Others may obtain patent protection for technologies that are importantto our business, and as a result, our business may be adversely affected. Inresponse to patents of others, we may need to license the right to usetechnology patented by others, or in the event that a license cannot beobtained, to design our systems around the patents of others.

### **EnvironmentalRegulation**

Weare subject to various laws and governmental regulations concerningenvironmental matters and employee safety and health in the United States.  We are also subject to regulation by theOccupational Safety and Health Administration concerning employee safety andhealth matters.  Compliance with thesefederal, state and local laws and regulations related to protection of theenvironment and employee safety and health has had no material effect on our 

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business. Therewere no material capital expenditures for environmental projects in fiscal year2007 and there are no material expenditures planned for such purposes in fiscalyear 2008.

**Employees**

As of April 1, 2007, we had 749 full-time equivalentemployees.  Of our full-time equivalentemployees, 374****were engaged in customer andvendor service, marketing, sales and product management, 285 were engaged infulfillment and distribution operations and 90 were engaged in administrationand technology systems services.  Noemployees are covered by collective bargaining agreements.  We consider our employee relations to beexcellent.

### **ExecutiveOfficers**

Executiveofficers are appointed annually by the Board of Directors and, subject to theterms of any applicable employment agreement, serve at the discretion of theBoard of Directors. Information regarding our executive officers is as follows:
| **Name**                 | ** ** | ** ** | ** ** | ** **                                                                | **Age** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | ** ** | ** ** | **Position** | ** ** | ** ** | ** ** |
|--------------------------|------------|------------|------------|---------------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|--------------|------------|------------|------------|
|                     |       |       |       |                                                                      |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Robert B.  Barnhill, Jr. |       | 63         |       | Chairman, President and  Chief Executive Officer                          |    | Robert B. Barnhill, Jr.  is chairman, president and chief executive officer and founded the business  in 1982.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                     |       |       |       |                                                                      |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| David M. Young           |       | 36         |       | 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       |       | 56         |       | 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          |       | 47         |       | Senior Vice President  of  Performance Systems and  Operations            |    | Douglas A. Rein joined  the Company in July 1999 as senior vice president of performance systems and  operations. Previously, he was director of operations for Compaq Computer  Corporation and vice president, distribution and logistics operations for  Intelligent Electronics.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

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|              |   |   |   |                                                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------------|--------|--------|--------|---------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Said Tofighi |   | 52     |   | 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 allcircumstances that could occur in the future that may adversely affect ourbusiness and operating results.  Thefollowing are certain risk factors that could adversely affect our business,financial position and results of operations. These risk factors and others described in this Annual Report on Form10-K should be considered in connection with evaluating the forward-lookingstatements contained in this Annual Report on Form 10-K because these factorscould cause the actual results and conditions to differ materially from thoseprojected in the forward-looking statements. Additional risks and uncertainties that management is not aware of orfocused on, or that management currently deems immaterial may also adverselyaffect our business, financial position and results of operations.  If our business, financial position andresults of operations are adversely affected by any of these or other adverseevents, our stock price would also likely be adversely affected.

**RISKS RELATING TO OUR BUSINESS**

***Weface significant competition in the wireless communications distributionindustry.***

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 sell and fulfill directly tocustomers.  Barriers to entry fordistributors are relatively low, particularly in the mobile devices and accessorymarket, and the risk of new competitors entering the market is high.  Some of our current competitors, particularlycertain manufacturers, have substantially greater capital resources and salesand distribution capabilities than we do. In response to competitive pressures from any of our current or futurecompetitors, we may be required to lower selling prices in order to maintain orincrease market share, and such measures could adversely affect our operatingresults.

***Theloss of key vendors or suppliers could have a material adverse affect on ourbusiness, financial position and results of operations.***

We do not maintain long-term supply contracts with ourvendors or suppliers.  If our vendors orsuppliers refuse to, or for any reason are unable to supply products to us, andif we are not able to procure those products from alternative sources, we maynot be able to maintain appropriate inventory levels and meet customer demand,and our business, financial position and results of operations would beadversely affected.

***Our business depends on the continued tendency of wirelessequipment manufacturers and network operators to outsource aspects of theirbusiness to us in the future.***

We provide functions such as distribution, inventorymanagement, fulfillment, customized packaging, e-commerce solutions, and otheroutsourced services for many wireless manufacturers and network operators.Certain wireless equipment manufacturers and network operators have elected,and others may elect, to undertake these services internally. Additionally, ourcustomer service levels, industry consolidation, competition, deregulation,technological changes or other 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.

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***Werequire substantial capital to operate, and the inability to obtain financingon favorable terms will adversely impact our business, financial position andresults of operations.***

Our business requires substantial capital to operateand to finance accounts receivable and product inventory that are not financedby trade creditors.  We have historicallyrelied upon cash generated from operations, revolving credit facilities andtrade credit from our vendors to satisfy our capital needs and finance growth.  As the financial markets change and newregulations come into effect, the cost of acquiring financing and the methodsof 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-term debt arrangements are of specifiedterms and contain various financial and other covenants that may limit ourability to borrow or limit our flexibility in responding to businessconditions.  While we generally expect toeither extend or replace our credit facilities at term expirations, there canbe no assurances that we will be able to do so on favorable terms, or atall.  The inability to maintain or whennecessary obtain adequate sources of financing could have an adverse affect onour business.  Some of our existingfinancing instruments involve variable rate debt, thus exposing us to risk offluctuations in interest rates.  Suchfluctuations in interest rates could have an 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 effortto achieve a desired proportion of fixed and variable rate debt. We utilizethese derivative 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 successfully execute ourmerchandising and marketing strategic initiatives.***

We are focusing our salesand marketing efforts and initiatives to maximize sales.  If we fail to successfully execute theseinitiatives, our business, financial position and results of operations couldbe adversely affected.

***Theloss of key customers or affinity partners will have a material adverse affecton 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.  Customers typically do not have an obligationto make purchases from us.  In the eventa significant 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.

***Thetelecommunications products marketplace is dynamic and challenging because ofthe 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 timely change ourexisting merchandise sales mix in order to meet these competitive pressures, whichmay result in increased inventory costs, inventory write-offs or loss of marketshare.

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.

***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 customers or partners are acquired orconsolidate with others carriers, or are otherwise involved in any significanttransaction that results in them ceasing to do business with us, orsignificantly reducing the level of business that they do with us, our revenuesfrom those customers could be significantly affected, possibly resulting in anadverse affect on our business, financial position and results of operations.

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***The failureof our information systems or inability to upgrade them could have a materialadverse affect on our business, financial position and results of operations.***

We are highly dependent upon our internal computer andtelecommunication systems to operate our business.  There can be no assurance that ourinformation systems will not fail or experience disruptions, that we will beable to attract and retain qualified personnel necessary for the operation ofsuch systems, that we will be able to expand and improve our informationsystems, that we will be able to convert to new systems efficiently, or that wewill be able to integrate new programs effectively with our existingprograms.  Any of such problems, or anysignificant damage or destruction of these systems, could have an adverseaffect on our business, financial position and results of operations.

***Wedepend heavily on e-commerce, and website security breaches or Internetdisruptions could have a material adverse affect on our business, financialposition and results of operations.***

We rely on the Internet (including TESSCO.com® and otheraffinity websites) for a significant percentage of our orders and informationexchanges with our customers. The Internet and individual websites haveexperienced a number of disruptions and slowdowns, some of which were caused byorganized attacks. In addition, some websites have experienced securitybreakdowns. There can be no assurances that our website will not experience anymaterial 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.

***Theinability to hire or retain certain key professionals, management and staffcould adversely affect our business, financial condition and results ofoperations.***

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, andcustomers.  In order to compete, we mustattract, retain and motivate executives and other key employees, includingthose in managerial, technical, sales, marketing and support positions. Hiringand retaining qualified executives, information technology and businessgeneration personnel are critical to our business.  While our success depends upon the skills ofmany of our personnel, we are particularly dependent upon the skills andleadership of Robert B. Barnhill, Jr., our chairman, president and chiefexecutive officer.  The loss of any ofthese individuals, 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 operationsand/or require us to increase the amount we spend on cash and other forms ofcompensation.  Our ability to issue PSUsis also limited by the provisions of and our available shares in our currentand/or future stock incentive plans, which may be subject to shareholderapproval.

***The damage or destruction of any of our principaldistribution or administrative facilities could materially adversely impact ourbusiness, financial position and results of operations.***

If our Global LogisticsCenter in Hunt Valley, Maryland or our Americas Sales & Logistic Center inReno, Nevada were to be significantly damaged or destroyed, we could suffer aloss of product inventory and our ability to conduct our business in theordinary course could be materially and adversely affected.  Similarly, if our office location in HuntValley, Maryland or San Antonio, Texas were to be significantly damaged ordestroyed, our ability to conduct marketing, sales and other corporateactivities in the ordinary course could be adversely affected.

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***We depend on third parties to manufacture products that wedistribute and, accordingly, rely on their quality control procedures.***

Product manufacturers typically provide limited warranties directly tothe end consumer or to us, which we generally pass through to our customers. Ifa product we distribute for a manufacturer has quality or performance problems,our ability to provide products to our customers could be disrupted, which couldadversely affect our operations.

***We rely on trademark filings and confidentialityagreements 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.  These agreements, however, may not provide uswith adequate protection against improper use or disclosure of confidentialinformation, and these agreements may be breached.  A breach of confidentiality could adverselyaffect our business.  In addition, insome situations, these agreements may conflict with, or be subject to, therights of third parties with whom our employees, consultants and others haveprevious employment or consulting relationships.  Also, others may independently developsubstantially equivalent proprietary information and techniques or otherwisegain access to our trade secrets. Adequate remedies may not exist in the event of unauthorized use ordisclosure of our confidential information. The disclosure of our proprietary information or trade secrets couldimpair our competitive position and could have a material adverse affect on ourbusiness, financial condition and results of operations.  Others may obtain patent protection fortechnologies that are important to our business, and as a result, our business,financial position and results of operations may be adversely affected.  In response to patents of others, we may needto license the rights to use the technology patented by others, or in the eventthat a license cannot be obtained, design our systems around the patents ofothers.  There can be no assurances as toour ability to obtain any such licenses or to design around the patents ofothers, and our inability to do so could have an adverse affect on our business,financial position and results of operations.

***Weoffer credit to our customers and, therefore, are subject to significant creditrisk.***

We sell our products to a large and diverse customerbase.  We finance a significant portionof such sales through trade credit, typically by providing 30-day paymentterms.  As a result, our business couldbe adversely affected in the event of a deterioration of the financialcondition of our customers, resulting in the customers’ inability to repayus.  This risk may increase if there is ageneral economic downturn affecting a large number of our customers and in theevent our customers do not adequately manage their business or properlydisclose their financial condition.

***Weintend 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, weregularly evaluate potential acquisition opportunities, which may be materialin 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.

***Werely on independent shipping companies to deliver inventory to us and to shipproducts to customers.***

We rely on arrangements with independent shippingcompanies, for the delivery of our products from vendors and to customers.  The failure or inability of these shippingcompanies to deliver products, or the unavailability of their shippingservices, even temporarily, could have a material adverse affect on ourbusiness.  We may also be adverselyaffected by an increase in freight surcharges due to rising fuel costs andadded security.  This could adverselyimpact our selling, general and administrative expenses or lead to priceincreases to our customers which could decrease customer demand for ourproducts.

***Changesin accounting rules could have a material adverse impact on our results ofoperations.***

We prepare our financial statements in conformity withaccounting principles generally accepted in the United States.  These accounting principles are subject tointerpretation by the Financial Accounting Standards Board, the Public CompanyAccounting Oversight Board, the Securities and Exchange Commission, theAmerican Institute of Certified

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Public Accountants andvarious other bodies formed to interpret and create appropriate accountingpolicies.  A change in these policies ora new interpretation of an existing policy could have a significant affect on our reportedresults and may 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 toinherent uncertainties, and unfavorable rulings could occur.  An unfavorable ruling could include moneydamages or, other adverse affects. Were an unfavorable ruling to occur, there exists the possibility of amaterial adverse impact on our business, financial position and results ofoperations for the period in which the ruling occurred or future periods.

**RISKS RELATED TO OWNERSHIP OF OURCOMMON STOCK**

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

Certain provisions of ourcertificate of incorporation and bylaws, and applicable provisions of Delawarecorporate law may make it more difficult for or may prevent a third party fromacquiring control of us or changing our Board of Directors and management.  These provisions include a classified Boardof Directors with staggered three-year terms, advance notice bylaws, andlimitations on the removal of directors other than for cause, and then onlyupon the affirmative vote of 75% of our outstanding common stock.  We are also afforded the protections ofSection 203 of the Delaware General Corporation Law, which will prevent us fromengaging in a business combination with a person who acquires at least 15% ofour common stock for a period of three years from the date such person acquiredsuch common stock, unless Board of Director or shareholder approval wereobtained.  Any delay or prevention of achange of control transaction or changes in our Board of Directors ormanagement could deter potential acquirers or prevent the completion of atransaction in which our shareholders could receive a substantial premium overthe then current market price for their shares.

***A significant portion of our voting stock iscontrolled by our executive officers, directors and beneficial owners of 5% ormore 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 over 50% of our outstandingcommon stock as of April 1, 2007.  Robert B. Barnhill, Jr., our chairman, president and chief executiveofficer beneficially owned approximately 31% of our outstanding common stock asof April 1, 2007.  Should theseshareholders 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 subject to 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 StaffComments.

Not applicable.

**Item 2.**                          Properties.

Ourcorporate headquarters and primary distribution center, known as the GlobalLogistics Center (GLC), is located in a Company-owned 184,000 square-footfacility north of Baltimore, in Hunt Valley, Maryland. Our sales, marketing andadministrative offices are located in leased office space near the GLC.  On May 1, 2007, this lease was

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amended and nowexpires December 31, 2012.  Monthly rentpayments 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 is approximately $7,000per month.  West coast sales andfulfillment is facilitated by our Company-owned 115,000 square-foot AmericasSales & Logistics Center (ALC) located in Reno, Nevada. The ALC is used toconfigure and fulfill product and supply chain solutions, provide disaster backupfor the GLC, and allow for future growth of staffing and increased fulfillmentcapabilities.  On June 1, 2007, weentered into a 3 year lease for 66,000 square feet of office and warehousespace adjacent to our GLC in Hunt Valley, Maryland.  Monthly rent for the facility will beapproximately $35,000.  While weanticipate the need for additional space, we believe our existing facilitiesare generally adequate for our current requirements and that suitable additionalspace will be available as needed to accommodate future expansion of ouroperations.  The GLC is encumbered by adeed of trust as security for a term loan. See Note 5 to our Consolidated Financial Statements included in Item 8of this Annual Report on Form 10-K.  Eachof our three business segments uses all of our properties for either sales orfulfillment purposes.

**Item 3.**                          LegalProceedings.

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

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

None.

**Part II**

**Item 5.**                          Marketfor Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities.

Our common stock has beenpublicly traded on the NASDAQ Stock Market, now the NASDAQ Global Market, sinceSeptember 28, 1994, under the symbol “TESS.” The quarterly range of pricesper share during fiscal years 2006 and 2007 are as follows:

|                     | ** ** | **High** | ** ** | **Low** | ** ** |
|---------------------|------------|----------|------------|---------|------------|
| *Fiscal  Year 2006* |       |     |       |    |       |
| First Quarter       |       | $        | 10.83      |    | $          | 8.23 |   |
| Second Quarter      |       | 10.35    |       | 8.05    |       |
| Third Quarter       |       | 11.60    |       | 8.33    |       |
| Fourth Quarter      |       | 12.53    |       | 10.13   |       |
| * *            |       |     |       |    |       |
| *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   |       |

 

As of June 4, 2007, the number of shareholders ofrecord of the Company was 56. We estimate that the number of beneficial ownersas of that date was approximately 2,200.

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 lender.

On November 29, 2006, weissued a stock dividend in order to effect a 3-for-2 stock split of our commonstock.  The share prices above prior tothe November 29, 2006 stock split have been retroactively restated to reflectthe stock dividend for all periods presented.

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During the first quarter of fiscal year 2004, ourBoard of Directors approved a stock buyback program, authorizing the purchaseof up to 675,000 shares of our outstanding common stock.  On October 20, 2005, our Board of Directorsamended the program, authorizing the purchase of an additional 675,000 sharesof our outstanding common stock.  On July17, 2006, our Board of Directors amended the program and authorized thepurchase of an additional 600,000 shares of outstanding common stock, such thatthrough that date, an aggregate of 1,950,000 shares had been authorized forrepurchase in the 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 beenset for completion of the program. Through the end of the fiscal year 2007, we have repurchased 1,794,867shares through the program for approximately $23.4 million, or an average priceof $13.05 per share.** **Of the total shares repurchased,1,043,813 were repurchased in fiscal year 2007 at an average price of $16.95per share, 200,700 shares were repurchased in fiscal year 2006 at an averageprice of $10.30 per share, 381,005 shares were repurchased in fiscal year 2005at an average price of $7.63 per share and 169,349 shares were repurchased infiscal year 2004 at an average price of $4.45 per share.  An aggregate of 155,133 shares remainavailable for repurchase under this program. No repurchases were made in any month during the fourth quarter offiscal year 2007.

The information required by Item 201(d) of RegulationS-K, pursuant to paragraph (a) of this Item 5, is incorporated by reference tothe information set forth under the caption “Equity Compensation PlanInformation” in the Company’s Proxy Statement for the 2007 Annual Meeting ofStockholders, which is anticipated to be filed pursuant to Regulation 14A nolater than one hundred twenty (120) days following the end of the fiscal yearreported on.

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**Stock Performance Graph**

The graph setforth below shows the value of an investment of $100 on March 31, 2002 in eachof the Company’s Common Stock, the Russell 2000 Index, a new peer group and anold peer group for the period March 31, 2002 to April 1, 2007. Thegraph assumes that all dividends were reinvested.

 

**COMPARISONOF 5 YEAR CUMULATIVE TOTAL RETURN*Among TESSCO Technologies Incorporated, The Russell 2000 Index,A New Peer Group And An Old Peer Group**

** **

****

 

*$100invested on 3/31/02 in stock or index-including reinvestment of dividends.

 
| ** **                     | ** ** | **3/31/2002** | ** ** | **3/30/2003** | ** ** | **3/28/2004** | ** ** | **3/27/2005** | ** ** | **3/26/2006** | ** ** | **4/1/2007** | ** ** |
|--------------------------------|------------|---------------|------------|---------------|------------|---------------|------------|---------------|------------|---------------|------------|--------------|------------|
| TESSCO Technologies, Inc. |       | $             | 100.00     |          | $          | 48.88         |       | $             | 84.74      |          | $          | 97.11        |       | $ | 119.88 |   | $ | 268.32 |   |
| Russell 2000                   |       | 100.00        |       | 73.86         |       | 118.25        |       | 126.09        |       | 156.30        |       | 168.11       |       |
| New Peer Group  (1)            |       | 100.00        |       | 77.36         |       | 100.52        |       | 121.54        |       | 148.54        |       | 153.43       |       |
| Old Peer Group (2)             |       | 100.00        |       | 77.98         |       | 98.48         |       | 118.89        |       | 153.92        |       | 158.42       |       |
|                                |            |               |            |               |            |               |            |               |            |               |            |              |            |  |  |  |  |  |  |

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(1)             The new peer group consistsof the following: Cellstar Corporation, Brightpoint, Inc., IngramMicro Inc., W.W. Grainger, Inc., Anixter International Inc.,Inphonic, Inc. and ScanSource Inc.

(2)             Theold peer group consists of the following: Cellstar Corporation, Brightpoint, Inc.,Ingram Micro Inc., Somera Communications, Inc., and W.W.Grainger, Inc. and Anixter International Inc.

A new peer groupwas created to reflect the acquisition of Somera Communications, Inc. by anon-public company, as well as to add Inphonic, Inc. and ScanSource, Inc. tothe peer group.

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**Item 6.**                          SelectedFinancial Data.
| ** **                                        | ** ** | **Fiscal Years Ended** | ** **  |
|---------------------------------------------------|------------|----------------------------------|-------------|
| ** **                                        | ** ** | **April 1, 2007**      | ** **  | **March 26, 2006** | ** ** | **March 27, 2005** | ** ** | **March 28, 2004** | ** ** | **March 30, 2003** | ** ** |
| **STATEMENT OF INCOME DATA**                      |       |                             |        |   |   |   |   |   |   |   |   |
| Revenues                                          |       | $                                | 492,327,800 |   | $ | 477,329,300 |   | $ | 513,027,300 |   | $ | 352,674,300 |   | $ | 273,913,400 |   |
| Cost of goods sold                                |       | 370,916,400                      |        | 374,316,300 |   | 418,180,500 |   | 275,028,200 |   | 202,598,700 |   |
| Gross profit                                      |       | 121,411,400                      |        | 103,013,000 |   | 94,846,800 |   | 77,646,100 |   | 71,314,700 |   |
| Selling, general and  administrative expenses     |       | 109,208,800                      |        | 94,268,800 |   | 84,747,400 |   | 73,444,300 |   | 67,462,900 |   |
| Benefit from insurance  proceeds (1)              |       | —                           |        | — |   | — |   | (3,054,000 | ) | (1,212,500 | ) |
| Restructuring charges  (2)                        |       | —                           |        | — |   | — |   | 2,285,700 |   | — |   |
| Income from operations                            |       | 12,202,600                       |        | 8,744,200 |   | 10,099,400 |   | 4,970,100 |   | 5,064,300 |   |
| Interest, net                                     |       | 879,400                          |        | 358,500 |   | 166,200 |   | 167,700 |   | 105,500 |   |
| Income before provision  for income taxes         |       | 11,323,200                       |        | 8,385,700 |   | 9,933,200 |   | 4,802,400 |   | 4,958,800 |   |
| Provision for income  taxes                       |       | 4,281,100                        |        | 3,270,500 |   | 3,866,000 |   | 1,910,600 |   | 1,910,200 |   |
| Net income                                        |       | $                                | 7,042,100   |   | $ | 5,115,200 |   | $ | 6,067,200 |   | $ | 2,891,800 |   | $ | 3,048,600 |   |
| Diluted earnings per  share (4)                   |       | $                                | 1.17        |   | $ | 0.80 |   | $ | 0.92 |   | $ | 0.43 |   | $ | 0.45 |   |
| Diluted weighted average  shares  outstanding (4) |       | 6,016,000                        |        | 6,411,500 |   | 6,560,900 |   | 6,703,500 |   | 6,788,400 |   |
|                                              |       |                             |        |   |   |   |   |   |   |   |   |
| **Percentage of Revenues**                        |       |                             |        |   |   |   |   |   |   |   |   |
| Revenues                                          |       | 100.0                            | %           | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
| Cost of goods sold                                |       | 75.3                             |        | 78.4 |   | 81.5 |   | 78.0 |   | 74.0 |   |
| Gross profit                                      |       | 24.7                             |        | 21.6 |   | 18.5 |   | 22.0 |   | 26.0 |   |
| Selling, general and  administrative expenses     |       | 22.2                             |        | 19.7 |   | 16.5 |   | 20.8 |   | 24.6 |   |
| Benefit from insurance  proceeds                  |       | —                           |        | — |   | — |   | (0.9 | ) | (0.4 | ) |
| Restructuring charges                             |       | —                           |        | — |   | — |   | 0.6 |   | — |   |
| Income from operations                            |       | 2.5                              |        | 1.8 |   | 2.0 |   | 1.4 |   | 1.8 |   |
| Interest, net                                     |       | 0.2                              |        | 0.0 |   | 0.0 |   | 0.0 |   | 0.0 |   |
| Income before provision  for income taxes         |       | 2.3                              |        | 1.8 |   | 1.9 |   | 1.4 |   | 1.8 |   |
| Provision for income taxes                        |       | 0.9                              |        | 0.7 |   | 0.7 |   | 0.5 |   | 0.7 |   |
| Net income                                        |       | 1.4                              | %           | 1.1 | % | 1.2 | % | 0.8 | % | 1.1 | % |
|                                              |       |                             |        |   |   |   |   |   |   |   |   |
| **SELECTED OPERATING DATA**                       |       |                             |        |   |   |   |   |   |   |   |   |
| Average commercial  buyers per month              |       | 11,900                           |        | 10,900 |   | 9,900 |   | 9,400 |   | 9,200 |   |
| Average consumer buyers  per month                |       | 7,100                            |        | 20,600 |   | 36,100 |   | 34,500 |   | 22,700 |   |
| Return on assets (3) (5)                          |       | 5.6                              | %           | 3.6 | % | 4.2 | % | 2.1 | % | 2.3 | % |
| Return on equity (3) (6)                          |       | 11.5                             | %           | 8.1 | % | 10.4 | % | 4.4 | % | 4.4 | % |
|                                              |       |                             |        |   |   |   |   |   |   |   |   |
| **BALANCE SHEET DATA**                            |       |                             |        |   |   |   |   |   |   |   |   |
| Working capital                                   |       | $                                | 33,527,300  |   | $ | 45,704,400 |   | $ | 41,000,200 |   | $ | 37,330,100 |   | $ | 35,543,900 |   |
| Total assets                                      |       | 123,682,700                      |        | 126,800,400 |   | 160,557,200 |   | 129,128,700 |   | 100,238,000 |   |
| Short-term debt                                   |       | 356,200                          |        | 442,500 |   | 362,600 |   | 282,000 |   | 372,800 |   |
| Long-term debt                                    |       | 4,203,200                        |        | 4,559,400 |   | 5,000,700 |   | 5,354,700 |   | 5,660,800 |   |
| Shareholders’ equity                         |       | 57,151,300                       |        | 65,106,800 |   | 60,822,100 |   | 56,333,500 |   | 53,985,800 |   |

----

(1)             Represents the gain on insurance proceeds and businessinterruption insurance received as a result of the October 12, 2002 disaster atour Global Logistics Center.

(2)             Represents termination costs and facility consolidationcosts associated with our profitability improvement program.

(3)             Excludes the gain on insurance proceeds and businessinterruption insurance received as a result of the October 12, 2002 disaster atour Global Logistics Center and the termination costs and facilityconsolidation costs associated with our profitability improvements programs.

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

(5)             Net income divided by the average total assets.

(6)             Net income divided by the average total equity.

19

----

 

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

 
| ** **                                    | ** ** | **Fiscal Year 2007 Quarters Ended** | ** **  | **Fiscal Year 2006 Quarters Ended** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------------|-------------|---------------------------------------------------------|------------|
| ** **                                    | ** ** | **Apr. 1,  2007**                                  | ** **  | **Dec. 24,  2006**                                 | ** ** | **Sept. 24,  2006** | ** ** | **Jun. 25,  2006** | ** ** | **Mar. 26,  2006** | ** ** | **Dec. 25,  2005** | ** ** | **Sept. 25,  2005** | ** ** | **Jun. 26,  2005** | ** ** |
| Revenues                                      |       | $                                                       | 127,015,100 |                                                    | $          | 134,716,700 |   | $ | 118,655,700 |   | $ | 111,940,300 |   | $ | 96,561,300 |   | $ | 94,811,900 |   | $ | 137,632,800 |   | $ | 148,323,300 |   |
| Cost of goods  sold                           |       | 96,597,200                                              |        | 101,838,200                                             |       | 88,625,800 |   | 83,855,200 |   | 71,899,900 |   | 70,849,000 |   | 109,266,200 |   | 122,301,200 |   |
| Gross profit                                  |       | 30,417,900                                              |        | 32,878,500                                              |       | 30,029,900 |   | 28,085,100 |   | 24,661,400 |   | 23,962,900 |   | 28,366,600 |   | 26,022,100 |   |
| Selling, general  and administrative expenses |       | 27,654,200                                              |        | 29,730,700                                              |       | 26,855,800 |   | 24,968,100 |   | 22,761,300 |   | 22,004,200 |   | 25,543,500 |   | 23,959,800 |   |
| Income from  operations                       |       | 2,763,700                                               |        | 3,147,800                                               |       | 3,174,100 |   | 3,117,000 |   | 1,900,100 |   | 1,958,700 |   | 2,823,100 |   | 2,062,300 |   |
| Interest, net                                 |       | 219,800                                                 |        | 323,800                                                 |       | 180,500 |   | 155,300 |   | 165,800 |   | 125,600 |   | 29,100 |   | 38,000 |   |
| Income before  provision for income taxes     |       | 2,543,900                                               |        | 2,824,000                                               |       | 2,993,600 |   | 2,961,700 |   | 1,734,300 |   | 1,833,100 |   | 2,794,000 |   | 2,024,300 |   |
| Provision income  taxes                       |       | 976,100                                                 |        | 1,059,100                                               |       | 1,137,600 |   | 1,108,300 |   | 676,500 |   | 714,900 |   | 1,089,600 |   | 789,500 |   |
| Net income (1)                                |       | $                                                       | 1,567,800   |                                                    | $          | 1,764,900 |   | $ | 1,856,000 |   | $ | 1,853,400 |   | $ | 1,057,800 |   | $ | 1,118,200 |   | $ | 1,704,400 |   | $ | 1,234,800 |   |
| Diluted earnings  per  share (1)              |       | $                                                       | 0.28        |                                                    | $          | 0.31 |   | $ | 0.29 |   | $ | 0.29 |   | $ | 0.17 |   | $ | 0.17 |   | $ | 0.27 |   | $ | 0.19 |   |
|                                          |       |                                                    |        |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Percentage  of Revenues**                   |       |                                                    |        |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                      |       | 100.0                                                   | %           | 100.0                                                   | %          | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
| Cost of goods  sold                           |       | 76.1                                                    |        | 75.6                                                    |       | 74.7 |   | 74.9 |   | 74.5 |   | 74.7 |   | 79.4 |   | 82.5 |   |
| Gross profit                                  |       | 23.9                                                    |        | 24.4                                                    |       | 25.3 |   | 25.1 |   | 25.5 |   | 25.3 |   | 20.6 |   | 17.5 |   |
| Selling, general  and administrative expenses |       | 21.8                                                    |        | 22.1                                                    |       | 22.6 |   | 22.3 |   | 23.6 |   | 23.2 |   | 18.6 |   | 16.2 |   |
| Income from  operations                       |       | 2.2                                                     |        | 2.3                                                     |       | 2.7 |   | 2.8 |   | 2.0 |   | 2.1 |   | 2.0 |   | 1.4 |   |
| Interest, net                                 |       | 0.2                                                     |        | 0.2                                                     |       | 0.2 |   | 0.1 |   | 0.2 |   | 0.1 |   | 0.0 |   | 0.0 |   |
| Income before  provision for income taxes     |       | 2.0                                                     |        | 2.1                                                     |       | 2.5 |   | 2.6 |   | 1.8 |   | 1.9 |   | 2.0 |   | 1.4 |   |
| Provision for  income taxes                   |       | 0.8                                                     |        | 0.8                                                     |       | 1.0 |   | 1.0 |   | 0.7 |   | 0.7 |   | 0.8 |   | 0.5 |   |
| Net income                                    |       | 1.2                                                     | %           | 1.3                                                     | %          | 1.6 | % | 1.7 | % | 1.1 | % | 1.2 | % | 1.2 | % | 0.8 | % |
| **SELECTED OPERATING DATA**                   |       |                                                    |        |                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Average  commercial buyers per month          |       | 12,000                                                  |        | 12,000                                                  |       | 12,100 |   | 11,700 |   | 11,500 |   | 11,200 |   | 10,600 |   | 10,300 |   |
| Average consumer  buyers per month            |       | 6,300                                                   |        | 6,600                                                   |       | 7,700 |   | 7,700 |   | 8,100 |   | 7,300 |   | 29,400 |   | 37,700 |   |
| Return on assets  (2)                         |       | 4.6                                                     | %           | 4.9                                                     | %          | 5.4 | % | 5.6 | % | 3.3 | % | 3.6 | % | 5.2 | % | 3.2 | % |
| Return on equity (3)                          |       | 11.2                                                    | %           | 13.0                                                    | %          | 12.2 | % | 11.2 | % | 6.6 | % | 7.0 | % | 10.8 | % | 8.0 | % |

----

(1)                All share and earnings per share numbers have beenretroactively 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 total assets.

(3)                Net income divided by the average total equity.

 

20

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

This Management’s Discussionand Analysis of Results of Operations and Financial Condition (MD&A) shouldbe read in conjunction with the other sections of this Annual Report on Form10-K, including Part I, “Item 1: Business,” Part II, “Item 6: SelectedFinancial Data,” and Part II, “Item 8: Financial Statements and SupplementaryData.”  The various sections of thisMD&A contain a number of forward-looking statements, all of which are basedon our current expectations and could be affected by the uncertainties and riskfactors described throughout this filing, including Part I, “Item 1A:  Risk Factors.”  Our actual results may differ materially fromthose described in any such forward-looking statement.

**Business Overview and Environment**

TESSCO TechnologiesIncorporated (TESSCO) is a leading provider of integrated product and supplychain solutions to the professionals that design, build, run, maintain and usewireless mobile, fixed and in-building systems. Although we sell products to customers in over 100 countries,approximately 97% of our sales are made to customers in the United States.  We have operations and office facilities inHunt Valley, Maryland, San Antonio, Texas and Reno, Nevada.

We offer a wide range ofproducts that are classified into three business segments: networkinfrastructure; mobile devices and accessories; and installation, test andmaintenance.  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 accessoryproducts include cellular telephones and other data devices, pagers and two-wayradios and related accessories.  Mobiledevices and accessory products are widely sold to commercial customers andconsumers.  Commercial customers includeretail stores, value-added resellers and dealers.  Consumers are primarily reached through ouraffinity partnerships, where we offer services including customized orderfulfillment, outsourced call centers, and building and maintaining privatelabel Internet sites. Installation, test and maintenance products, which aresold to our commercial customers, are used to install, tune, maintain andrepair wireless communications equipment. Approximately 50% of all of ourinstallation, test and maintenance sales for fiscal year 2007 were generatedfrom the sales of replacement parts and materials for original equipmentmanufacturers, primarily Nokia, Inc. (Nokia). The remainder of this segment is made up of sophisticated analysis equipmentand various frequency-, voltage- and power-measuring devices, as well as anassortment of tools, hardware and supplies required by servicetechnicians.  Both our repair andreplacement parts sales and consumer sales through our affinity partnerships arereliant on relationships with a small number of vendors.

We view our customer base inthree major categories:

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

·                  Commercial Self-Maintained Users (SMUs),Governments and Resellers.  SMUs andgovernment customers include commercial entities such as major utilities andtransportation companies, federal agencies and state and local governments,including public safety organizations. Resellers include dealers and resellersthat sell, install and service cellular telephone, paging and two-way radiocommunications equipment primarily for the consumer and small businessmarkets.  These resellers include localand national proprietorships and retailers, as well as sales and installationcenters operated by cellular and paging carriers.

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

Thewireless communications distribution industry is competitive and fragmented,and is comprised of several national distributors. In addition, manymanufacturers sell direct. Barriers to entry for distributors are relativelylow, particularly in the mobile devices and accessory market, and the risk ofnew competitors entering the market is high. 

21

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Consolidation of larger wirelesscarriers has and will most likely continue to impact our current and potentialcustomer base.  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.  Our ability to maintain these relationshipsis subject to competitive pressures and challenges.  We believe, however, that our strength inservice, the breadth and depth of our product offering, our informationtechnology system, our large customer base and purchasing relationships withapproximately 350 manufacturers provide us with a significant competitiveadvantage over new entrants to the market. 

**Results of Operations**

The following tablessummarize the results of our operations for fiscal years 2007, 2006 and 2005:
| **(Dollars in thousands, except per share data)** | ** ** | ** ** | ** ** | ** ** | ** ** | **2006 to 2007** | ** ** | ** **        | ** ** | **2005 to 2006** | ** ** |
|---------------------------------------------------------------------------------|------------|------------|------------|------------|------------|----------------------------|------------|-------------------|------------|----------------------------|------------|
| ** **                                                                      | ** ** | **2007**   | ** ** | **2006**   | ** ** | **$ Change**          | ** ** | **% Change** | ** ** | **2005**                   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Commercial  Revenues                                                            |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Network Infrastructure:                                                         |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Public Carriers and Network Operators                                           |       | $          | 49,701     |       | $          | 53,049                     |       | $                 | (3,348     | )                          | (6.3       | )% | $ | 56,620 |   | $ | (3,571 | ) | (6.3 | )% |
| SMUs, Governments and Resellers                                                 |       | 115,501    |       | 95,819     |       | 19,682                     |       | 20.5              | %          | 74,277                     |       | 21,542 |   | 29.0 | % |
| Total Network Infrastructure                                                    |       | 165,202    |       | 148,868    |       | 16,334                     |       | 11.0              | %          | 130,897                    |       | 17,971 |   | 13.7 | % |
|                                                                            |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Mobile Devices and Accessories:                                                 |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Public Carriers and Network Operators                                           |       | 2,641      |       | 2,894      |       | (253                       | )          | (8.7              | )%         | 3,068                      |       | (173 | ) | (5.6 | )% |
| SMUs, Governments and Resellers                                                 |       | 219,937    |       | 113,690    |       | 106,247                    |       | 93.5              | %          | 72,347                     |       | 41,343 |   | 57.1 | % |
| Total Mobile Devices and Accessories                                            |       | 222,578    |       | 116,584    |       | 105,994                    |       | 90.9              | %          | 75,415                     |       | 41,170 |   | 54.6 | % |
|                                                                            |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Installation, Test and Maintenance:                                             |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Public Carriers and Network Operators                                           |       | 14,293     |       | 16,997     |       | (2,704                     | )          | (15.9             | )%         | 19,905                     |       | (2,908 | ) | (14.6 | )% |
| SMUs, Governments and Resellers                                                 |       | 82,742     |       | 57,585     |       | 25,157                     |       | 43.7              | %          | 43,280                     |       | 14,305 |   | 33.0 | % |
| Total Installation, Test and Maintenance                                        |       | 97,035     |       | 74,582     |       | 22,453                     |       | 30.1              | %          | 63,185                     |       | 11,397 |   | 18.0 | % |
| Total Commercial  Revenues                                                      |       | 484,815    |       | 340,034    |       | 144,781                    |       | 42.6              | %          | 269,497                    |       | 70,538 |   | 26.2 | % |
| Consumer Revenues — Mobile Devices and Accessories                         |       | 7,513      |       | 137,295    |       | (129,782                   | )          | (94.5             | )%         | 243,530                    |       | (106,236 | ) | (43.6 | )% |
| Total Revenues                                                                  |       | $          | 492,328    |       | $          | 477,329                    |       | $                 | 14,999     |                       | 3.1        | % | $ | 513,027 |   | $ | (35,698 | ) | (7.0 | )% |

 

22

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| **(Dollars in thousands, except per share data)** | ** ** | ** ** | ** ** | ** ** | ** ** | **2006 to 2007** | ** ** | ** **        | ** ** | **2005 to 2006** | ** ** |
|---------------------------------------------------------------------------------|------------|------------|------------|------------|------------|----------------------------|------------|-------------------|------------|----------------------------|------------|
| ** **                                                                      | ** ** | **2007**   | ** ** | **2006**   | ** ** | **$ Change**          | ** ** | **% Change** | ** ** | **2005**                   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Commercial Gross  Profit                                                        |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Network Infrastructure:                                                         |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Public Carriers and Network Operators                                           |       | $          | 11,869     |       | $          | 12,523                     |       | $                 | (654       | )                          | (5.2       | )% | $ | 13,248 |   | $ | (725 | ) | (5.5 | )% |
| SMUs, Governments and Resellers                                                 |       | 28,213     |       | 22,141     |       | 6,072                      |       | 27.4              | %          | 17,798                     |       | 4,343 |   | 24.4 | % |
| Total Network Infrastructure                                                    |       | 40,082     |       | 34,664     |       | 5,418                      |       | 15.6              | %          | 31,046                     |       | 3,618 |   | 11.7 | % |
|                                                                            |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Mobile Devices and Accessories:                                                 |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Public Carriers and Network Operators                                           |       | 785        |       | 804        |       | (19                        | )          | (2.4              | )%         | 851                        |       | (47 | ) | (5.5 | )% |
| SMUs, Governments and Resellers                                                 |       | 49,351     |       | 27,421     |       | 21,930                     |       | 80.0              | %          | 19,572                     |       | 7,849 |   | 40.1 | % |
| Total Mobile Devices and Accessories                                            |       | 50,136     |       | 28,225     |       | 21,911                     |       | 77.6              | %          | 20,423                     |       | 7,802 |   | 38.2 | % |
|                                                                            |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Installation, Test and Maintenance:                                             |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Public Carriers and Network Operators                                           |       | 3,478      |       | 3,955      |       | (477                       | )          | (12.1             | )%         | 4,548                      |       | (593 | ) | (13.0 | )% |
| SMUs, Governments and Resellers                                                 |       | 24,570     |       | 18,749     |       | 5,821                      |       | 31.0              | %          | 11,802                     |       | 6,947 |   | 58.9 | % |
| Total Installation, Test and Maintenance                                        |       | 28,048     |       | 22,704     |       | 5,344                      |       | 23.5              | %          | 16,350                     |       | 6,354 |   | 38.9 | % |
| Total Commercial Gross Profit                                                   |       | 118,266    |       | 85,593     |       | 32,673                     |       | 38.2              | %          | 67,819                     |       | 17,774 |   | 26.2 | % |
| Consumer Gross Profit — Mobile Devices and Accessories                     |       | 3,145      |       | 17,420     |       | (14,275                    | )          | (81.9             | )%         | 27,028                     |       | (9,608 | ) | (35.5 | )% |
| Total Gross Profit                                                              |       | $          | 121,411    |       | $          | 103,013                    |       | $                 | 18,398     |                       | 17.9       | % | $ | 94,847 |   | $ | 8,166 |   | 8.6 | % |
|                                                                            |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Selling, general  and administrative expenses                                   |       | $          | 109,209    |       | $          | 94,269                     |       | $                 | 14,940     |                       | 15.8       | % | $ | 84,748 |   | $ | 9,521 |   | 11.2 | % |
| Income from operations                                                          |       | 12,202     |       | 8,744      |       | 3,458                      |       | 39.5              | %          | 10,099                     |       | (1,355 | ) | (13.4 | )% |
| Interest, net                                                                   |       | 879        |       | 359        |       | 520                        |       | 144.8             | %          | 166                        |       | 193 |   | 116.3 | % |
| Income before provision for income taxes                                        |       | 11,323     |       | 8,385      |       | 2,938                      |       | 35.0              | %          | 9,933                      |       | (1,548 | ) | (15.6 | )% |
| Provision for  income taxes                                                     |       | 4,281      |       | 3,270      |       | 1,011                      |       | 30.9              | %          | 3,866                      |       | (596 | ) | (15.4 | )% |
| Net income                                                                      |       | $          | 7,042      |       | $          | 5,115                      |       | $                 | 1,927      |                       | 37.7       | % | $ | 6,067 |   | $ | (952 | ) | (15.7 | )% |
|                                                                            |       |       |       |       |       |                       |       |              |       |                       |       |   |   |   |   |
| Diluted earnings per  share                                                     |       | $          | 1.17       |       | $          | 0.80                       |       | $                 | 0.37       |                       | 46.3       | % | $ | 0.92 |   | $ | (0.12 | ) | (13.0 | )% |

 

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

**Revenues.** Revenues for fiscal year 2007 increased 3.1% as compared with fiscalyear 2006, notwithstanding a 94.5% decrease in consumer revenues related to thetransition in the second quarter of fiscal year 2006 of our T-Mobilerelationship as discussed below.  Thisdecrease in consumer revenues was largely offset by a 42.6% increase incommercial revenues, driven by growth in each of our three commercial lines ofbusiness.

Our mobile devices and accessories revenues,including both commercial and consumer sales, decreased 9.4% for fiscal year2007 compared with fiscal year 2006.  Weexperienced significant growth in commercial sales of mobile devices and accessoryproducts, which was offset by a significant decline in consumer sales.  Commercial revenues for mobile devices andaccessories, which are sold primarily to SMUs, governments andresellers, but are also sold to public carriers and network operators,increased 90.9% 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 decrease in consumer revenues from salesof mobile devices and accessories was primarily due to the transition of ourT-Mobile affinity relationship in the second quarter of fiscal year 2006.  Our T-Mobile affinity relationship

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accounted forapproximately 26% and 12% of total revenues and gross profit, respectively, infiscal year 2006.

The11.0% increase in our network infrastructure sales from fiscal year 2006 tofiscal year 2007 is primarily attributable to an increase in sales of wirelesslocal area network (WLAN) products and radio frequency (RF) propagationproducts.  These increases were largely aresult of our fiscal year 2007 acquisition of TerraWave and GigaWave, whichprimarily offer WLAN products and training. Our growth in sales of network infrastructure product was in sales to SMUs,governments and resellers, as we have continued to focus on diversificationbeyond the traditional infrastructure carrier customer.  Although we believe the market for ournetwork infrastructure products will continue to grow, there can be no assurancethat these trends will continue.

Revenuesfrom our installation, test and maintenance line of business increased 30.1%from the prior fiscal year, primarily due to large sales of repair partsrelated to our expanded major repair components relationship with Nokia, aswell as increased sales of tools, shop supplies, and safety apparel andequipment. While revenuesand gross profits from this Nokia relationship were significantly higher thanfiscal year 2006 results, revenues and gross profits decreased significantlyfrom the first six months of fiscal year 2007 to the last six months of theyear.  Going forward, we expect grossprofits from this business to approximate the levels we experienced in the lasthalf of the fiscal year.

**GrossProfit.** Gross profit grew 17.9% in fiscal year 2007compared with fiscal year 2006, driven by growth in each of our threecommercial business segments.  Commercialgross profit grew 38.2% and was partially offset by an 81.9% decrease inconsumer gross profit.  Gross profit marginincreased to 24.7% in fiscal year 2007 from 21.6% in fiscal year 2006.  Gross profit margin increased in our networkinfrastructure segment, from 23.3% in fiscal year 2006 to 24.3% in fiscal year2007.  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.  Duringfiscal year 2006, we began sourcing a significant portion of our privatebranded subscriber accessory product line directly from factories inChina.  All of such purchases aredenominated in U.S. dollars.  We alsohave been increasing the amount of products sold under TESSCO’s private labels,including our GigaWave training.  Whilesales of these directly sourced products and services represented only 10% ofour total sales, we believe that this direct sourcing initiative has allowed usto realize lower costs of goods sold on sales of these products afteraccounting for additional supply chain costs and lead times.  We alsobelieve that these cost savings have allowed us to be more competitive in themarket.  We account for inventory at the lower of cost or market,and as a result, write-offs/write-downs occur due to damage, deterioration,obsolescence, changes in prices and other causes.

Ourongoing ability to earn revenues and gross profits from customers and vendorslooking to us for product and supply chain solutions is dependent upon a numberof factors.  The terms, and accordinglythe factors, applicable to each affinity relationship often differ.  Among these factors are the strength of thecustomer’s or vendor’s business, the supply and demand for the product orservice, including price stability, changing customer or vendor requirements,and our ability to support thecustomer or vendor and to continually demonstrate that we can improve the waythey do business.  In addition, theagreements or arrangements on which our affinity relationships are based aretypically of limited duration, and are terminable by either party upon severalmonths or otherwise short notice.  Theseaffinity relationships could also be affected by wireless carrierconsolidation.

Astotal revenues and gross profits from larger customer and vendor relationships,including AT&T Mobility 

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(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 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.

The largest factorscontributing to the increase in total selling, general and administrativeexpenses were increased labor costs and expenses related to business generationactivities in support of our continued increased focus on our commercialbusiness during fiscal year 2007.

Labor cost increases wereprimarily related to sales and product management, as well as increasedfulfillment costs.  Labor costs were also impacted by theacquisition of TerraWave and GigaWave in April 2006.  Finally, labor costs have increasedover the prior year period due toincreased expenses related to our reward programs, including Performance StockUnits (PSU’s).  Total labor costs,including benefits, increased by approximately $5.8 million from fiscal year2006 to fiscal year 2007.

Marketing expenses alsoincreased in fiscal year 2007 as compared with fiscal year 2006.  Near the end of the first quarter of fiscalyear 2006, we retained RTC Relationship Marketing, a direct- and database-marketing firm to increase market awareness of TESSCO’s value proposition andproduct and solutions offering among potential and existing customers.  During the second quarter of fiscal year2007, we began a media campaign utilizing different marketing techniques tobroaden our outreach.  Sales promotionexpense also increased due to costs related to increased sales to retailcustomers.  Although we believethat these programs contributed to the growth in our commercial business duringfiscal year 2007, there can be no assurance as to the extent that theseprograms will increase future revenues or gross profits.  Total marketing and sales promotion expensesincreased by approximately $6.5 million from fiscal year 2006 to fiscal year2007.

Freight costs in fiscalyear 2007 decreased approximately $3.5 million over the prior year, primarilydue to the loss of consumer sales associated with our T-Mobile relationshipwhich ended in the second quarter of fiscal year 2006.  This decrease was partially offset by thefreight costs associated with the increase in commercial sales.

We continually evaluatethe credit worthiness of our existing customer receivable portfolio and providean appropriate reserve based on this evaluation.  We also evaluate the credit worthiness ofprospective customers and make decisions regarding extension of credit terms tosuch prospects based on this evaluation. Accordingly, we recorded a provision for bad debts of $999,900 and $742,800 for fiscal year 2007and fiscal year 2006, 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 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 2007and 2006 were 37.8% and 39.0%, respectively. The effective tax rate for fiscalyear 2007 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.  As aresult of the factors discussed above, net income and diluted earnings pershare for fiscal year

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2007 increased 37.7% and 46.3%, respectively, compared with fiscal year2006.  Diluted earnings per share wasalso positively impacted by the stock buyback program further discussed in theLiquidity and Capital Resources section below.

**Fiscal Year 2006 Compared to Fiscal Year 2005**

**Revenues.** Revenues for fiscal year 2006 decreased 7.0% as compared with fiscalyear 2005, primarily due to a 43.6% decrease in consumer revenues as a resultof the transition in the second quarter of fiscal year 2006 of our T-Mobilerelationship as discussed above.  Thisdecrease in consumer revenues was largely offset by a 26.2% increase incommercial revenues, driven by growth in each of our three commercial lines ofbusiness.

Our mobile devices and accessories revenues,including both commercial and consumer sales, decreased 20.4% for fiscal year2006 compared with fiscal year 2005.  Weexperienced significant growth in commercial sales of mobile devices andaccessory products, which was offset by a significant decline in consumersales.  Commercial revenues for mobiledevices and accessories, which are sold primarily to SMUs, governmentsand resellers, but also to public carriers and network operators, increased54.6% over the prior year, due in part to new product introductions, enhancedmerchandising and packaging programs and new wireless carrier retailrelationships.  The decrease in consumersales of mobile devices and accessories was primarily due to the transition ofour T-Mobile affinity relationship in the second quarter of fiscal year 2006.  Our T-Mobile affinity relationship accountedfor approximately 26.5% and 11.8% of total revenues and gross profit,respectively, in fiscal year 2006 and approximately 44.4% and 20.4% of totalrevenues and gross profit, respectively, in fiscal year 2005.

The13.7% increase in our network infrastructure sales for this fiscal year overthe same period of last year is primarily attributable to an increase in salesof fixed wireless broadband products and radio frequency (RF) propagationproducts.  The market for broadband andnetwork equipment products continues to emerge and grow.  All of our growth in sales of networkinfrastructure product was in sales to SMUs, governments and resellers, as wehave focused on diversification beyond the traditional infrastructure carriercustomer.

Revenuesfrom our installation, test and maintenance line of business increased 18.0%from the prior-year period, primarily due to increased sales of repair parts and components, tools,shop supplies and safety apparel and equipment, which were partially offset bydecreased revenues from test and benchequipment.

**GrossProfit.** Gross profit grew 8.6% in fiscal year 2006compared with fiscal year 2005, driven by growth in each of our threecommercial business segments.  Commercialgross profit grew 26.2% and was partially offset by a 35.5% decrease inconsumer gross profit.  Gross profitmargin increased to 21.6% in fiscal year 2006 from 18.5% in fiscal year2005.  Gross profit margin decreasedslightly in our network infrastructure segment, from 23.7% to 23.3%, andincreased to 30.4% from 25.9% in our installation, test and maintenancesegment.  Generally, our gross margins byproduct within these segments have been sustained and these variations arerelated to sales mix within the segment product offerings, including repair andreplacement parts in our installation, test and maintenance line of business,an increased portion of which was accounted for on a net revenuebasis.  Gross profit margin in our mobiledevices and accessories segment increased to 18.0% in fiscal year 2006 from14.9% in fiscal year 2005, due to changes in sales mix.  The gross profit margin for our consumersales increased slightly over the prior-year period due to the loss of lowermargin handset sales and the receipt of standby fees from our T-Mobilerelationship which was transitioned in the second quarter of fiscal year2006.  The decrease in commercial grossprofit margin for our mobile devices and accessories segment, from 27.1% forfiscal year 2005 to 24.2% for fiscal year 2006, is attributable to sales mixwithin the product offering in part due to new retail relationships establishedduring fiscal year 2006.  During fiscal year 2006, we began sourcing asignificant portion of our private branded subscriber accessory product linedirectly from factories in China.  All ofsuch purchases are denominated in U.S dollars. Prior to fiscal year 2006, we purchased this type of product from U.S.sources.  While sales of these directly sourced products represent arelatively immaterial percentage of our total sales, we believe that thisdirect sourcing initiative has allowed us to realize lower costs of goods soldon sales of these products after accounting for additional supply chain costsand lead times.  We also believe that these cost savings have allowed usto be more

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competitive in the market.  We accountfor inventory at the lower of cost or market, and as a result,write-offs/write-downs occur due to damage, deterioration, obsolescence,changes in prices and other causes.

**Selling, General and Administrative Expenses.** Totalselling, general and administrative expenses increased by 11.2% during fiscalyear 2006 as compared with fiscal year 2005. Total selling, general and administrative expenses as a percentage ofrevenues increased from 16.5% in fiscal year 2005 to 19.7% in fiscal year 2006due to the increase in expense as discussed below.

The largest factorscontributing to the increase in total selling, general and administrativeexpenses were increased labor fulfillment costs and expenses related tobusiness generation activities.  Theseincreases are reflective of our increased focus on our commercial businessduring fiscal year 2006.  During thefourth quarter of fiscal year 2005, fulfillment costs and labor costs increaseddue to start-up issues associated with our new Configuration, Fulfillment andDelivery technology system that was initiated during that quarter.  We continued to see increases in fulfillmentcosts and labor costs in the first quarter of fiscal year 2006 related to thissystem, but to a lesser extent.  Laborcosts have also increased over the prior-year period, related to investments inbusiness generation personnel in an effort to drive commercial revenuegrowth.  Total labor costs, includingbenefits, increased by approximately $5.0 million from fiscal year 2005 tofiscal year 2006.

Marketing expenses alsoincreased in fiscal year 2006 as compared with fiscal year 2005.  In the first quarter of fiscal year 2006, weretained RTC Relationship Marketing, a direct- and database- marketing firm toincrease market awareness of TESSCO’s value proposition and product andsolutions offering among potential and existing customers.  In the third quarter of fiscal year 2006, welaunched programs designed to increase our base of customers and our customers’monthly purchases.  Although we believethat these programs contributed to the growth in our commercial business duringfiscal year 2006, there can be no assurance as to the extent that theseprograms will increase future revenues or gross profits.  Total marketing and sales promotion expensesincreased by approximately $2.4 million from fiscal year 2005 to fiscal year2006.

We continually evaluatethe credit worthiness of our existing customer receivable portfolio and providean appropriate reserve based on this evaluation.  We also evaluate the credit worthiness ofprospective customers and make decisions regarding extension of credit terms tosuch prospects based on this evaluation. Accordingly, we recorded a provision for bad debts of $742,800 and $1,227,000 for fiscal year 2006and fiscal year 2005, respectively.

**Interest, Net. **Net interest expense increased from $166,200in fiscal year 2005 to $358,500 in fiscal year 2006, primarily due to increasedinterest expense on our revolving credit facility and our term bank loan,partially offset by increased interest income. As noted 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 other debt instruments had only minor variancesfrom year-to-year in total.

**Income Taxes, Net Income and Diluted Earnings PerShare. **The effective taxrates in fiscal year 2006 and 2005 were 39.0% and 38.9%, respectively. The effectivetax rate for fiscal year 2006 increased due to minor changes in ourrelationship between non-deductible expenses and taxable income, as well aschanges in the taxability in certain states. As a result of the factors discussed above, net income and dilutedearnings per share for fiscal year 2006 decreased 15.7% and 13.0%,respectively, compared with fiscal year 2005.

 

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**Liquidity and Capital Resources**

In summary, our cashflows were as follows:

|                                                      | ** ** | **2007**    | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|------------------------------------------------------|------------|-------------|------------|------------|------------|------------|------------|
| Cash flow provided by  operating activities          |       | $           | 28,025,800 |       | $          | 3,317,800  |       | $ | 4,255,000 |   |
| Cash flow used in  investing activities              |       | (8,684,700  | )          | (2,908,400 | )          | (4,380,800 | )          |
| Cash flow used in  financing activities              |       | (17,451,700 | )          | (2,003,300 | )          | (2,759,000 | )          |
| Net increase (decrease) in cash and cash equivalents |       | $           | 1,889,400  |       | $          | (1,593,900 | )          | $ | (2,884,800 | ) |

 

In fiscal year 2007, our cash inflow from operatingactivities was driven by net income, net of depreciation and amortization andnon-cash stock compensation expense, as well as a significant decrease inproduct inventory and an increase in accrued expenses and other currentliabilities.  The decrease in productinventory was primarily due to our amended repair components relationship withNokia.  Under the relationship, wecontinue to manage marketing, sales and distribution of repair components forNokia, but we now maintain inventory on consignment.  Accrued expense increased primarily due toincreased accruals for our reward program and tax accruals.

 Cash flows usedin investing activities included capital expenditures, which primarilyconsisted of investment in information technology, as well as anacquisition.  On April 21, 2006, the Company acquired substantially all the non-cashnet assets of TerraWave Solutions, Ltd. and its commonly owned affiliate,GigaWave Technologies, Ltd. for an initial cash payment of approximately $3.8million, and 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 non-refundableprepayment against future earn-out payments, if any).  To the extent that certain minimum earningsthresholds are not achieved, the Company will not be able to recover thisprepayment.  The maximum amount ofcontingent future earn-out payments (after subtracting the $1.5 millionprepayment) is $15.5 million.  Contingentpayments made under the terms of the purchase agreement will be treated as anadditional cost of the acquired businesses and additional goodwill has been andwill continue to be recorded.  For theperiod of April 21, 2006 through April 1, 2007, $500,000 has been paid foradditional earn-out based on achievement of certain earnings thresholds inaccordance with the terms of the purchase agreement.  An additional earn-out related to this sameperiod of $1.5 million was accrued as of year-end, and was paid in May2007.  In accordance with the acquisitionagreement, these 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. Additionally, acquisition related transaction costs,primarily comprised of legal and accounting fees, totaled $89,500.

Cash flow used in financing activities is primarilyrelated to treasury stock purchases. During fiscal year 2007, we purchased1,043,813 shares of our outstanding common stock pursuant to our stock buybackprogram, compared with 200,700 shares purchased in fiscal year 2006.  From the beginning of our stock buybackprogram (the first quarter of fiscal year 2004), through the end of fiscal year2007, a total of 1,794,867 shares have been purchased under this program forapproximately $23.4 million, or an average price of $13.05 per share.  The Board of Directors has authorized thepurchase of up to 1,950,000 shares in the aggregate, and therefore, 155,133shares remained available to be purchased as of the end of fiscal year2007.  We expect to fund futurepurchases, if any, from working capital and/or our revolving credit facility.  No timetable has been set for the completionof this program.

Of the 1,043,813 shares repurchased during fiscal year2007, 944,463 shares were purchased at $16.67 per share for approximately $15.7million in one transaction with a large former shareholder.  This transaction significantly reducedshareholders’ equity, and because the purchase price was funded with borrowingsunder our revolving credit facility, it also increased total liabilities.  Prior to entering into this transaction, wediscussed the proposed transaction, the anticipated borrowings necessary toconsummate the transaction and its possible impact on our financial condition,with Wachovia Bank, N.A. and SunTrust Bank, the lenders under our revolvingcredit facility and term loan.  As aresult of the transaction, we did not meet the Maximum Total Liabilities toTangible Net Worth covenant under the terms of our revolving credit facilityand term loan at the end of the second quarter of fiscal year 2007. Werequested and received a waiver of the

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covenant from thebanks for the second fiscal quarter.  Atthe end of the third quarter of fiscal year 2007, we also did not meet theMaximum Total Liabilities to Tangible Net Worth covenant; and, we againrequested and received a waiver from the banks that allowed us to avoid acovenant violation under these loans for the third fiscal quarter.  We were in compliance with the Maximum TotalLiabilities to Tangible Net Worth covenant, and all other bank covenants, as ofthe end of the fourth quarter of fiscal year 2007.

Previously, and also then in anticipation of the prospectof continued repurchase of shares under our stock buyback program, early in thesecond quarter of fiscal year 2007 we reviewed with Wachovia Bank, N.A. andSunTrust Bank the terms applicable to our revolving credit facility which hadthe effect of limiting both aggregate repurchases of our stock and our abilityto use borrowings under the revolving credit facility to finance repurchases ofour stock, to $10 million.  Afterdiscussion, the banks agreed to change the relevant references from $10 millionto $25 million.  That agreement wasmemorialized pursuant to the terms of a joinder, assumption, ratification andmodification agreement entered into with the banks in respect of each of thesefacilities.  Also as part of thatundertaking, and as required of us under the terms of the existing documentsfor the revolving credit facility and term loan, we formally agreed with thebanks to join as co-borrowers under the revolving credit agreement and termloan several operating subsidiaries of ours that had been created morerecently, including those created in connection with the TerraWave and GigaWaveacquisitions, and to update and address other generally routine proceduralmatters relating to the documentation for these facilities.

We have a term loan in the original principal amountof $4.5 million with Wachovia Bank, N.A. and SunTrust Bank that is payable inmonthly installments of principal and interest with the balance due atmaturity, June 30, 2011. The note bears interest at a floating rate of LIBOR plus1.75%. The note is secured by a first position deed of trust encumbering theCompany-owned real property in Hunt Valley, Maryland. The loan is subject togenerally the same financial covenants as our revolving credit facility, which,as discussed below, has recently been replaced with a new facility, thecovenants under which also apply to the term loan. This loan had a balance of$3,900,000 as of April 1, 2007.

On October 1, 2005, we entered into a receivevariable/pay fixed interest rate swap on a total notional amount of $4.2million with Wachovia Bank, N.A. to avoid the risks associated with fluctuatinginterest rates on our existing term bank loan discussed above, and to eliminatethe variability in the cash outflow for interest payments.  The interest rate swap agreement locks theinterest rate for the outstanding principal balance of the loan at 6.38%through June 30, 2011.  There was nopayment due or received at inception of the swap.  No hedge ineffectiveness will be recognizedas the interest rate swap 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.

Working capital decreasedto $33.5 million as of April 1, 2007, from $45.7 million as of March 26, 2006,primarily due to the consignment of Nokia repair components inventory.  Shareholders’ equity decreased to $57.1million as of April 1, 2007, from $65.1 million as of March 26, 2006, primarilydue to the repurchase of our stock, partially offset by increased retainedearnings due to fiscal year 2007 net income.

To minimize interestexpense, our policy is to use excess available cash to pay down any balance onour $30 million revolving credit facility. We expect to meet short-term and long-term liquidity needs throughoperating cash flow, supplemented by our revolving credit facility.  In doing so, the balance on our revolvingcredit facility could increase depending on our working capital and other cashneeds.  If we were to undertake anacquisition or other major capital purchases that require funds in excess ofits existing sources of liquidity, we would look to sources of funding fromadditional credit facilities, debt and/or equity issuances.  There can be no assurances that suchadditional future sources of funding would be available on terms acceptable tous, if at all.

On May 31, 2007, we replaced our $30 million revolvingline of credit facility with a new $50 million revolving line of creditfacility with SunTrust Bank and Wachovia Bank, N.A.  This new facility has a term expiring in May2010.  Interest is payable monthly at theLIBOR rate plus an applicable margin, which ranges from 1.25% to 2.75%.  Like the replaced facility, borrowingavailability under this new facility is determined in accordance with aborrowing base. The

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facility includesfinancial covenants, including a minimum tangible net worth, minimum cash flowcoverage of debt service, and a maximum funded debt to EBITDA ratio.  These financial covenants now also apply tothe existing term loan secured by our Hunt Valley, Maryland facility.

We generated $3.3 million of net cash from operatingactivities in fiscal year 2006 compared to $4.3 million in fiscal year2005.  In fiscal year 2006, our cashinflow from operating activities was driven by net income plus depreciation andamortization and a significant decrease in trade accounts receivable andproduct inventory, partially offset by a decrease in trade accounts payable.  The decreases in inventory, trade accountsreceivable and trade accounts payable are primarily related to the terminationof our T-Mobile affinity relationship in the second quarter of fiscal year2006.  The decreases in inventory andaccounts payable related to T-Mobile products were largely offset by increasesin inventory and accounts payable related to our repair and replacement partsrelationship with Nokia.

Capital expenditures totaled $2.9 million in fiscalyear 2006, primarily related to investments in information technology.  In fiscal year 2005, capital expenditurestotaled $4.4 million, comprised primarily of investments in informationtechnology, including our Configuration, Fulfillment and Delivery technologysystem.

We used $2.0 million of net cash from financingactivities in fiscal year 2006 compared with a net usage of $2.8 million infiscal year 2005. During fiscal year 2006, we purchased 200,700 shares of ouroutstanding common stock pursuant to our stock buyback program, compared with 381,005shares purchased in fiscal year 2005. From the beginning of our stock buyback program (the first quarter offiscal year 2004), through the end of fiscal year 2006, a total of 751,055shares have been purchased under this program for approximately $5.7 million,or an average price of $7.63 per share.

**Critical Accounting Policies and Estimates**

Ourdiscussion and analysis of our financial condition and results of ouroperations are based on our consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States.  The preparation of thesefinancial statements requires us to make estimates and judgments that affectthe reported amount of assets, liabilities, revenues and expenses and relateddisclosure of contingent assets and liabilities.  Actual results may differ from theseestimates under different assumptions or conditions.

Wehave identified the policies below as critical to our business operations andthe 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 ofloss has passed to the customer. In most cases, shipments are made using FOBshipping terms.  For a small portion ofour sales, we use FOB destination terms and record the revenue when the productis received by the customer.  Our pricesare always fixed at the time of sale. Historically, there have not been any material concessions provided toor by customers, future discounts, or other incentives subsequent to a sale. Wesell under normal commercial terms and, therefore, we only record sales ontransactions where collectibilty is reasonably assured.

Becauseour sales transactions meet the conditions set forth in Statement of FinancialAccounting Standard (SFAS) No. 48, “Revenue Recognition When Right of ReturnExists,” we recognize revenues from sales transactions containing sales returnsprovisions at the time of the sale. These conditions require that 1) our price be substantially fixed anddeterminable at the date of sale, 2) the buyer is obligated to pay us, and suchobligation is not contingent on their resale of the product, 3) the buyer’sobligation to us does not change in the event of theft or physical destructionor damage of the product, 4) the buyer has economic substance apart from us, 5)we do not have significant obligations for future performance to directly bringabout resale of the product by the buyer, and 6) the amount of future returnscan be

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reasonablyestimated.  Because our normal terms andconditions of sale are consistent with conditions 1-5 above, and we are able toperform condition 6, we make a reasonable estimate of product returns in salestransactions and accrue a sales return reserve based on this estimate.

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

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

*InventoryReserves.*  We establish inventory reserves for excessand obsolete inventory.  We regularlyreview inventory to evaluate continued demand and identify any obsolete orexcess quantities of inventory.  Werecord a provision for the difference between excess and obsolete inventory andits estimated realizable value. Estimated realizable value is based on anticipated future productdemand, market conditions 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 includesgoodwill of approximately $5.0 million and other indefinite lived intangibleassets of $850,000.  We perform annualimpairment tests for goodwill and other indefinite lived assets on the firstday of our fourth quarter.  We alsoperiodically evaluate our long-lived assets for potential impairmentindicators.  Our judgments regarding theexistence of impairment indicators are based on estimated future cash flows,market conditions, operational performance and legal factors.  Future events, such as significant changes incash flow assumptions, could cause us to conclude that impairment indicatorsexist and that the net book value of goodwill, long-lived assets or intangibleassets are impaired.  Had thedetermination been made that the goodwill and other indefinite lived intangibleassets were impaired, the value of these assets would have been reduced by anamount up to $5.9 million, resulting in a charge to operations.

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*Classification of Expenses. *Our cost of goods soldincludes cost of products and freight from vendors to our distributioncenters.  Product management,distribution, purchasing, receiving/inspection, warehousing and corporateoverhead costs are included in selling, general and administrativeexpenses.  Accordingly, our gross marginsmay not be comparable to other entities that may include these costs in cost ofgoods sold.

*Income Taxes.*  In June 2006, the Financial AccountingStandards Board (FASB) issued Interpretation No. 48 (FIN 48), “Accounting forUncertainty in Income Taxes — An Interpretation of FASB Statement No. 109,”which clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial 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 derecognition, measurement, classification, interest and penalties,accounting in interim periods, disclosure and transition.  We will adopt FIN 48 effective as of April 2,2007.  We believe that the adoption ofFIN 48 will not have a material impact on our consolidated financialstatements.

We recognize deferred tax assets and liabilities based on thedifferences between the financial statement carrying amounts and the tax basesof assets and liabilities.  We regularlyreview our deferred tax assets for recoverability.  This review is based on historical taxableincome, projected future taxable income and the expected timing of thereversals of existing temporary differences. Based on this review, we have not established a valuationallowance.   If we are unable to generatesufficient taxable income, or if there is a material change in the actualeffective tax rates or time period within which the underlying temporary differencesbecome taxable or deductible, we could be required to establish a valuationallowance against all or a significant portion of our deferred tax assets,resulting in a substantial increase in our effective tax rate and a materialadverse impact on our operating results.

*Stock-Based Compensation.*  Effective March 27, 2006, we adopted SFAS No.123R, “Share-Based Payment,” using the modified prospective applicationtransition method. Because the fair value recognition provisions of SFASNo. 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.

SFAS No. 123R requires ourCompany to include in its calculation of periodic stock compensation expense anestimate of future forfeitures.  Prior tofiscal year 2007, in accordance with SFAS No. 123, we only included forfeituresin its calculation of stock compensation expense when the awards were actuallyforfeited.  The inclusion of estimated inlieu of actual forfeitures did not have a material impact on our financialposition or results of operations for the year ended April 1, 2007.  Prior to the adoption of SFAS No. 123R,benefits of tax deductions in excess of recognized compensation costs werereported as operating cash flows. SFAS No. 123R requires excess taxbenefits be reported as a financing cash flow.

 

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**Summary Disclosures about Contractual Obligationsand Commercial Commitments**

Thefollowing tables reflect a summary of our contractual cash obligations andother commercial commitments as of April 1, 2007:
| ** **                          | ** ** | **Payment Due by Fiscal Year** | ** ** |
|-------------------------------------|------------|----------------------------------------------------|------------|
| ** **                          | ** ** | **Total**                                          | ** ** | **Less Than  1 Year** | ** ** | **Years 1-3** | ** ** | **Years 4-5** | ** ** | **More Than  5 Years** | ** ** |
|                                |       |                                               |       |   |   |   |   |   |   |   |   |
| Long-Term Debt  Obligations         |       | $                                                  | 4,559,400  |   | $ | 356,200 |   | $ | 724,300 |   | $ | 3,478,900 |   | $ | — |   |
| Revolving credit  facility          |       | —                                             |       | — |   | — |   | — |   | — |   |
| Lease Obligations                   |       | 1,911,800                                          |       | 1,426,200 |   | 484,700 |   | 900 |   | — |   |
| Interest payments                   |       | 996,700                                            |       | 260,600 |   | 466,000 |   | 270,100 |   | — |   |
| Other Long-Term  Liabilities        |       | 1,250,800                                          |       | — |   | 676,400 |   | 75,000 |   | 499,400 |   |
| Total contractual cash  obligations |       | $                                                  | 8,718,700  |   | $ | 2,043,000 |   | $ | 2,351,400 |   | $ | 3,824,900 |   | $ | 499,400 |   |

 

Other Long-Term Liabilitiesreflected on the Registrant’s Balance Sheet under GAAP include amounts owedunder the deferred compensation plan and Supplemental Executive RetirementPlan.  Interest payments include amountsowed on notes payable at their stated contractual rate, as well as interestpayments on our note with a bank at a fixed rate of 6.38%.

In April 2006, TESSCO acquired the non-cash assets andbusinesses of TerraWave Solutions, Ltd. and its commonly owned affiliate,GigaWave Technologies, Ltd.  The tableabove does not include additional potential cash earn-out payments of up to $15million related to this acquisition through April 2010, which are contingent onthe achievement of certain minimum earnings thresholds.  While these contingent payments are not fixedat present, they represent potential future commitments.

**Off-Balance Sheet Arrangements**

We have no material off-balance sheet arrangements.

**Recent Accounting Pronouncements**

In June 2006, the Financial Accounting Standards Board (FASB) issuedInterpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes —An Interpretation of FASB Statement No. 109,” which clarifies the accountingfor uncertainty in income taxes recognized in an enterprise’s financialstatements in accordance with FASB Statement No. 109, “Accounting for IncomeTaxes.”  FIN 48 prescribes a recognitionthreshold and measurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance onde-recognition, measurement, classification, interest and penalties, accountingin interim periods, disclosure and transition. We will adopt FIN 48 effective as of April 2, 2007.  We do not believe that the adoption of FIN 48will have a material impact on the consolidated financial statements.

In September 2006, the FASB issued FASB StatementNo. 157, “Fair Value Measurements” (FASB 157), which provides guidance forusing 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.  We will adoptFASB 157 effective as of April 2, 2007. We do not believe that the new standard will have a material impact onits financial statements.

33

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In September 2006, the SEC issued Staff Accounting BulletinNo. 108 “Considering the Effects of Prior Year Misstatements whenQuantifying Misstatements in Current Year Financial Statements” (SAB 108), toaddress diversity in practice in quantifying financial statement misstatementsand the potential for the build up of improper amounts on the balance sheet.SAB 108 identifies the approach that registrants should take when evaluatingthe effects of unadjusted misstatements on each financial statement, thecircumstances under which corrections of misstatements should result in arevision to financial statements and disclosures related to the correction ofmisstatements. SAB 108 is effective for financial statements for an interimperiod of the first fiscal year ending after November 16, 2006. Theadoption of SAB 108 during the third quarter of our 2007 fiscal yeardid not have an affect on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Optionfor Financial Assets and Financial Liabilities — Including an Amendment of FASBStatement No. 115.”  SFAS No. 159 permitsan entity to measure many financial instruments and certain other items at fairvalue that are not currently required to be measured at fair value. Entitiesthat elect the fair value option will report unrealized gains and losses inearnings at each subsequent reporting date. We will adopt SFAS No. 159 as ofApril 2, 2007.  We are currentlyassessing the potential impact of the standard and do not believe that it willhave a material impact on our financial statements.

**Forward-Looking Statements**

This Report contains a number of forward-lookingstatements within the meaning of the Private Securities Litigation Reform Actof 1995, all of which are based on current expectations. These forward-lookingstatements may generally be identified by the use of the words “may,” “will,” “believes,”“should,” “expects,” “anticipates,” “estimates,” and similar expressions. Ourfuture results of operations and other forward-looking statements contained inthis report involve a number of risks and uncertainties, including thosedescribed throughout this Annual Report on Form 10-K and  in Item 1A above. For a variety of reasons,actual results may differ materially from those described in any suchforward-looking statement.  Consequently,the reader is cautioned to consider all forward-looking statements in light ofthe risks to which they are subject.

### **AvailableInformation**

Our Internet Web siteaddress is: www.tessco.com. We make available free of charge through our Website, our annual report on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K and amendments to those reports filed orfurnished pursuant to Section 13 or 15(d) of the Exchange Act as soon asreasonably practicable after such documents are electronically filed with, orfurnished to, the Securities and Exchange Commission.  Also available on our Web site is our Code ofBusiness Conduct and Ethics.  We have notincorporated herein by reference the information on our Web site, and it shouldnot be considered a part of this filing.

 

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**Item 7A.**                 Quantitative andQualitative Disclosures about Market Risk.

Wemay be exposed to market risks, including foreign currency exchange rate risk,interest rate risk and commodity price risk. To mitigate these risks, we may utilize derivative financialinstruments, among other strategies.  Wedo not use derivative financial instruments for speculative purposes.

For the balance of the information required by thisItem, see the “Liquidity and Capital Resources” section of “Management’sDiscussion and Analysis of Financial Condition and Results of Operation”contained in Item 7 of Part II of this report, which is incorporated herein byreference.

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**Item 8.**                          FinancialStatements and Supplementary Data.

**Consolidated Balance Sheets**
| ** **                                                                                                                                                                                                                      | ** ** | **April 1, 2007** | ** **  | **March 26, 2006** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|-------------|------------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                      |       |                        |        |                         |       |
| Current assets:                                                                                                                                                                                                                 |       |                        |        |                         |       |
| Cash and cash  equivalents                                                                                                                                                                                                      |       | $                           | 4,176,300   |                         | $          | 2,286,900 |   |
| Trade accounts  receivable, net of allowance for doubtful accounts of $910,400 and $853,600,  respectively                                                                                                                      |       | 44,859,600                  |        | 43,576,500                   |       |
| Product  inventory                                                                                                                                                                                                              |       | 37,448,800                  |        | 48,793,100                   |       |
| Deferred tax  asset                                                                                                                                                                                                             |       | 3,460,100                   |        | 2,396,000                    |       |
| Prepaid expenses  and other current assets                                                                                                                                                                                      |       | 1,959,500                   |        | 1,621,800                    |       |
| Total current  assets                                                                                                                                                                                                           |       | 91,904,300                  |        | 98,674,300                   |       |
|                                                                                                                                                                                                                            |       |                        |        |                         |       |
| Property and equipment,  net                                                                                                                                                                                                    |       | 24,256,300                  |        | 24,619,800                   |       |
| Goodwill, net                                                                                                                                                                                                                   |       | 5,008,300                   |        | 2,452,200                    |       |
| Other long-term assets                                                                                                                                                                                                          |       | 2,513,800                   |        | 1,054,100                    |       |
| Total assets                                                                                                                                                                                                                    |       | $                           | 123,682,700 |                         | $          | 126,800,400 |   |
|                                                                                                                                                                                                                            |       |                        |        |                         |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                                                                                                                                                  |       |                        |        |                         |       |
| Current liabilities:                                                                                                                                                                                                            |       |                        |        |                         |       |
| Trade accounts  payable                                                                                                                                                                                                         |       | $                           | 47,257,700  |                         | $          | 44,984,000 |   |
| Payroll,  benefits and taxes                                                                                                                                                                                                    |       | 6,658,500                   |        | 5,226,500                    |       |
| Income and sales  taxes                                                                                                                                                                                                         |       | 2,960,800                   |        | 1,187,600                    |       |
| Accrued expenses  and other current liabilities                                                                                                                                                                                 |       | 1,143,800                   |        | 1,129,300                    |       |
| Current portion  of long-term debt                                                                                                                                                                                              |       | 356,200                     |        | 442,500                      |       |
| Total current  liabilities                                                                                                                                                                                                      |       | 58,377,000                  |        | 52,969,900                   |       |
|                                                                                                                                                                                                                            |       |                        |        |                         |       |
| Deferred tax liability                                                                                                                                                                                                          |       | 2,700,400                   |        | 2,785,300                    |       |
| Long-term debt,  net of current portion                                                                                                                                                                                         |       | 4,203,200                   |        | 4,559,400                    |       |
| Other long-term  liabilities                                                                                                                                                                                                    |       | 1,250,800                   |        | 1,379,000                    |       |
| Total  liabilities                                                                                                                                                                                                              |       | 66,531,400                  |        | 61,693,600                   |       |
|                                                                                                                                                                                                                            |       |                        |        |                         |       |
| 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; 7,584,199 shares issued and  5,325,067 shares outstanding as of April 1, 2007, and 7,444,195 shares issued  and 6,228,876 shares outstanding as of March 26, 2006 |       | 75,800                      |        | 49,600                       |       |
| Additional paid-in  capital                                                                                                                                                                                                     |       | 27,463,700                  |        | 24,748,700                   |       |
| Treasury stock,  at cost, 2,259,132 shares as of April 1, 2007, and 1,215,319 shares as of  March 26, 2006                                                                                                                      |       | (27,216,200                 | )           | (9,521,100                   | )          |
| Retained  earnings                                                                                                                                                                                                              |       | 56,806,300                  |        | 49,764,200                   |       |
| Accumulated  other comprehensive income                                                                                                                                                                                         |       | 21,700                      |        | 65,400                       |       |
| Total  shareholders’ equity                                                                                                                                                                                                |       | 57,151,300                  |        | 65,106,800                   |       |
| Total liabilities and  shareholders’ equity                                                                                                                                                                                |       | $                           | 123,682,700 |                         | $          | 126,800,400 |   |

 

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

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### **ConsolidatedStatements of Income**

| ** **                                    | ** ** | **Fiscal Years Ended** | ** **  |
|-----------------------------------------------|------------|----------------------------------|-------------|
| ** **                                    | ** ** | **April 1, 2007**      | ** **  | **March 26, 2006** | ** ** | **March 27, 2005** | ** ** |
|                                          |       |                             |        |   |   |   |   |
| Revenues                                      |       | $                                | 492,327,800 |   | $ | 477,329,300 |   | $ | 513,027,300 |   |
| Cost of goods  sold                           |       | 370,916,400                      |        | 374,316,300 |   | 418,180,500 |   |
| Gross profit                                  |       | 121,411,400                      |        | 103,013,000 |   | 94,846,800 |   |
| Selling, general  and administrative expenses |       | 109,208,800                      |        | 94,268,800 |   | 84,747,400 |   |
| Income from operations                        |       | 12,202,600                       |        | 8,744,200 |   | 10,099,400 |   |
| Interest expense, net                         |       | 879,400                          |        | 358,500 |   | 166,200 |   |
| Income before provision for income taxes      |       | 11,323,200                       |        | 8,385,700 |   | 9,933,200 |   |
| Provision for income taxes                    |       | 4,281,100                        |        | 3,270,500 |   | 3,866,000 |   |
| Net income                                    |       | $                                | 7,042,100   |   | $ | 5,115,200 |   | $ | 6,067,200 |   |
|                                          |       |                             |        |   |   |   |   |
| Basic earnings  per share                     |       | $                                | 1.22        |   | $ | 0.81 |   | $ | 0.94 |   |
| Diluted earnings per share                    |       | $                                | 1.17        |   | $ | 0.80 |   | $ | 0.92 |   |
| Basic weighted average shares outstanding     |       | 5,753,900                        |        | 6,296,700 |   | 6,462,000 |   |
| Diluted weighted  average shares outstanding  |       | 6,016,000                        |        | 6,411,500 |   | 6,560,900 |   |

 

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

 

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**ConsolidatedStatements of Changes in Shareholders’ Equity**
| ** **                                        | ** ** | ** **            | ** ** | ** **     | ** ** | ** **               | ** ** | ** **   | ** ** | ** **        | ** **  | **Accumulated  Other** | ** ** | **Total**   | ** ** |
|---------------------------------------------------|------------|-----------------------|------------|----------------|------------|--------------------------|------------|--------------|------------|-------------------|-------------|------------------------|------------|-------------|------------|
| ** **                                        | ** ** | **Common Stock** | ** ** | **Additional** | ** ** | **Treasury**             | ** ** | **Retained** | ** ** | **Comprehensive** | ** **  | **Shareholders’** | ** ** |
| ** **                                        | ** ** | **Shares**            | ** ** | **Amount**     | ** ** | **Paid-in Capital** | ** ** | **Stock**    | ** ** | **Earnings**      | ** **  | **Income**             | ** ** | **Equity**  | ** ** |
| Balance at March 28,  2004                        |       | 6,645,164             |       | $              | 48,500     |                     | $          | 22,250,200   |       | $                 | (4,547,000  | )                      | $          | 38,581,800  |       | $ | — |   | $ | 56,333,500 |   |
| Net  proceeds from issuance of stock              |       | 52,593                |       | 400            |       | 421,400                  |       | —       |       | —            |        | —                 |       | 421,800     |       |
| Treasury  stock purchase                          |       | (381,005              | )          | —         |       | —                   |       | (2,907,400   | )          | —            |        | —                 |       | (2,907,400  | )          |
| Non-cash  stock compensation expense              |       | —                |       | —         |       | 907,000                  |       | —       |       | —            |        | —                 |       | 907,000     |       |
| Net  income                                       |       | —                |       | —         |       | —                   |       | —       |       | 6,067,200         |        | —                 |       | 6,067,200   |       |
| Balance at March 27,  2005                        |       | 6,316,752             |       | 48,900         |       | 23,578,600               |       | (7,454,400   | )          | 44,649,000        |        | —                 |       | 60,822,100  |       |
| Net  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     |       |
| Other  comprehensive income,  net of tax          |       | —                |       | —         |       | —                   |       | —       |       | —            |        | 65,400                 |       | 65,400      |       |
| Net  income                                       |       | —                |       | —         |       | —                   |       | —       |       | 5,115,200         |        | —                 |       | 5,115,200   |       |
| Balance at March 26,  2006                        |       | 6,228,876             |       | 49,600         |       | 24,748,700               |       | (9,521,100   | )          | 49,764,200        |        | 65,400                 |       | 65,106,800  |       |
| Net  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     |       |
| Other  comprehensive income,  net of tax          |       | —                |       | —         |       | —                   |       | —       |       | —            |        | (43,700                | )          | (43,700     | )          |
| Net  income                                       |       | —                |       | —         |       | —                   |       | —       |       | 7,042,100         |        | —                 |       | 7,042,100   |       |
| Balance at April 1, 2007                          |       | 5,325,067             |       | $              | 75,800     |                     | $          | 27,463,700   |       | $                 | (27,216,200 | )                      | $          | 56,806,300  |       | $ | 21,700 |   | $ | 57,151,300 |   |

 

*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** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **April 1, 2007**      | ** ** | **March 26, 2006** | ** ** | **March 27, 2005** | ** ** |
|                                                                               |       |                             |       |   |   |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                             |       |                             |       |   |   |   |   |
| Net income                                                                         |       | $                                | 7,042,100  |   | $ | 5,115,200 |   | $ | 6,067,200 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                             |       |   |   |   |   |
| Depreciation and amortization                                                      |       | 4,763,100                        |       | 4,498,700 |   | 4,192,500 |   |
| Non-cash stock compensation expense                                                |       | 2,055,300                        |       | 746,000 |   | 907,000 |   |
| Deferred income taxes and other                                                    |       | (1,159,200                       | )          | (890,100 | ) | (367,200 | ) |
| Change in trade accounts receivable                                                |       | 402,400                          |       | 17,330,900 |   | (13,782,800 | ) |
| Change in product inventory                                                        |       | 12,240,900                       |       | 13,216,900 |   | (19,845,500 | ) |
| Change in prepaid expenses and other current assets                                |       | (320,500                         | )          | 29,200 |   | (334,100 | ) |
| Change in trade accounts payable                                                   |       | (22,300                          | )          | (37,634,000 | ) | 27,368,000 |   |
| Change in payroll, benefits and taxes                                              |       | 1,412,900                        |       | 777,500 |   | 773,300 |   |
| Change in income and sales tax                                                     |       | 1,773,200                        |       | 525,300 |   | (18,600 | ) |
| Change in accrued expenses and other current  liabilities                          |       | (162,100                         | )          | (397,800 | ) | (704,800 | ) |
| Net cash provided by operating activities                                          |       | 28,025,800                       |       | 3,317,800 |   | 4,255,000 |   |
|                                                                               |       |                             |       |   |   |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                             |       |                             |       |   |   |   |   |
| Acquisition of property and equipment                                              |       | (4,251,400                       | )          | (2,908,400 | ) | (4,380,800 | ) |
| Acquisition of business in purchase transaction                                    |       | (4,433,300                       | )          | — |   | — |   |
| Net cash used in investing activities                                              |       | (8,684,700                       | )          | (2,908,400 | ) | (4,380,800 | ) |
|                                                                               |       |                             |       |   |   |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                             |       |                             |       |   |   |   |   |
| Payments on long-term debt                                                         |       | (442,500                         | )          | (361,400 | ) | (273,400 | ) |
| Net proceeds from issuance of stock                                                |       | 438,300                          |       | 424,800 |   | 421,800 |   |
| Purchase of treasury stock                                                         |       | (17,695,100                      | )          | (2,066,700 | ) | (2,907,400 | ) |
| Excess tax benefit from stock-based compensation                                   |       | 247,600                          |       | — |   | — |   |
| Net cash used in financing activities                                              |       | (17,451,700                      | )          | (2,003,300 | ) | (2,759,000 | ) |
| Net increase (decrease) in cash and cash equivalents                               |       | 1,889,400                        |       | (1,593,900 | ) | (2,884,800 | ) |
| CASH AND CASH EQUIVALENTS, beginning of period                                     |       | 2,286,900                        |       | 3,880,800 |   | 6,765,600 |   |
|                                                                               |       |                             |       |   |   |   |   |
| CASH AND CASH  EQUIVALENTS, end of period                                          |       | $                                | 4,176,300  |   | $ | 2,286,900 |   | $ | 3,880,800 |   |

 

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

 

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**Notes to Consolidated Financial Statements**

**Note 1. Organization**

TESSCO Technologies Incorporated, a Delawarecorporation (TESSCO or the Company), 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. The Company provides marketing and salesservices, knowledge and supply chain management, product-solutiondelivery and control systems utilizing extensive Internet andinformation technology.  Approximately97% of the Company’s sales are made to customers in the United States.  The Company takes orders in several ways,including phone, fax, online and through electronic data interchange.

**Note 2. Summary of Significant AccountingPolicies**

***Principles of Consolidation***

The Consolidated Financial Statements include theaccounts of the Company and its wholly-owned subsidiaries. Significantintercompany accounts and transactions have been eliminated in consolidation.

***Fiscal Year***

The Company’s fiscal year is the 52 or 53 weeks endingon the Sunday falling on or between March 26 and April 1 to allow thefinancial year to better reflect the Company’s natural weekly accounting andbusiness cycle.  The fiscal year endedApril 1, 2007 contained 53 weeks, while fiscal years ended March 26, 2006 andMarch 27, 2005 contained 52 weeks.

***Cash and Cash Equivalents***

Cash and cash equivalents include cash and highlyliquid investments with an original maturity of 90 days or less.

***Allowance forDoubtful Accounts***

TheCompany uses estimates to determine the amount of the allowance for doubtfulaccounts necessary to reduce accounts receivable and unbilled receivables totheir expected net realizable value. The Company estimates the amount of therequired allowance by reviewing the status of past-due receivables andanalyzing historical bad debt trends. Actual collection experience has notvaried significantly from estimates, due primarily to credit policies,collection experience and the Company’s stability as it relates to its currentcustomer base.  Typical payments from alarge majority of our commercial customers are due 30 days from the date of theinvoice.  Sales made to consumers areprimarily made through credit card transactions.  The Company charges-off receivables deemed tobe uncollectible to the allowance for doubtful accounts. Accounts receivablebalances are not collateralized.

***Product Inventory***

Product inventory is stated at the lower of cost or market,and as a result, write-offs/write-downs occur due to damage, deterioration,obsolescence, changes in prices and other causes. Cost is determined using thefirst-in, first-out (FIFO) method and includes certain charges directly andindirectly incurred in bringing product inventories to the point of sale. Atfiscal year end 2007 and 2006, the Company has recorded a reserve for excessand obsolete inventory of $2,984,100 and $3,301,300 respectively.

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***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 initially implemented during fiscal year 2005, isa major automated materials-handling system that is integrated with the Company’sproduct planning and procurement system. The Company believes this CFD system has an estimated useful life thatis longer than its other software assets, and thus, is depreciating the systemover a seven-year life.

The Company capitalizes computer software costs thatmeet both the definition of internal-use software and defined criteria forcapitalization in accordance with American Institute of Certified PublicAccountants Statement of Position No. 98-1, “Accounting for the Cost ofComputer Software Developed or Obtained for Internal Use.”

Leasehold improvements are amortized over the shorterof their useful lives or the remaining lease term.

***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. TheCompany performs its annual impairment test on the first day of its fourthquarter.  Intangible assets that are notconsidered to have an indefinite useful life are amortized over their usefullife of 4 to 6 years using the straight-line method.  Intangible assets other than goodwill arerecorded within other long term assets in the Company’s consolidated balancesheets.  The carrying amount ofindefinite lived assets are also reviewed whenever events or changes incircumstances indicate that the carrying value of an asset may not berecoverable. The goodwill impairment test involves a two-step approach. Underthe first step, the Company determines the fair value of each reporting unit towhich goodwill has been assigned. The Company then compares the fair value ofeach reporting unit to its carrying value, including goodwill. The Companyestimates the fair value of each reporting unit by estimating the present valueof the reporting unit’s future cash flows. If the fair value exceeds thecarrying value, no impairment loss is recognized. If the carrying value exceedsthe fair value, the goodwill of the reporting unit is considered potentiallyimpaired and the second step is completed in order to measure the impairmentloss. 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 thefair value of the reporting unit as determined in the first step. The Companythen compares the implied fair value of goodwill to the carrying value ofgoodwill. If the implied fair value of goodwill is less than the carrying valueof goodwill, the Company recognizes an impairment loss equal to the difference.

The indefinite lived intangible asset impairment testrequires the determination of the fair value of the intangible asset. If thefair value of the intangible asset is less than its carrying value, animpairment loss is recognized for an amount equal to the difference. Theintangible asset is then carried at its new fair value. Fair value isdetermined using estimates of discounted cash flows. These estimates ofdiscounted cash flows will likely change over time as impairment tests are performed.Estimates of fair value are also adversely affected by increases in interestrates and the applicable discount rate.

***Revenue Recognition***

The Companyrecords revenue when 1) persuasive evidence of an arrangement exists, 2)delivery has occurred or services have been rendered, 3) price to the buyer isfixed and determinable, and 4) collectibility is reasonably assured. TheCompany’s revenue recognition policy includes evidence of arrangements forsignificant revenue transactions through either receipt of a customer purchaseorder or a web-based order.  The Companyrecords revenue when risk of loss has passed to the customer.  In most cases, shipments are made using FOBshipping terms.  FOB destination termsare used for a small portion of sales, and revenue is recorded when the productis received by the customer.  Prices arealways fixed at the time of sale. Historically, there have not been any material concessions provided toor by customers, future discounts, or other incentives subsequent to a sale.**** The Company sells under normalcommercial terms and, therefore, only records sales on transactions wherecollectibilty is reasonably assured.

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Because theCompany’s sales transactions meet the conditions set forth in Statement ofFinancial Accounting Standard (SFAS) No. 48, “Revenue Recognition When Right ofReturn Exists,” it recognizes revenues from sales transactions containing salesreturns provisions at the time of the sale. These conditions require that 1) the price be substantially fixed anddeterminable at the date of sale, 2) the buyer is obligated to pay, and is notcontingent on their resale of the product, 3) the buyer’s obligation to theCompany does not change in the event of theft or physical destruction or damageof the product, 4) the buyer has economic substance apart from the Company, 5)the Company does not have significant obligations for future performance todirectly bring about resale of the product by the buyer, and 6) the amount offuture returns can be reasonably estimated. Because the Company’s normal terms and conditions of sale are consistentwith conditions 1-5 above, and the Company is able to perform condition 6, itmakes a reasonable estimate of product returns in sales transactions andaccrues a sales return reserve based on this estimate.

Certain companieshave turned to TESSCO 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, the Company assumesvarying levels of involvement in the transactions and varying levels of creditand inventory risk.  As the Company’s solutions offerings continually evolveto meet the needs of its customers, the Company constantly evaluates itsrevenue accounting based on the guidance set forth in accounting standardsgenerally accepted in the United States.  When applying this guidance inaccordance with Emerging Issues Task Force (EITF) No. 99-19, “Reporting RevenueGross as a Principal versus Net as an Agent,” the Company looks at thefollowing indicators: whether it is the primary obligor in the transaction;whether it has general inventory risk; whether it has latitude in establishingprice; the extent to which it changes the product or performs part of theservice; whether it has responsibility for supplier selection; whether it isinvolved in the determination of product and service specifications; whether ithas physical inventory risk; whether it has credit risk; and whether the amountit earns is fixed.  Each of the Company’s customer relationships isindependently evaluated based on the above guidance and revenue is recorded onthe appropriate basis.  Based on a reviewof the factors above, in the majority of the Company’s sales relationships, ithas concluded that it is the principal in the transaction and records revenuebased upon the gross amounts earned and booked. However, the Company has several smaller relationships where it is notthe principal and records revenue on a net fee basis, regardless of amountsbilled (less than 5% of total revenue). If applying this revenue recognition guidance resulted in recording revenueon a different basis from which the Company has previously concluded, or if thefactors above change significantly, revenues could increase or decrease;however, gross profit and net income would remain constant.

Other thansubscriber accessory sales relating to the Company’s private brand, WirelessSolutions®, TESSCO offers no product warranties inexcess of original equipment manufacturers’ warranties. The Company’s warrantyexpense is estimated and accrued at the time of sale.  Warranty expense was immaterial for thefiscal years 2007, 2006 and 2005.

***Vendor Programs***

Funds received from vendors for price protection,product rebates and marketing/promotion are recorded to revenue, cost of goodssold or selling, general and administrative expenses in the ConsolidatedStatements of Income depending on the nature of the program.  The Company accrues rebates or vendorincentives as earned based on sales of qualifying products or as services areprovided in accordance with the terms of the related program.

***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.

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***Shipping and Handling Costs***

Shipping andhandling costs are included in selling, general and administrative expenses inthe Consolidated Statements of Income and totaled $17,392,600, $20,916,500, and$20,445,600 for the fiscal years ended April 1, 2007, March 26, 2006, and March27, 2005, respectively.

***AdvertisingCosts***

The Company expenses the production costs of advertising the first timethe advertising takes place, except for the cost of direct-responseadvertising, primarily catalog production costs, which are capitalized andamortized over their expected period of future benefits (i.e., the life of thecatalog). Direct catalog production costs included in prepaid and other assetstotaled $798,700 at April 1, 2007 and $189,600 at March 26, 2006. Totaladvertising and marketing expense was $2,046,400, $838,400 and $820,000 forfiscal years 2007, 2006 and 2005, respectively.

***StockCompensation Awards Granted to Team Members***

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

SFAS No. 123R requires the Company to include in its calculation ofperiodic stock compensation expense an estimate of future forfeitures.  Prior to fiscal year 2007, in accordance withSFAS No. 123, the Company only included forfeitures in its calculation of stockcompensation expense 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. 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 Companyaccounts for income taxes under the provisions of SFAS No. 109, “Accounting forIncome Taxes.”  Under the asset andliability method of SFAS No. 109, deferred income tax assets and liabilitiesarise from differences between the tax basis of assets or liabilities and theirreported amounts in the financial statements. Deferred tax balances are determined by using the tax rate expected tobe in effect when the taxes are paid or refunds received.

***Useof 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 ofRecently Issued Accounting 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 

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require (or permit) assets or liabilities to be measured at fair value.The standard does not expand the use of fair value in any newcircumstances.  The Company will adoptSFAS No. 157 effective as of April 2, 2007. The Company does not believe that the new standard will have a materialimpact on its financial statements.

InSeptember 2006, the SEC issued Staff Accounting Bulletin No. 108 “Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatements inCurrent Year Financial Statements” (SAB 108), to address diversity in practicein quantifying financial statement misstatements and the potential for the buildup of improper amounts on the balance sheet. SAB 108 identifies the approachthat registrants should take when evaluating the effects of unadjustedmisstatements on each financial statement, the circumstances under whichcorrections of misstatements should result in a revision to financialstatements and disclosures related to the correction of misstatements. SAB 108is effective for financial statements for an interim period of the first fiscalyear ending after November 16, 2006. The adoption of SAB 108 duringthe third quarter of the Company’s 2007 fiscal year did not havean effect on its consolidated financial statements.

In June 2006, the Financial AccountingStandards Board (FASB) issued Interpretation No. 48 (FIN 48), “Accounting forUncertainty in Income Taxes — An Interpretation of FASB Statement No. 109,”which clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial 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 derecognition, measurement, classification, interest and penalties,accounting in interim periods, disclosure and transition.  The Company will adopt FIN 48 effective as ofApril 2, 2007.  The Company does notbelieve that the adoption of FIN 48 will have a material impact on theconsolidated financial statements.

In February 2007,the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities — Including an Amendment of FASB Statement No. 115.”  SFAS No. 159 permits an entity to measuremany financial instruments and certain other items at fair value that are notcurrently required to be measured at fair value. Entities that elect the fairvalue option will report unrealized gains and losses in earnings at eachsubsequent reporting date. The Company will adopt SFAS No. 159 effective as ofApril 2, 2007.  The Company is currentlyassessing the potential impact of the standard and does not believe that itwill have a material impact on its financial statements.

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

On November 29,2006, the Company issued a stock dividend in order to effect a three-for-twostock split of the Company’scommon stock.  All share and earnings pershare numbers prior to the November 29, 2006 stock split (including withoutlimitation all share and share-related numbers included in Notes 11, 14 and 15below) have been retroactively restated to reflect the stock dividend for allperiods presented.  The number ofauthorized shares of common stock remains at 15 million.

**Note 4. Acquisition**

On April 21, 2006,the Company acquired substantially all the non-cash net assets of TerraWaveSolutions, Ltd. and its commonly owned affiliate, GigaWave Technologies, Ltd.for an initial cash payment of approximately $3.8 million, and additional cashearn-out payments over a four-year period, contingent on the achievement ofcertain minimum earnings thresholds ($1.5 million of the $3.8 million cashamount paid at closing is a non-refundable prepayment against future earn-outpayments, if any, amortizable over the four-year period).  To the extent that certain minimum earningsthresholds are not achieved, the Company will not be able to recover thisprepayment.  The maximum amount ofcontingent future earn-out payments (after subtracting the $1.5 millionprepayment) is $15.5 million.  Contingentpayments made under the terms of the purchase agreement are treated as anadditional cost of the acquired businesses and additional goodwill is recorded.  Additionally, acquisition related transactioncosts, primarily comprised of legal and accounting fees totaled $89,500.  This acquisition was a part of our growthstrategy to increase our product and service offering.

 

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

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

This acquisition has 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 net tangible and identifiableintangible assets was recorded as goodwill. The initial purchase price was allocated as set 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 its purchase price allocation, theCompany considered, among other factors, its intention for future use ofacquired assets, analyses of historical financial performance and estimates offuture performance of TerraWave and GigaWave. The Company’s estimate of thefair value of intangible assets was based, in part, on a valuation completed byan independent valuation specialist, and estimates and assumptions provided bymanagement. The identified intangible assets consisted of service-marks,covenants not to compete and customer contracts and relationships.  Based upon the purchase price allocation, thetrademarks are estimated to have an approximate fair value of $850,000 and anindefinite life, the customer contacts are estimated to have an approximatefair value of $490,000 and an estimated useful life of four years and thecovenants not to compete are estimated to have an approximate fair value of$290,000 and an estimated useful life of six years.  Goodwill noted above and additional goodwillresulting from earn-out payments are expected to be deductible for taxpurposes.  The primary factorscontributing to a purchase price that resulted in the recognition of goodwillincluded expansion of the WLAN product line, expansion of markets for TESSCO’sexisting products, the acquired employee force and the expansion of TESSCO’straining business.

For the period of April 21,2006 through April 1, 2007, the Company increased goodwill by $2.0 million foradditional earn-out based on achievement of certain earnings thresholds inaccordance with the terms of the purchase agreement. Of this amount, $500,000has been paid as of April 1, 2007, and $1.5 million was accrued as ofyear-end and was paid in May 2007.  Inaccordance with the acquisition agreement, these earn-out amounts are net of$375,000 (one quarter of the $1.5 million prepayment) of the non-refundableprepayment against future earn-out payments discussed above.

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**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:

|                                                                | ** ** | **2007**    | ** ** | **2006**    | ** ** |
|----------------------------------------------------------------|------------|-------------|------------|-------------|------------|
|                                                           |       |        |       |        |       |
| Land                                                           |       | $           | 4,803,200  |        | $          | 4,803,200 |   |
| Building, building  improvements and leasehold improvements    |       | 14,504,300  |       | 14,439,500  |       |
| Information technology  equipment and software                 |       | 24,037,300  |       | 22,058,500  |       |
| Furniture, telephone  system, equipment, furniture and tooling |       | 4,790,500   |       | 4,497,300   |       |
|                                                           |       | 48,135,300  |       | 45,798,500  |       |
| Less accumulated  depreciation and amortization                |       | (23,879,000 | )          | (21,178,700 | )          |
| Property and equipment,  net                                   |       | $           | 24,256,300 |        | $          | 24,619,800 |   |

 

Depreciation of property and equipment was $4,597,600,$4,438,700 and $4,132,500 for fiscal years 2007, 2006 and 2005, respectively.

Unamortized computer software as of April 1, 2007 andMarch 26, 2006 was $2,839,500 and $3,320,700, respectively.  Depreciation of unamortized computer softwarewas $1,353,700, $1,783,300 and $1,960,200 for fiscal years 2007, 2006 and 2005,respectively.

**Note 6.Other Intangible Assets**

Otherintangible assets as of April 1, 2007 and March 26, 2006 are summarized asfollows:
| ** **                      | ** ** | **2007**                    | ** ** | **2006**                      | ** ** |
|---------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| ** **                      | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
| Amortized Intangible  Assets:   |       |                        |       |                          |       |   |   |   |   |
| Customer  contracts             |       | $                           | 490,000    |                          | $          | 112,200 |   | $ | — |   | $ | — |   |
| Covenants not to  compete       |       | 290,000                     |       | 44,300                        |       | — |   | — |   |
| Other                           |       | 878,500                     |       | 878,500                       |       | 878,500 |   | 869,500 |   |
|                            |       | 1,658,500                   |       | 1,035,000                     |       | 878,500 |   | 869,500 |   |
| Unamortized Intangible  Assets: |       |                        |       |                          |       |   |   |   |   |
| Trademarks                      |       | 850,000                     |       | —                        |       | — |   | — |   |
|                            |       |                        |       |                          |       |   |   |   |   |
| Total Other Intangible Assets   |       | $                           | 2,508,500  |                          | $          | 1,035,000 |   | $ | 878,500 |   | $ | 869,500 |   |

 

Amortization expense relating to other intangibleassets was $165,500 for fiscal year 2007, and $60,000 for fiscal years 2006 and2005. At April 1, 2007, amortizable intangible assets have an average remaininglife of 3.9 years.  Other intangiblesassets primarily relate to trademarks, but also include the value of customercontacts and covenants not to complete related to our acquisition in fiscalyear 2007 (see Note 4).

**Note 7. Borrowings Under Revolving CreditFacility**

Effective September 30, 2003, the Company establisheda $30 million revolving credit facility with Wachovia Bank, N.A. and SunTrustBank.  This facility has a term expiringSeptember 2007 and is unsecured. Interest is payable

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monthly at theLIBOR rate plus an applicable margin, which ranges from 1.5% to 2.0%.  At April 1, 2007 and March 26, 2006, theCompany had no outstanding balances on its revolving credit facility.

The weighted average interest rate on borrowings underthis revolving credit facility was 7.04%, 6.00% and 4.15% for fiscal years 2007,2006 and 2005, respectively. Interest expense on this revolving credit facilityfor fiscal years 2007, 2006 and 2005 totaled $616,000, $151,500 and $10,100,respectively. Average borrowings under this revolving credit facility totaled$5,473,400, $1,689,300 and $244,200 and maximum borrowings totaled $17,968,400,$10,961,000 and $4,605,000, for fiscal years 2007, 2006 and 2005, respectively.

The terms of the credit facility requires the Companyto meet certain financial covenants and ratios and contain other limitationsincluding a restriction on dividend payments. The current facility is alsosubject to a borrowing base, based on levels of trade accounts receivable andinventory.  The Company was in compliancewith the terms of each facility, as applicable, at the end of fiscal years2007, 2006 and 2005.

On April 28, 2003, theCompany established a stock buyback program. During fiscal year 2007, the Company purchased 1,043,813 shares of itsoutstanding common stock pursuant to the stock buyback program.  Of the 1,043,813 shares repurchased duringthe fiscal year, 944,363 shares were purchased for approximately $15.7 millionin one transaction with a large former shareholder.  This transaction significantly reduced shareholders’equity, and because the purchase price was funded with borrowings under theCompany’s revolving credit facility, it also increased total liabilities. Priorto entering into this transaction, the Company discussed the proposedtransaction, the anticipated borrowings necessary to consummate the transactionand its possible impact on the Company’s financial condition, with WachoviaBank, N.A. and SunTrust Bank, the lenders under the Company’s revolving creditfacility and term loan.  As a result ofthe transaction, the Company did not meet the Maximum Total Liabilities toTangible Net Worth covenant under the terms of its revolving credit facilityand term loan at the end of the second quarter of fiscal year 2007.  The Company requested and received a waiverof the covenant from the banks for the second fiscal quarter.  At the end of the third quarter of fiscalyear 2007, the Company also did not meet the Maximum Total Liabilities toTangible Net Worth covenant; and, the Company once again requested and receiveda waiver from the banks that allowed the Company to avoid a covenant violationunder these loans for the third fiscal quarter. The Company was in compliance with the Maximum Total Liabilities toTangible Net Worth covenant, and all other bank covenants, at the end of thefourth quarter of fiscal 2007.

On May 31, 2007, the Companyreplaced this revolving line of credit facility with a new $50 millionrevolving line of credit facility with SunTrust Bank and Wachovia Bank, N.A(see Note 19).

**Note 8. Long-Term Debt**

On June 30, 2004, the Company refinanced itspreviously existing term loan with a bank. The new term loan had anoriginal principal amount of $4.5 million and is payable in monthlyinstallments of principal and interest with the balance due at maturity, June30, 2011.  The note bears interest at afloating rate of LIBOR plus 1.75%. The note is secured by a first position deedof trust encumbering the Company-owned real property in Hunt Valley,Maryland.  The loan is generally subjectto the same financial covenants as the Company’s revolving credit facility (seeNote 7), which requires the Company to meet certain financial covenants andratios and contains other limitations, including a restriction on dividendpayments.  The balance of this note atApril 1, 2007 and March 26, 2006 was $3,900,000 and $4,125,000,respectively.  Interest expense underthis note and the prior term loan was $280,600, $230,700 and $151,900 forfiscal years 2007, 2006 and 2005,respectively.

OnOctober 1, 2005, the Company entered into a receive variable/pay fixed interestrate swap on a total notional amount of $4.2 million with Wachovia Bank, N.A.to avoid the risks associated with fluctuating interest rates on the Company’sexisting term bank loan, which bears interest at a floating rate of LIBOR plus1.75%, 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 

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inception of the swap. No hedge ineffectiveness will be recognized as the interest rate swaps’provisions match the applicable provisions of the term bank loan.  This cash flow hedge qualified for hedgeaccounting using the short-cut method since the swap terms match the criticalterms of the hedged debt.  The fair valueof this interest rate swap, net of tax, at April 1, 2007 and March 26, 2006 of$21,700 and $65,400, respectively, is included in Other Long-Term Assets andAccumulated Other Comprehensive Income on the Company’s Consolidated BalanceSheet.

AtMarch 26, 2006, the Company had a note payable outstanding to Baltimore County,Maryland of $90,200.  The balance of thenote was paid during the third quarter of fiscal year 2007.  The note bore interest at 4.75% per annum.Interest expense under this note was $500, $4,300 and $5,600 for fiscal years 2007, 2006 and 2005,respectively. The note was secured by a subordinate position on Company-ownedreal property located in Hunt Valley, Maryland.

AtApril 1, 2007 and March 26, 2006, the Company had a note payable outstanding tothe Maryland Economic Development Corporation of $659,400 and $786,700,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 $22,200, $25,900 and$28,700 for fiscal years 2007, 2006 and 2005, respectively.  The note is secured by a subordinate positionon Company-owned real property located in Hunt Valley, Maryland.

As of April 1, 2007, andprior to the consideration of the lease extension discussed in the precedingparagraph, scheduled annual maturities of long-term debt are as follows:

| Fiscal year: | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------|------------|------------|------------|------------|------------|
| 2008              |       | $          | 356,200    |       |
| 2009              |       | 360,100    |       |
| 2010              |       | 364,200    |       |
| 2011              |       | 368,500    |       |
| 2012              |       | 3,110,400  |       |
| Thereafter        |       | —     |       |
|              |       | $          | 4,559,400  |       |

 

**Note 9. Commitments and Contingencies**

The Company entered into an Agreement of Lease, datedNovember 3, 2003, between the Company and Atrium Building LLC, under which theCompany leases office space where the Company’s sales, marketing andadministrative offices are located.  TheAgreement of Lease provided for a term beginning June 1, 2004 and expiring May31, 2007.  On January 23, 2007, theCompany entered into a First Amendment to Agreement of Lease, which among otherthings, provided for a six month extension, until November 30, 2007, of thelease term provided for under the Agreement of Lease. The monthly rental feeranges from $112,900 to $125,000 throughout the lease term.  As discussed in Note 19, “Subsequent Events,”the Company entered into a Second Amendment of Lease, dated May 1, 2007, whichamong other things, provides for an extension, from November 30, 2007 toDecember 31, 2012, of the lease term provided for under the Agreement ofLease.  Rent expense for fiscal years2007, 2006 and 2005 totaled $1,905,500, $1,393,800 and $1,089,900, respectively.

As discussed in Note 19, “Subsequent Events,” theCompany entered into a Lease, dated June 1, 2007, between the Company andMERRITT/BAVAR-VA, LLC, a Maryland limited liability company, under which theCompany leases approximately 66,000 square feet of office and warehouse spacein Hunt Valley, Maryland, for a term beginning July 1, 2007 and expiring July31, 2011.  The monthly rental fee rangesfrom $35,700 to 38,500 throughout the lease term.

48

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Excluding the lease events occurring after April 1,2007 as discussed above, the Company’s minimum future obligations as of April1, 2007 under existing operating leases are as follows:

| Fiscal year: | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------|------------|------------|------------|------------|------------|
| 2008              |       | $          | 1,426,200  |       |
| 2009              |       | 347,300    |       |
| 2010              |       | 137,400    |       |
| 2011              |       | 900        |       |
| 2012              |       | —     |       |
| Thereafter        |       | —     |       |
|              |       | $          | 1,911,800  |       |

 

Lawsuits and claims are filed against the Company fromtime to time in the ordinary course of business.  The Company does not believe that anylawsuits 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.

**Note 10. Business Segments**

The Company evaluates revenue, gross profit andinventory in three business segments: (1) Network infrastructure products, which are used to build, repair andupgrade wireless telecommunications, computing and Internet networks, andgenerally complement radio frequency transmitting and switching equipmentprovided directly by original equipment manufacturers (OEMs); (2) Mobiledevices and accessory products, which include cellular telephones and otherdata devices, pagers and two-way radios and related accessories such asreplacement batteries, cases, speakers, mobile amplifiers, power supplies,headsets, mounts, car antennas and various wireless data devices; and (3)Installation, test and maintenance products, which are used to install, tune,maintain and repair wireless communications equipment.  Within the mobile devices and accessoriesline of business, the Company sells to both commercial and consumer markets.  The network infrastructure and installation,test and maintenance lines of business sell primarily to commercialmarkets.  The Company also regularlyreviews its commercial results of operations in two customer categories.  These two customer categories and theconsumer customer category, for which results of operations are also separatelyreviewed, are described further below:

·                  Commercial Public Carriers and NetworkOperators. Public carriers and network operators include systems operators thatare generally responsible for building and maintaining the infrastructuresystem and provide airtime service to individual subscribers.

·                  Commercial Self-Maintained Users,Governments and Resellers. Self-maintained user (SMU) and government customers include commercialentities such as major utilities and transportation companies, federal agenciesand state and local governments, including public safety organizations.Resellers include dealers and resellers that sell, install and service cellulartelephone, paging and two-way radio communications equipment primarily for theconsumer and small business markets. These resellers include local and national proprietorships andretailers, as well as sales and installation centers operated by cellular andpaging carriers.

·                  Consumers. Consumers include customersthat buy through any of our affinity partner relationships or directly from ourconsumer website, YourWirelessSource.comTM.

The Company measures segment performance based onsegment gross profit.  The segmentoperations develop their product offering, pricing and strategies, which arecollaborative with one another and the centralized sales and marketingfunction.  Therefore, the Company doesnot segregate assets, other than inventory, for internal reporting, evaluatingperformance or allocating capital.  Inaddition, the Company has allocated all goodwill and indefinite livedintangible assets to the infrastructure segment for purposes of its annualimpairment tests.  Product deliveryrevenue and certain cost of sales expenses have been allocated to each segmentbased on a percentage of revenues and/or gross profit, as applicable.

49

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Segmentactivity for the fiscal years 2007, 2006 and 2005 is as follows:
| **(in thousands)**                | ** ** | **Network  Infrastructure** | ** ** | **Mobile Devices  and Accessories** | ** ** | **Installation, Test  and Maintenance** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|-----------------------------|------------|-----------------------------------------------|------------|---------------------------------------------------|------------|-----------|------------|
| **Year ended April 1, 2007**           |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial Revenues:                   |       |                        |       |                                          |       |                                              |       |      |       |
| Public Carriers  and Network Operators |       | $                           | 49,701     |                                          | $          | 2,641                                             |       | $         | 14,293     |   | $ | 66,635 |   |
| SMUs,  Governments and Resellers       |       | 115,501                     |       | 219,937                                       |       | 82,742                                            |       | 418,180   |       |
| 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 |   |
| SMUs,  Governments and Resellers       |       | 28,213                      |       | 49,351                                        |       | 24,570                                            |       | 102,134   |       |
| 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 |   |
|                                   |       |                        |       |                                          |       |                                              |       |      |       |
| **Year ended March 26, 2006**          |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial Revenues:                   |       |                        |       |                                          |       |                                              |       |      |       |
| Public Carriers  and Network Operators |       | $                           | 53,049     |                                          | $          | 2,894                                             |       | $         | 16,997     |   | $ | 72,940 |   |
| SMUs,  Governments and Resellers       |       | 95,819                      |       | 113,690                                       |       | 57,585                                            |       | 267,094   |       |
| 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 |   |
| SMUs,  Governments and Resellers       |       | 22,141                      |       | 27,421                                        |       | 18,749                                            |       | 68,311    |       |
| 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 |   |
|                                   |       |                        |       |                                          |       |                                              |       |      |       |
| **Year ended March 27, 2005**          |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial Revenues:                   |       |                        |       |                                          |       |                                              |       |      |       |
| Public Carriers  and Network Operators |       | $                           | 56,620     |                                          | $          | 3,068                                             |       | $         | 19,905     |   | $ | 79,593 |   |
| SMUs,  Governments and Resellers       |       | 74,277                      |       | 72,347                                        |       | 43,280                                            |       | 189,904   |       |
| Total Commercial  Revenue              |       | 130,897                     |       | 75,415                                        |       | 63,185                                            |       | 269,497   |       |
| Consumer Revenues                      |       | —                      |       | 243,530                                       |       | —                                            |       | 243,530   |       |
| Total Revenue                          |       | $                           | 130,897    |                                          | $          | 318,945                                           |       | $         | 63,185     |   | $ | 513,027 |   |
|                                   |       |                        |       |                                          |       |                                              |       |      |       |
| Commercial Gross  Profit:              |       |                        |       |                                          |       |                                              |       |      |       |
| Public Carriers  and Network Operators |       | $                           | 13,248     |                                          | $          | 851                                               |       | $         | 4,548      |   | $ | 18,647 |   |
| SMUs,  Governments and Resellers       |       | 17,798                      |       | 19,572                                        |       | 11,802                                            |       | 49,172    |       |
| Total Commercial Gross  Profit         |       | 31,046                      |       | 20,423                                        |       | 16,350                                            |       | 67,819    |       |
| Consumer Gross Profit                  |       | —                      |       | 27,028                                        |       | —                                            |       | 27,028    |       |
| Total Gross Profit                     |       | $                           | 31,046     |                                          | $          | 47,451                                            |       | $         | 16,350     |   | $ | 94,847 |   |
|                                   |       |                        |       |                                          |       |                                              |       |      |       |
| Product Inventory                      |       | $                           | 22,016     |                                          | $          | 32,184                                            |       | $         | 7,659      |   | $ | 61,859 |   |

 

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**Note 11. Stock Buyback**

On April 28, 2003, the Company’s Board of Directorsapproved a stock buyback program, authorizing the purchase of up to 675,000shares of its outstanding common stock. On October 20, 2005, the Board ofDirectors amended the program, authorizing the purchase of an additional675,000 shares.  On July 17, 2006, theBoard of Directors amended the program and authorized the purchase of anadditional 600,000 shares of outstanding common stock, and as of that date,1,950,000 shares have been authorized for repurchase.  Shares may be purchased from time to time inthe open market, by block purchase, or through negotiated transactions, orpossibly other transactions managed by broker-dealers.  No time limit has been set for completion ofthe program.  As of April 1, 2007, theCompany had purchased 1,794,867 shares for approximately $23.4 million, or anaverage of $13.05 per share.  Of thetotal shares repurchased, 1,043,813 shares were repurchased in fiscal year 2007at an average price of $16.95 per share, 200,700 shares were repurchased infiscal year 2006 at an average price of $10.30 per share, 381,005 shares wererepurchased in fiscal year 2005 at an average price of $7.63 per share and169,349 shares were repurchased in fiscal year 2004 at an average price of $4.45per share.

**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:
| ** **                           | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                 |       |     |       |     |       |     |       |
| Statutory  federal rate              |       | 34.0     | %          | 34.0     | %          | 34.0     | %          |
| State taxes, net  of federal benefit |       | 2.4      |       | 2.4      |       | 2.3      |       |
| Non-deductible  expenses             |       | 0.7      |       | 1.5      |       | 1.5      |       |
| Other                                |       | 0.7      |       | 1.1      |       | 1.1      |       |
| Effective rate                       |       | 37.8     | %          | 39.0     | %          | 38.9     | %          |

 

The provision for income taxes was comprised of thefollowing:
| ** **                             | ** ** | **2007**   | ** ** | **2006** | ** ** | **2005**  | ** ** |
|----------------------------------------|------------|------------|------------|----------|------------|-----------|------------|
|                                   |       |       |       |     |       |      |       |
| Federal: Current                       |       | $          | 4,907,200  |     | $          | 3,858,700 |       | $ | 3,451,000 |   |
| Deferred                               |       | (1,065,400 | )          | (939,000 | )          | 362,200   |       |
| State:     Current |       | 522,900    |       | 421,600  |       | 102,500   |       |
| Deferred                               |       | (83,600    | )          | (70,800  | )          | (49,700   | )          |
| Provision for  income taxes            |       | $          | 4,281,100  |     | $          | 3,270,500 |       | $ | 3,866,000 |   |

 

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Total deferred tax assets and deferred tax liabilitiesas of April 1, 2007 and March 26, 2006, and the sources of the differencesbetween financial accounting and tax basis of the Company’s assets andliabilities which give rise to the deferred tax assets and liabilities are asfollows:
| ** **                     | ** ** | **2007** | ** ** | **2006**  | ** ** |
|--------------------------------|------------|----------|------------|-----------|------------|
| Deferred tax assets:           |       |     |       |      |       |
| Accrued expenses  and reserves |       | $        | 2,823,500  |      | $          | 2,126,400 |   |
| Stock based  compensation      |       | 636,600  |       | 222,000   |       |
| Other assets                   |       | —   |       | 47,600    |       |
|                           |       | $        | 3,460,100  |      | $          | 2,396,000 |   |
| Deferred tax liabilities:      |       |     |       |      |       |
| Depreciation                   |       | $        | 2,114,600  |      | $          | 1,734,800 |   |
| Other assets                   |       | 585,800  |       | 1,050,500 |       |
|                           |       | $        | 2,700,400  |      | $          | 2,785,300 |   |

 

**Note 13. Retirement Plans**

The Company has a 401(k) plan that covers all eligibleemployees.  Contributions to the plan canbe made by employees, and the Company may make matching contributions at itsdiscretion.  Expense related to thismatching contribution was $165,600, $129,000 and $235,900 during fiscal years2007, 2006 and 2005, respectively. As of April 1, 2007 plan assets included61,545 shares of common stock of the Company.

The Company maintains a nonqualified deferredcompensation plan that covers directors and certain management personnel asdetermined by the Board of Directors’ appointed Benefit Plans Committee.  Effective January 1, 2005, the plan wasclosed to all new contributions and balances in the old plan now continue toexist under the prior plan structure. 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 a Supplemental ExecutiveRetirement Plan for Robert B. Barnhill, Jr., chairman, president and CEO of theCompany.  This plan is funded through alife insurance policy for which the Company is the sole beneficiary.  The cash surrender value of the lifeinsurance policy and the net present value of the benefit obligation areincluded 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 of all options and PerformanceStock Units outstanding has been determined by using the treasury stock method.The weighted average shares outstanding is calculated as follows:
| ** **                                               | ** ** | **2007**  | ** ** | **2006**  | ** ** | **2005**  | ** ** |
|----------------------------------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
|                                                     |       |      |       |      |       |      |       |
| Basic weighted  average shares outstanding               |       | 5,753,900 |       | 6,296,700 |       | 6,462,000 |       |
| Effect of dilutive common stock equivalents  outstanding |       | 262,100   |       | 114,800   |       | 98,900    |       |
| Diluted weighted average  shares outstanding             |       | 6,016,000 |       | 6,411,500 |       | 6,560,900 |       |

 

As of April 1, 2007, stock options with respect to185,000 shares of common stock were outstanding.  All outstanding options and earned but notyet vested PSUs were included in the computation of diluted earnings per sharebecause all such instruments were dilutive.

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**Note 15. Stock-Based Compensation**

Effective March 27, 2006, the Company adoptedStatement of Financial Accounting Standards (SFAS) No. 123R, “Share-BasedPayment,” using the modified prospective application transition method.  Because the fair value recognition provisionsof SFAS No. 123, “Accounting for Stock-Based Compensation,” which the Companyhad previously adopted effective March 29, 2004, and SFAS No. 123R aregenerally consistent with respect to the Company’s share-based payments (otherthan as described below), the adoption of SFAS No. 123R did not have a materialimpact on the Company’s financial position, results of operations or cashflows.

SFAS No. 123R requires the Company to include in itscalculation of periodic stock compensation expense an estimate of futureforfeitures.  Prior to fiscal year 2007,in accordance with SFAS No. 123, the Company only included forfeitures in itscalculation of stock compensation expense when the awards were actuallyforfeited.  The inclusion of estimated inlieu of actual forfeitures did not have a material impact on the Company’sfinancial position or results of operations for the fiscal year ended April 1,2007.  Prior to the adoption of SFAS No.123R, benefits of tax deductions in excess of recognized compensation costswere reported as operating cash flows. SFAS No. 123R requires excess taxbenefits be reported as a financing cash flow.

The Company’s selling, general and administrativeexpenses for the fiscal years ended April 1, 2007, March 26, 2006 andMarch 27, 2005 include $2,055,300, $702,300 and $886,900, respectively, ofstock compensation expense.  Provisionfor income taxes for the fiscal years ended April 1, 2007 and March 26, 2006includes $776,900, $273,900 and $345,000, respectively, of income tax benefitsrelated to our stock-based compensation arrangements.  Stock compensation expense is primarilyrelated to our Performance Share Unit Program as described below.

The Company’s stock incentive plan is the Amended andRestated 1994 Stock and Incentive Plan (the 1994 Plan). The 1994 Plan allowsfor the grant of awards in respect of an aggregate of 1,758,750 shares of theCompany’s common stock. As of April 1, 2007, 125,278 shares were available forissue in respect of awards available for future grant under the 1994 Plan.  However, on May 1, 2007, based on fiscal year2007 results, 449,696 shares related to PSUs were cancelled, and as a result,those shares were made available for future grants.  Accordingly, on May 1, 2007, PSUs covering anaggregate of 574,974 shares were available for issue pursuant to future awardsunder the 1994 Plan.  The 1994 Planallows for the grant of incentive stock options, nonqualified stock options,stock appreciation rights, restricted stock and restricted stock units andother performance awards.  No additionalawards can 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 or other awards under thePlan, and which are not earned, are returned to the 1994 Plan and becomeavailable for future issuance.

**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, individual performancetargets are met over a defined performance cycle. Performance cycles, which arefixed for each grant at the date of grant, range from one to three years.  Once earned, shares vest and are issued overa specified period of time determined at the time of the grant, provided thatthe participant remains employed by or associated with the Company at the timeof share issuance.  Earnings per sharetargets, which take into account the earnings impact of this program, are setby the Board of Directors in advance for the complete performance cycle atlevels designed to grow shareowner value, and for those PSUs which are basedupon multiple year performance cycles, typically represent continual increasesin earnings per share.  If actualperformance does not reach the minimum annual or cumulative threshold targets,no shares are issued. Under SFAS No. 123R, the Company records compensationexpense on its PSUs over the service period, based on the number of sharesmanagement estimates will ultimately be issued. Accordingly, the Company determines the periodic financial statementcompensation expense based upon the stock price at the PSU grant

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date, management’sprojections of future EPS performance over the performance cycle, and theresulting amount of estimated share issuances, net of estimatedforfeitures.  Future changes in factorsimpacting the ultimate number of shares granted could cause these estimates tochange significantly in future periods. The Company estimated the forfeiture rate primarily based on historicalexperience and expectations of future forfeitures. The Company’s calculatedestimated forfeiture rate was approximately 2%.

The following tablesummarizes the activity under the Company’s PSU program for fiscal years 2007,2006 and 2005:
| ** **                                   | ** ** | **2007**   | ** ** | **2006**                                               | ** ** | **2005**   | ** ** |
|----------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|------------|------------|
| ** **                                   | ** ** | **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 |       | 1,067,742  |       | $                                                      | 9.07       |       | 935,626    |   | $ | 9.16 |   | — |   | — |   |
| Granted                                      |       | 228,000    |       | 13.04                                                  |       | 248,195    |       | 8.79 |   | 935,626 |   | $ | 9.16 |   |
| Vested                                       |       | 79,313     |       | 9.05                                                   |       | 51,579     |       | 9.18 |   | — |   | — |   |
| Forfeited/canceled                           |       | 346,257    |       | 8.99                                                   |       | 64,500     |       | 9.19 |   | — |   | — |   |
| Outstanding, non-vested  end of period       |       | 870,172    |       | $                                                      | 10.15      |       | 1,067,742  |   | $ | 9.07 |   | 935,626 |   | $ | 9.16 |   |

 

Of the 870,172 sharesoutstanding, but not yet vested at the end of fiscal year 2007, 280,425 shareswere earned and 449,696 shares have been cancelled on May 1, 2007 based onfiscal year 2007 activity (or cumulative performance for the period of fiscalyears 2005 through fiscal 2007).  Theshares were cancelled because cumulative and/or annual earnings per shareperformance of the Company did not reach the high end performance targets setforth in the PSU grants.  An additional140,051 shares were earned based on prior years performance and have not yetvested as of April 1, 2007.  Accordingly,based on performance through fiscal year 2007, 420,474 shares have been earned,but are not yet vested.  Assuming therespective participants remain employed by or affiliated with the Company onthese dates, these shares will vest on or about May 1, of 2007, 2008, 2009 and2010 as follows:

|        | ** ** | **Number of Shares** | ** ** |
|--------|------------|--------------------------------|------------|
| 2007   |       | 158,761                        |       |
| 2008   |       | 153,984                        |       |
| 2009   |       |   53,866             |       |
| 2010   |       |   53,863             |       |
|   |       | 420,474                        |       |

 

OnJune 6, 2007, the Compensation Committee, with the concurrence of the fullBoard of Directors, granted additional PSUs to selected key individuals,providing them with the opportunity to earn up to 173,000 additional shares ofthe Company’s common stock in the aggregate, depending upon whether certainthreshold or goal earnings per share targets are met and individual performancemetrics are satisfied in fiscal year 2008. These PSUs have only one measurementyear (fiscal year 2008), with any shares earned at the end of fiscal year 2008to vest 25% on or about each of May 1 of 2008, 2009, 2010 and 2011, providedthat the participant remains employed by or associated with the Company on eachsuch date.

As of April 1,2007, there was approximately $2.9 million of total unrecognized compensationcosts related to PSUs. These costs are expected to be recognized over aweighted average period of 2.4 years.

**Stock Options**:  For the fiscal year ended April 1, 2007,options for 11,250 shares were forfeited at an average exercise price of$17.44.  For the fiscal year ended March26, 2006, options for 109,613 shares were forfeited at an average exerciseprice of $10.65.  In accordance with SFASNo. 123R, the fair value of the Company’s stock options have been determinedusing the Black-Scholes-Merton option pricing model, based upon facts andassumptions existing at the date of 

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grant.Stock options granted have exercise prices equal to the market price of theCompany’s common stock on the grant date.

The value of each optionat the date of grant is amortized as compensation expense over the optionservice period.  This occurs withoutregard to subsequent changes in stock price, volatility or interest rates overtime, provided that the option remains outstanding.  The following table summarizes the pertinentoption information for outstanding options:
| ** **                      | ** ** | **Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted Average  Remaining  Contractual Life** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|---------------------------------|------------|------------|------------|------------------------------------------------|------------|-------------------------------------------------------------|------------|-------------------------------------|------------|
| Outstanding,  beginning of year |       | 240,000    |       | $                                              | 8.34       |                                                        |       |                                |       |   |
| Granted                         |       | —     |       | —                                         |       |                                                        |       |                                |       |
| Exercised                       |       | (43,750    | )          | 7.13                                           |       |                                                        |       |                                |       |
| Cancelled                       |       | (11,250    | )          | 17.44                                          |       |                                                        |       |                                |       |
| Outstanding, end  of year       |       | 185,000    |       | $                                              | 8.07       |                                                        | 3.66       |                                | $          | 3,537,700 |   |
| Exercisable, end of  year       |       | 179,000    |       | $                                              | 8.19       |                                                        | 3.71       |                                | $          | 3,400,800 |   |

 

Theaggregate intrinsic value in the table above represents the total pre-taxintrinsic value (the difference between the closing stock price on the lasttrading day of fiscal year 2007 and the exercise price, multiplied by thenumber of in-the-money options) that would have been received by the optionholders had all option holders exercised their options on April 1, 2007.  This amount changes based on the fair marketvalue of the Company’s common stock.

Therewere no options granted during fiscal years 2007, 2006 and 2005.  The total intrinsic value of optionsexercised during fiscal years 2007, 2006 and 2005 was $676,500, $138,900 and$86,600.

As of April 1, 2007, there was $35,300 of totalunrecognized compensation costs related to stock options. These costs areexpected to be recognized over a weighted average period of less than one year.

**Restricted Stock:**  During the second quarter of fiscal year2007, the Company granted 150,000 shares of the Company’s common stock to itsChairman and Chief Executive Officer as a restricted stock award under the 1994Plan.  These shares vest ratably over tenfiscal years, beginning on the last day of fiscal year 2007 and ending on thelast day of fiscal year 2016, subject, however, to the terms applicable to theaward, including terms providing for possible acceleration of vesting.  The weighted average fair value for theseshares at the grant date was $15.84.  Noother shares of restricted stock are currently issued as awards under the 1994Plan.  On April 1, 2007, 15,000 shares ofrestricted stock were released and vested. As of April 1, 2007, there was approximately $2.1 million of totalunrecognized compensation costs related to restricted stock.  If these shares vest ratably, theseunrecognized compensation costs are expected to be recognized over a weightedaverage period of approximately 9 years.

**Team Member 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 April 1, 2007 related to SFAS No. 123R was $18,200.  During the fiscal year ended April 1, 2007,7,901 shares were sold to employees under this plan, having a weighted averagemarket value of $9.89.

55

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

The carrying amounts of cash and cash equivalents,trade accounts receivable, product inventory, trade accounts payable, accruedexpenses and other current liabilities and the note payable to a bank, whichbears interest at variable rates, approximate their fair value as of April 1,2007 and March 26, 2006.

Fair value of long-termdebt, calculated using current interest rates and future principal payments,excluding the note payable to a bank, as of April 1, 2007 and March 26, 2006 isas follows:

|                                                                | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                           |       |     |       |     |       |
| Note payable to  Baltimore County, Maryland                    |       | $        | —     |     | $          | 88,500 |   |
| Note payable to  the Maryland Economic Development Corporation |       | 611,700  |       | 727,400  |       |
|                                                           |       | $        | 611,700    |     | $          | 815,900 |   |

 

**Note 17.Supplemental Cash Flow Information**

Cash paid for interest during fiscal years 2007, 2006and 2005 totaled $906,300, $260,600 and $178,300, respectively. Cash paid forincome taxes, net of refunds, for fiscal years 2007, 2006 and 2005 totaled$3,367,900, $3,143,100 and $3,159,600, respectively.

**Note 18.Concentration of Risk**

The Company is dependent on third-partyequipment manufacturers, distributors and dealers for all of its supply ofwireless communications equipment. For fiscal years 2007, 2006 and 2005, salesof products purchased from the Company’s top ten vendors accounted for 43%, 55%and 60% of total revenues, respectively. In fiscal year 2007, sales of product purchased from the Company’slargest vendor, Motorola, accounted for approximately 19% of totalrevenues.  Sales of product purchasedfrom the Company’s second largest vendor, Nokia Inc. accounted forapproximately 11% of our revenues in fiscal year 2007.  In fiscal years 2006 and 2005, sales ofproducts purchased from the Company’s largest vendor, T-Mobile, which consistedprimarily of handset sales, accounted for approximately 24% and 41% of totalrevenues, respectively. The Company is dependent on the ability of its vendorsto provide products on a timely basis and on favorable pricing terms. Althoughthe Company believes that alternative sources of supply are available for manyof the product types it carries, the loss of certain principal suppliers, orthe loss of one or more of certain ongoing affinity relationships, could have amaterial adverse effect on the Company.

The Company’s future results could also be negativelyimpacted by the loss of certain customers, and/or the loss of one or more ofcertain ongoing affinity relationships. For fiscal years 2007, 2006 and 2005,sales of products to the Company’s top ten customer relationships accounted for30%, 35% and 53% of total revenues, respectively.  In fiscal year 2007, sales to the Company’slargest customer relationship, AT&T Mobility, a top tier cellular carrierpurchasing phone accessories, accounted for approximately 22% of totalrevenues.  In fiscal years 2006 and 2005,sales to the Company’s largest customer relationship, T-Mobile, accounted forapproximately 26% and 44% of total revenues, respectively.  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 thelargest affinity and overall customer relationship, completed the transitionfrom the TESSCO provided e-commerce marketing and sales system to an in-houseweb solution and alternative third-party logistics provider, and thus revenuesthen ceased from this relationship.

56

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**Note 19.Subsequent Events**

On May 1, 2007, the Company entered into a SecondAmendment of Agreement of Lease, which among other things, provides for anextension, from November 30, 2007 to December 31, 2012, of the lease termprovided for under the Agreement of Lease, dated November 3, 2003, aspreviously amended January 23, 2007, between the Company and Atrium BuildingLLC, under which the Company leases approximately 94,000 square feet inTimonium, Maryland, where the Company’s corporate and administrative officesare located.  The rental rate ranges from $124,700 to $ 144,600 per monthat the close of the extended term.

On May 31, 2007, the Company replaced its $30 millionrevolving line of credit facility with a new $50 million revolving line ofcredit facility with SunTrust Bank and Wachovia Bank, N.A (see Note 7).  This new facility has a term expiring May2010.  Interest is payable monthly at theLIBOR rate plus an applicable margin, which ranges from 1.25% to 2.75%.  Like the replaced facility, borrowing availabilityunder this new facility is determined in accordance with a borrowing base.  This new facility includes financialcovenants, including a minimum tangible net worth, minimum cash flow coverageof debt service, and a maximum funded debt to EBITDA ratio.  These financial covenants now also apply tothe existing term loan secured by our Hunt Valley, Maryland facility (see Note8). The new facility also limits the Company’s ability to engage in certaintransactions or activities (but not limited to) investments and acquisitions,sales of assets, payment of dividends, issuance of additional debt and othermatters.

On June 1, 2007, the Company entered into a Leasebetween the Company and MERRITT/BAVAR-VA, LLC, a Maryland limited liabilitycompany, under whichthe Company leases approximately 66,000 square feet of office and warehousespace in Hunt Valley, Maryland, for a term beginning July 1, 2007 and expiring July31, 2011.  The monthly rental fee rangesfrom $35,700 to 38,500 throughout the lease term.

 

57

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**Report of Independent Registered Public Accounting Firm**

The Board of Directorsand Stockholders ofTESSCO Technologies Incorporated:

We have audited the accompanying consolidated balancesheets of TESSCO Technologies Incorporated and subsidiaries as of April 1, 2007and March 26, 2006, and the related consolidated statements of income, changesin shareholders’ equity, and cash flows for each of the three years in theperiod ended April 1, 2007.  Our auditsalso included the financial statement schedule listed in the Index at Item15(a).  These financial statements andschedule are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements and schedule based on our audits.

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  We were not engaged to perform an audit ofthe Company’s internal control over financial reporting.  Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation.  We believe thatour audits provide a reasonable basis for our opinion.

Inour opinion, the financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of TESSCO TechnologiesIncorporated and subsidiaries at April 1, 2007 and March 26, 2006, and theconsolidated results of their operations and their cash flows for each of thethree years in the period ended April 1, 2007, in conformity with U.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.

Asdiscussed in Note 15 of the notes to consolidated financial statements, theCompany changed the manner in which it accounts for stock-based compensationupon adoption of Statement of Financial Accounting Standards No. 123(R), “Share-BasedPayment” on March 27, 2006.

/s/ Ernst & Young, LLP

Baltimore, MarylandJune 4, 2007

----

 

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**Item 9.**                          Changesin and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

**Item 9A.**                 Controls andProcedures.

Wemaintain a system of disclosure controls and procedures that is designed toprovide reasonable assurance that information, which is required to bedisclosed by the Company in the reports that it files or submits under theSecurities and Exchange Act of 1934, as amended, is recorded, processed,summarized and reported within the time periods specified in the rules andforms of the Securities and Exchange Commission, and is accumulated andcommunicated to management in a timely manner. Our chief executive officer and chief financial officer have evaluatedthis system of disclosure controls and procedures as of the end of the periodcovered by this annual report, and have concluded that the system iseffective.  There have been no changes inour internal control over financial reporting during the most recent fiscalquarter that have materially affected, or are reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

**Item 9B.**                 OtherInformation.

None.

**Part III**

**Items10, 11, 12, 13 and 14.**

The information withrespect to the identity and business experience of executive officers of theCompany as required to be included in Item 10 to this Form 10-Kis set forth in Part I of this Form 10-K. The information otherwiserequired by Items 10 through 14 will be contained in a definitive proxystatement for our Annual Meeting of Shareholders, which we anticipate will befiled no later than 120 days after the end of our fiscal year pursuant to Regulation 14Aand accordingly these items have been omitted in accordance with GeneralInstruction G(3) to Form 10-K.

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**Part IV**

**Item 15.**                   Exhibits andFinancial Statement Schedules.

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

1.               Thefollowing consolidated financial statements are included in Item 8 of thisreport:
|    |   | Consolidated Balance Sheets as of April 1, 2007 and  March 26, 2006                                                                           |
|--------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|
|    |   | Consolidated Statements of Income for the fiscal  years ended April 1, 2007, March 26, 2006 and March 27, 2005                                |
|    |   | Consolidated Statements of Changes in Shareholders’  Equity for the fiscal years ended April 1, 2007, March 26, 2006 and March 27,  2005 |
|    |   | Consolidated Statements of Cash Flows for the fiscal  years ended April 1, 2007, March 26, 2006 and  March 27, 2005                           |
|    |   | Notes to Consolidated Financial Statements                                                                                                    |
|    |   | Report of Independent Registered Public Accounting  Firm                                                                                      |

 

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

Schedule II                            Valuationand Qualifying Accounts

Schedules not listedabove have been omitted because the information required to be set forththerein 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).                                                                                                                                                                           |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2.1   |   | Second Amended and Restated Bylaws of the Registrant  adopted February 7,  2007 (incorporated by reference to Exhibit 3.2.1 to the Company’s  Quarterly Report of Form 10-Q filed February 7, 2007).                                                                                                                                                                                                                                                                                                                                                      |
| 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 reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q  for the fiscal quarter ended September 26, 2004).                                                                                                                                                                                                                                 |

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| 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 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 thefiscal years ended:*
| ** **                          | ** ** | **2007** | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|-------------------------------------|------------|----------|------------|------------|------------|------------|------------|
| *Allowance for doubtful  accounts:* |       |     |       |       |       |       |       |
| Balance, beginning of  period       |       | $        | 853,600    |       | $          | 1,196,400  |       | $ | 1,071,600 |   |
| Provision for bad debts             |       | 999,900  |       | 742,800    |       | 1,227,000  |       |
| Write-offs and other  adjustments   |       | (943,100 | )          | (1,085,600 | )          | (1,102,200 | )          |
| Balance, end of period              |       | $        | 910,400    |       | $          | 853,600    |       | $ | 1,196,400 |   |

 
| ** **                      | ** ** | **2007**   | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|---------------------------------|------------|------------|------------|------------|------------|------------|------------|
| *Inventory Reserve:*            |       |       |       |       |       |       |       |
| Balance, beginning of  period   |       | $          | 3,301,300  |       | $          | 2,065,800  |       | $ | 2,211,700 |   |
| Inventory reserve  expense      |       | 1,928,200  |       | 2,437,300  |       | 1,553,300  |       |
| Reduction to inventory  reserve |       | (2,245,400 | )          | (1,201,800 | )          | (1,699,200 | )          |
| Balance, end of period          |       | $          | 2,984,100  |       | $          | 3,301,300  |       | $ | 2,065,800 |   |

 

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**Signatures**

Pursuant to the requirements of Section 13 or15(d) of the Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.
|        |   | TESSCO Technologies Incorporated |
|--------|--------|----------------------------------|
|   |   |                             |
|   |   | By:                              |   | /s/ Robert B. Barnhill, Jr. |
|   |   |                             |   | Robert B. Barnhill, Jr., President  June 13, 2007 |

 

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.
| /s/ Robert B. Barnhill, Jr. |   | Chairman of the Board, President and Chief Executive  Officer            | ** ** | June 13, 2007 |
|-----------------------------|--------|--------------------------------------------------------------------------|------------|---------------|
| Robert B.  Barnhill, Jr.    |   | (principal executive officer)                                            | ** ** | ** **    |
|                        |   |                                                                     | ** ** | ** **    |
| /s/ David M.  Young         |   | Senior Vice President, Chief Financial Officer, and  Corporate Secretary |       | June 13, 2007 |
| David M. Young              |   | (principal financial and accounting officer)                             |       |          |
|                        |   |                                                                     |       |          |
| /s/ John D.  Beletic        |   | Director                                                                 |       | June 13, 2007 |
| John D. Beletic             |   |                                                                     |       |          |
|                        |   |                                                                     |       |          |
| /s/ Jerome C.  Eppler       |   | Director                                                                 |       | June 13, 2007 |
| Jerome C. Eppler            |   |                                                                     |       |          |
|                        |   |                                                                     |       |          |
| /s/ Susan D.  Goodman       |   | Director                                                                 |       | June 13, 2007 |
| Susan D. Goodman            |   |                                                                     |       |          |
|                        |   |                                                                     |       |          |
| /s/ Benn R.  Konsynski      |   | Director                                                                 |       | June 13, 2007 |
| Benn R.  Konsynski          |   |                                                                     |       |          |
|                        |   |                                                                     |       |          |
| /s/ Daniel  Okrent          |   | Director                                                                 |       | June 13, 2007 |
| Daniel Okrent               |   |                                                                     |       |          |
|                        |   |                                                                     |       |          |
| /s/ Dennis J.  Shaughnessy  |   | Director                                                                 |       | June 13, 2007 |
| Dennis J.  Shaughnessy      |   |                                                                     |       |          |
|                        |   |                                                                     |       |          |
| /s/ Morton F.  Zifferer     |   | Director                                                                 |       | June 13, 2007 |
| Morton F.  Zifferer         |   |                                                                     |       |          |

 

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