**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

----

 

**FORM 10-K**

 
| **x** | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|-----------------------------------------------------------------------------------------------------|

 

**For the Fiscal Year EndedMarch 26, 2006**

 
| **o** | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|---------------------------------------------------------------------------------------------------------|

** **

**For theTransition Period from              to             **

**Commissionfile number 0-24746**

**TESSCOTechnologies Incorporated**

(Exact name ofregistrant as specified in its charter)
| **DELAWARE**                                                                                                         | ** ** | **52-0729657**       |
|----------------------------------------------------------------------------------------------------------------------|------------|----------------------|
| (State or other  jurisdiction of                                                                                     |       | (I.R.S. Employer     |
| incorporation or  organization)                                                                                      |       | Identification  No.) |
|                                                                                                                 |       |                 |
| **11126  McCormick Road, Hunt Valley, Maryland 21031**(Address, including zip code, of principal executive  offices) |

 
| Registrant’s telephone number, including area  code:              | ** ** | **(410)  229-1000**              |
|------------------------------------------------------------------------|------------|----------------------------------|
| Securities registered pursuant to  Section 12(b) of the Act: | ** ** | **None**                         |
| Securities registered pursuant to  Section 12(g) of the Act: | ** ** | **Common Stock, $.01 par value** |

 

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 to Section 13or 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 duringthe preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes x  No o

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to thebest of registrant’s knowledge, in definitive proxy or other informationstatements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. o

Indicate by checkmark if the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer (as defined in Rule 12b-2 of the Act). Largeaccelerated filer o  Accelerated filer o  Non-Accelerated Filer x

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2of 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 onthe NASDAQ Stock Market as of September 25,2005, was $42,287,719**.**

The number ofshares of the registrant’s Common Stock, $.01 par value, outstanding as of June 1, 2006, was 4,202,688.

**DOCUMENTSINCORPORATED BY REFERENCE: **Portionsof the definitive Proxy Statement to be delivered to shareholders in connectionwith the 2006 Annual Meeting of Shareholders scheduled to be held July 20,2006, are incorporated by reference into Part III.

 

----

# **TABLE OFCONTENTS**

| **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.                                         |       | Consolidated 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 and Executive Officers of the Registrant                                                                                |       |
| 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                                                                                    |       |
| Item 14.                                        |       | Principal Accountant Fees and Services                                                                                            |       |
| **PART IV**                                | ** ** | ** **                                                                                                                        | ** ** |
| Item 15.                                        |       | Exhibits and Financial Statement Schedules                                                                                        |       |
| Schedule II:                               |       | Valuation and Qualifying Accounts                                                                                                 |       |
| Signatures                                      |       |                                                                                                                              |       |

 

----

# **Part I**

## **Item1. 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 Total Source® 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 (symbol:TESS) since 1994. Today, we operate 24 hours a day, seven days a week, underISO 9001:2000 registration. Our Global Logistics Center in Hunt Valley,Maryland and Americas Sales & Logistics Center in Reno, Nevada,configure orders for complete, on-time delivery throughout the world. Oursolution offering, consisting of over 30,000 products from approximately 350manufacturers, falls within the broad business segment categories of networkinfrastructure, mobile devices and accessories, and installation, test andmaintenance products.

We currently serve approximately 11,500 commercialcustomers and 8,100 consumers per month, including a diversified mix of carrierand 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-addedresellers, affinity partners and consumers.

**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 $83,000 and grossprofit margins ranging from less than 5% to over 90%. During fiscal year 2006,we offered over 30,000 products, classified into our three business segments:network infrastructure, mobile devices and accessories and installation, testand maintenance products, which accounted for approximately 31%, 53% and 16% ofrevenues, respectively. Network infrastructure products are used to build,repair and upgrade wireless telecommunications, computing and Internetnetworks, and generally complement radio frequency transmitting and switchingequipment provided directly by original equipment manufacturers (OEMs).Products include base station antennas, cable and transmission lines, fixedbroadband equipment, filtering systems, small towers, lightning protectiondevices, connectors and miscellaneous hardware. Our network infrastructureservice offering includes connector installation, custom jumper assembly,filter product tuning, site kitting and logistics integration. Mobile devicesand accessory products include cellular telephones and other data devices, pagersand two-way radios and related accessories, such as replacement batteries,cases, speakers, mobile amplifiers, power supplies, headsets, mounts, carantennas and various wireless data devices. Retail merchandising displays,promotional programs, customized order fulfillment services andaffinity-marketing programs, such as providing outsourced call centers andprivate label Internet sites, complement our mobile devices and accessoryproduct offering. Installation, test and maintenance products are used toinstall, tune, maintain and repair wireless communications equipment. Productsinclude sophisticated analysis equipment and various frequency-, voltage- andpower-measuring devices, as well as an assortment of tools, hardware,replacement and component parts and supplies required by service technicians.  For more detailed financial informationregarding our business segments for each of the past three fiscal years, seeNote 9 to the Consolidated Financial Statements included in Item 8 to thisAnnual Report on Form 10-K for the fiscal year ended March 26,2006.

3

----

Whilewe principally provide manufacturer brand-name products, a variety of products,which are primarily subscriber accessory products and infrastructure accessorycomponents, are developed and offered under a TESSCO-owned brand, WirelessSolutionsÒ. We have incurred no significantresearch and development expenditures in each of the last three fiscal years.

Ourproducts are sold as part of our integrated product and supply chain solutions.Our supply chain services for all product areas are grouped under Knowledge,Configuration, Delivery and Control. Knowledge solutions include product choicecomparison, with comprehensive specifications organized by product, notmanufacturer, reinforced by engineering, sales and technical support staff andhands-on training programs. Configuration services are comprised of customizedproduct kitting, logistics management and consumer and retail merchandising andmarketing, allowing the products to be delivered ready for immediate use,installation or resale. Our delivery system allows the customer to select 1-,3- or 5-day “just-in-time” delivery, to specific deliverylocations, designed to eliminate the customer’s need for staging andwarehousing. We guarantee on-time, complete and error-free delivery. Ourservices that increase customer control include predetermined monthly pricinglevels, the ability to monitor multi-site purchasing with pre-approved,customized parameters indicating who is able to order how much of whichspecific products, order delivery tracking, product and usage tracking andhistory reporting and alternative financing options.

Aspart of our commitment to customer service, we typically allow customers toreturn most products for any reason, for credit, within 30 days of thedate of purchase. Total returns and credits have been less than 5% of revenuesin each of the past three fiscal years.

Asof March 26, 2006, we offered products purchased from approximately 350manufacturers. A substantial portion of our inventory purchases areconcentrated with a small number of vendors. In fiscal year 2006, products,primarily comprised of handsets, purchased directly from T-Mobile USA(T-Mobile), previously our largest vendor, and sold only to customers reachedthrough our affinity relationship with T-Mobile, generated approximately 24% ofour revenue and 5% of our gross profit. Our next nine top vendors accounted forapproximately 31% of our fiscal year 2006 revenues and 38% of our grossprofits, thus resulting in revenue and gross profit from sales of productspurchased from our top ten vendors of approximately 55% and 44% of our totalrevenues and gross profits, respectively. Although we do not maintain long-termsupply contracts with our vendors, we believe that, for other than thoseproducts purchased by us as part of our affinity relationships as describedbelow, alternative sources of supply are available for many of the producttypes we carry. The agreements and arrangements on which most of our affinityrelationships are based, are of limited duration and terminable by either partyupon several months or otherwise short notice.

Inmid-September 2005, T-Mobile, previously our largest affinity and overallcustomer relationship, completed the transition of the TESSCO providede-commerce marketing and sales system to an in-house Web solution andalternative third-party logistics provider, and thus revenues then ceased fromthis relationship.

Wesupply repair and replacement materials to authorized service centers for NokiaInc. (Nokia) in the United States, Canada and Latin America. Sales of the Nokiarepair and replacement materials, that we purchase from Nokia and sell toapproximately 800 separate and distinct service centers each month, accountedfor approximately 6% of our total revenues in fiscal year 2006. Thisrelationship is a complete supply chain relationship and, therefore, we have noalternative sources of supply, and our purchases, and ultimately our resale ofthese products, is dependent upon the continuation of the Nokia relationship. Wealso sell products other than Nokia repair and replacement materials to many ofthese customers. Absent this arrangement with Nokia, we would maintain theability to sell these other products to these customers.

Weare dedicated to superior performance and quality and consistency of service inan effort to maintain and expand these types of relationships, but there can beno assurance that we will continue to be successful in this regard in thefuture, or that competitive pressures or other events beyond our control willnot have a negative impact on our ability to maintain these relationships or tocontinue to derive revenue from these relationships.

**Customers**

Ourcustomer base consists of commercial customers and consumers, which accountedfor approximately 71% and 29%, respectively, of fiscal year 2006 revenues. Commercialcustomers share the characteristic that they are organizations that design,install, operate, repair or sell some type of wireless communications system. Ourcommercial customers are

4

----

categorized intotwo different markets:  1) publiccarriers and network operators and 2) self-maintained users (SMUs), governmentsand resellers, which accounted for approximately 21% and 79%, respectively, offiscal year 2006 commercial revenues. Public carriers and network operators aresystem operators that are generally responsible for building and maintainingthe infrastructure system and providing airtime service to individualsubscribers. SMUs, government and reseller customers include:

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

·                  Resellers include dealers and resellersthat sell, install and service cellular telephone, paging and two-way radiocommunications equipment primarily for the consumer and small business markets.These resellers include local and national proprietorships and retailers, as wellas sales and installation centers operated by cellular and paging carriers.

Consumersplace orders for wireless phones, data devices, and related accessories viatelephone and the Internet primarily through our affinity-marketing programs. Underthese programs, we collaborate with our affinity-marketing clients to market totheir customers under their brands. In most cases, we act as the merchant onbehalf of the affinity-marketing client, interfacing with the customer,accepting the order, shipping from our inventory and collecting payment. Ouraffinity-marketing programs create a high level of customer service andsupplementary income for the client through revenue share payments. In additionto our affinity programs, we maintain our own internally developed consumer Website, YourWirelessSource.comTM, whichoffers cellular phone accessories from OEMs and Wireless Solutions®, our own private brand, and other complementaryconsumer wireless products.

As discussed above,T-Mobile was previously our largest customer relationship. Under thisrelationship, we sold and delivered wireless phones and accessories toconsumers and other end-users. Sales to customers reached through the T-Mobilerelationship included sales of items purchased directly from T-Mobile (asdiscussed above under the caption “Products and Services”), primarily handsets,sales of additional phone accessories purchased from other third-party vendors,and other supply chain services billings. In mid-September 2005, T-Mobilecompleted the transition of the TESSCO provided e-commerce marketing and salessystem to an in-house Web solution and alternative third-party logisticsprovider, and thus revenues then ceased from this relationship. Sales tocustomers through the T-Mobile affinity program accounted for approximately 26%of our revenues and 12% of gross profits during fiscal year 2006. Our next ninelargest customer relationships accounted for 9% and 10% of our total revenuesand gross profits, respectively, during fiscal year 2006, and therefore, ourtop ten customer relationships totaled 35% and 22% of our total revenues andgross profits, respectively.

Although we currently service customers in over 100countries, approximately 97% of our sales have been made to customers in theUnited States during each of the past three years. Due to our diverse productsegments and our wide customer base, our business is notsignificantly affected by seasonality.

**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 *Solutions Guide*, and TESSCO.com®, our Internet-basedSolution and Transaction System;

·                  Respondingto what we refer to as “the moments of truth” by providing customers with sales,service and technical support, 24 hours a day, seven 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.

5

----

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 three primary markets: public carrier and network operator (e.g.,carriers, infrastructure site owners, program site managers, contractors andintegrators); SMUs, governments and resellers (e.g., self-maintained users,governments, manufacturers, repair centers, retailers, dealers, value-addedresellers); and consumers (e.g., affinity programs, Web store programs andfulfillment and consumer services). This organization allows for thedevelopment of unique product and solution offerings to meet the needs of ourdiverse customer base.

We attempt tounderstand and anticipate customers’ needs and to build solutions bycultivating lasting relationships. Our commercial customer database containsdetailed information on approximately 220,000 existing and potential customers,including the names of key personnel, past contacts, inquiries, and buying andcredit histories. This extensive customer database enables us to identify andtarget potential customers and to market specific products to these targetedcustomers. Potential customers are identified through their responses toTESSCO.com®,direct-marketing materials, advertisements in trade journals and industrytrade shows, as well as through referrals from other TESSCO customers andvendors. Customer relationship representatives pursue these customer inquiriesthrough distribution of our knowledge tools and through phone contact,electronic communications and field visits. The information technology systemtracks potential customer identification from the initial marketing effortthrough the establishment and development of a purchasing relationship. Once acustomer relationship is established, we carefully analyze purchasing patternsand identify opportunities to encourage customers to make more frequentpurchases of a broader array of products. Scheduled contacts are made to eachregularly purchasing customer for the purpose of information dissemination,order generation, database maintenance and the overall enhancement of thebusiness relationship. The process aims at the attraction of prospects toTESSCO, the conversion of these prospects to buying customers, and the ultimatemigration to loyal, total-source monthly buyers.

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

Inaddition to determining the product offering, our product and solutionsdevelopment teams provide the technical foundation for both customers and our personnel.The Wireless Product Knowledge System (WPKS) is continually updated to add newproducts and additional technical information in response to manufacturerspecification changes and customer inquiries. WPKS contains detailedinformation on each SKU offered, including full product descriptions, categoryclassifications, technical specifications, illustrations, product cost, pricingand delivery information, alternative and associated products, and purchase andsales histories. This information is available on a real-time basis to all ofour 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 toencourage both existing and potential customers to realize the value we providein their product and supply chain decisions. These knowledge tools are anintegrated suite of informational print and electronic media. They include: the*Solutions Guide*, which isdistributed annually to over 55,000 current and prospective buyers; *The Wireless Journal**®*, whichis distributed bi-monthly to over 107,000 individuals and is designed tointroduce the reader to our capabilities and product offerings and contains informationon significant industry trends and product reviews; a monthly electronicversion of *The Wireless Journal*,which is e-mailed to over 75,000 different individuals, and is uniquelyproduced for various portions of our customer base; the *Solutions Guide for Resellers*,designed specifically for retailers as a countertop tool and in-storeaccessories sales solution; 20,000 *SitePlanning Guides*, created for carriers and tower contractors as theyplan their site builds and repairs; Technical Application Notes andWhite Papers, which provide in-depth planning and installation instructions anddiagrams; Tech Tips, which offer suggestions and ideas from TESSCO customers;and TESSCO.com®.

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

·                  Anelectronic version of our printed *SolutionsGuide* and other knowledge tools;

6

----

·                  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 illustrations for a range ofwireless 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 provide ourmanufacturers the opportunity to develop their brands and to promote theirproducts to a broad and diverse customer base.

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

Weuse our information technology system to monitor and manage our inventory. Historicalsales results, sales projections and information regarding vendor lead timesare all used to determine appropriate inventory levels. The informationtechnology system also provides early warning reports regarding upcominginventory requirements. As of March 26, 2006 and March 27, 2005,we had an immaterial level of backlog orders. All backlog orders as of March 26,2006, are expected to be filled within 90 days of fiscal year-end. For thefiscal years ended March 26, 2006 and March 27, 2005, inventorywrite-offs were 0.5% and 0.4% of total purchases, respectively. Generally, wehave been able to return slow-moving inventory to our vendors pursuant to stockrotation agreements. Inventory turns for fiscal years 2006 and 2005 were 6.9and 8.2, respectively.

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

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

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 ofcommercial customers per month increased from 9,900 in fiscal year 2005 to 10,900in fiscal year 2006. An average of 20,600 consumer end-users were servedper month in fiscal year 2006 as compared with 36,100 in fiscal year 2005. Thisdecline in consumers is due to the T-Mobile transition discussed above.

*Fu**lfillment and Distribution:*  Orders are received at our Hunt Valley andReno customer sales support centers. As orders are received, customerrepresentatives have access to technical information, alternative andcomplementary product selections, product availability and pricing information,as well as customer purchasing and credit histories and recent inquirysummaries. An automated materials-handling system, which is integrated with theproduct planning and

7

----

procurementsystem, allows us to ensure inventory control, minimize multiple productshipments to complete an order and limit inventory duplication. Bar-codedlabels are applied to every product, allowing distribution center personnel toutilize radio frequency scanners to locate products, fill orders and updateinventory records in real-time, thus reducing overhead associated with thedistribution functions. Orders are delivered to customers by a variety offreight line and parcel transportation carriers with whom we contract. Duringfiscal year 2005, we made a substantial investment in this system, which werefer to as our Configuration, Fulfillment and Delivery technology system, atour Global Logistics Center. The same system is expected to be implemented atour Americas Sales & Logistics Center during fiscal year 2007.

Delivery charges are calculated on the basis of theweight of the products ordered and on the delivery service requested, notdistance to the customer. We believe that this approach, combined with ourPerformance and Delivery Guarantee, which emphasizes on-time delivery insteadof shipment dates, enables customers to minimize their inventories and reducetheir overall procurement costs, thereby encouraging them to make us theirtotal source supplier.

*Information Technology:*  Critical to the success of our operations isour information technology system. We have made substantial investments in thedevelopment of this system, which integrates cataloging, marketing, sales,fulfillment, inventory control and purchasing, financial control and internaland external communications. The information technology system includes highlydeveloped customer and product databases and is integrated with ourdistribution centers. The information contained in the system is available on areal-time basis to all of our employees and is utilized in every area of ouroperations. As discussed above, we have made, and continue to make, investmentsin our Configuration, Fulfillment and Delivery technology system.

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

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

**Acquisitions**

In April 2006, weacquired the non-cash assets and businesses of TerraWave Solutions, Ltd. andits 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 prepayment againstfuture earn-out payments, if any). To the extent that certain minimum earningsthresholds are not achieved, we will not be 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 under Cisco’s Strategic TechnologyIntegrator program. The GigaWave business, now owned by TESSCO, providescurriculum development and hands-on, instructor-led training courses for theWireless Local Area Network (WLAN) industry. GigaWave develops and deliverswireless networking courseware for Cisco Systems, allowing IT professionals toobtain Cisco Wireless Certifications.

**Competition**

The wireless communications distributionindustry is competitive and fragmented, and is comprised of several nationaldistributors, such as Hutton Communications, Cellstar, Brightpoint, SprintNorth Supply, Anixter, Westcon, Comstor, Tech Data, Ingram Micro, SuperiorCommunications, Site Pro 1 and Wincomm, as well as numerous regionaldistributors, including Talley Communications. In addition, many manufacturerssell and fulfill directly to customers. Barriers to entry for distributors arerelatively low, particularly in the mobile devices and accessory market, andthe risk of new competitors entering the market is high. In addition, theagreements or arrangements with our customers or vendors looking to us for productand supply chain solutions, are typically of limited duration and areterminable by either party

8

----

upon several months or otherwise shortnotice. Accordingly, our ability to maintain these relationships is subject tocompetitive 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. Some of our current competitors,particularly certain manufacturers, have substantially greater capitalresources and sales and distribution capabilities. In response to competitivepressures from any of our current or future competitors, we may be required tolower selling prices in order to maintain or increase market share, and suchmeasures could adversely affect our operating results.

Continuing changes in the wireless communicationsindustry, including risks associated with conflicting technology, changes intechnology, inventory obsolescence, and consolidation among wireless carriers,could adversely affect future operating results. In addition, we view the rapidexpansion of Internet technology as a positive business opportunity; however,this technology and evolving Internet business models could also presentadditional competitive 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 compete favorably with respect to each ofthese factors. In particular, we believe we differentiate ourselves from ourcompetitors based on the breadth of our product offering, our ability toquickly provide products and supply chain solutions in response to customerdemand and technological advances, the level of our customer service and thereliability of our order fulfillment process.

**Intellectual Property**

We seek to protect our intellectualproperty through a combination of trademarks, service marks, confidentialityagreements, trade secret protection and, if and when appropriate, patentprotection. Thus far, we have generally sought to protect our intellectualproperty, including our product data and information, 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 our technology to signconfidentiality and nondisclosure agreements. There can be no assurance thatthese confidentiality and nondisclosure agreements will be honored, or whetherthey can be fully enforced, or that other entities may not independentlydevelop systems, technologies or information similar to that on which 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. Theability to obtain patent protection involves complex legal and factualquestions. Others may obtain patent protection for technologies that areimportant to our business, and as a result, our business may be adverselyaffected. In response to patents of others, we may need to license the right touse technology patented by others, or in the event that a license cannot beobtained, to design our systems around the patents of others.

### **EnvironmentalRegulation**

Weare subject to various laws and governmental regulations concerningenvironmental matters and employee safety and health in the United States. Weare also subject to regulation by the Occupational Safety and HealthAdministration concerning employee safety and health matters. Compliance withthese federal, state and local laws and regulations related to protection ofthe environment and employee safety and health has had no material effect onour business. There were no material capital expenditures for environmentalprojects in fiscal year 2006 and there are no material expenditures planned forsuch purposes in fiscal year 2007.

9

----

**Employees**

As of March 26, 2006, we had 638 full-timeequivalent employees. Of our full-time equivalent employees, 323****were engaged in customer and vendor service, marketing,sales and product management, 243 were engaged in fulfillment and distributionoperations and 72 were engaged in administration and technology systemsservices. No employees are covered by collective bargaining agreements. Weconsider our employee relations to be excellent.

### **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. |       | 62      |       | 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                |       | 35      |       | 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            |       | 55      |       | 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               |       | 46      |       | Senior Vice  President of Fulfillment and Operations                    |       | Douglas A. Rein  joined the Company in July 1999 as senior vice president of fulfillment  and operations. Previously, he was director of operations for Compaq Computer  Corporation and vice president, distribution and logistics operations for  Intelligent Electronics.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Said Tofighi                  |       | 51      |       | Senior Vice President  of Customer Supply Chain                         |       | 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. 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.                                                                                                                                                                                                                                                                                                      |

 

10

----

 

**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. The following are certain risk factors thatcould adversely affect our business, financial position and results ofoperations. These risk factors and others described in this Annual Report on Form 10-Kshould be considered in connection with evaluating the forward-lookingstatements contained in this Annual Report on Form 10-K becausethese factors could cause the actual results and conditions to differmaterially from those projected in the forward-looking statements. Additionalrisks and uncertainties that management is not aware of or focused on, or thatmanagement currently deems immaterial may also adversely affect our business,financial position and results of operations. If our business, financialposition and results of operations are adversely affected by any of these orother adverse events, 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 selland fulfill directly to customers. Barriers to entry for distributors arerelatively low, particularly in the mobile devices and accessory market, andthe risk of new competitors entering the market is high. Some of our currentcompetitors, particularly certain manufacturers, have substantially greatercapital resources and sales and distribution capabilities than we do. 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.

***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. Customerstypically do not have an obligation to make purchases from us. In the event asignificant customer decides to make its purchases from another source,experiences a significant change in demand internally or from its own customerbase, becomes financially unstable, or is acquired by another company, ourability to generate revenues from these customers may be significantlyaffected, resulting in an adverse affect on our business, financial positionand results of operations.

***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 or suppliers refuse to, or for any reasonare unable to supply products to us, and if we are not able to procure thoseproducts from alternative sources, we may not be able to maintain appropriateinventory levels and meet customer demand, and our business, financial positionand results of operations would be adversely affected.

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

The wireless service carrier industry has experiencedsignificant consolidation in recent years. If any of our significant customersor partners are acquired or consolidate with others carriers, or are otherwiseinvolved in any significant transaction that results in them ceasing to dobusiness with us, or significantly reducing the level of business that

11

----

they do with us, ourrevenues from those customers could be significantly affected, possiblyresulting in an adverse affect on our business, financial position and resultsof operations.

***Thefailure of our information systems or inability to upgrade them could have amaterial adverse affect on our business, financial position and results ofoperations.***

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

***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 other affinity websites) for a significantpercentage of our orders and information exchanges with our customers. TheInternet and individual websites have experienced a number of disruptions andslowdowns, some of which were caused by organized attacks. In addition, somewebsites have experienced security breakdowns. There can be no assurances thatour website will not experience any material breakdowns, disruptions orbreaches in security. If we were to experience a security breakdown, disruptionor breach that compromised sensitive information, this could harm ourrelationship with our customers or suppliers. Disruption of our website or theInternet in general could impair our order processing or more generally preventour customers and suppliers from accessing information or placing orders. Thiscould have an adverse affect on our business, financial position and results ofoperations.

***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 timelychange our existing merchandise sales mix in order to meet these competitivepressures, which may result in increased inventory costs 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.

***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. Thefailure or inability of these shipping companies to deliver products, or theunavailability of their shipping services, even temporarily, could have amaterial adverse affect on our business. We may also be adversely affected byan increase in freight surcharges due to rising fuel costs and added security. Thiscould adversely impact our selling, general and administrative expenses or leadto price increases to our customers which could decrease customer demand forour products.

***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, we regularly evaluate potential acquisitionopportunities, which may be material in size and scope. In addition to thoserisks to which our business and the acquired businesses are generally subjectto, the acquisition of these businesses gives rise to transactional andtransitional risks, and the risk that the anticipated benefits will not berealized.

12

----

***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 portion of such sales through trade credit,typically by providing 30-day payment terms. As a result, our businesscould be adversely affected in the event of a deterioration of the financialcondition of our customers, resulting in the customers’ inability to repay us. Thisrisk may increase if there is a general economic downturn affecting a largenumber of our customers and in the event our customers do not adequately managetheir business or properly disclose their financial condition.

***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 historically relied upon cash generated fromoperations, revolving credit facilities and trade credit from our vendors tosatisfy our capital needs and finance growth. As the financial markets changeand new regulations come into effect, the cost of acquiring financing and themethods of financing may change. Changes in our credit rating or other marketfactors may increase our interest expense or other costs of capital, or capitalmay not be available to us on competitive terms to fund our working capitalneeds. 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 business conditions.Our currently existing $30 million revolving credit facility expires in September 2007,and although we expect to either extend or replace this facility, there can beno assurances that we will be able to do so on favorable terms, or at all. Theinability to maintain or when necessary obtain adequate sources of financingcould have an adverse affect on our business. Some of our existing financinginstruments involve variable rate debt, thus exposing us to risk offluctuations in interest rates. Such fluctuations in interest rates could havean adverse affect on our business, financial position and results of operations.We have and may also in the future use interest rate swaps in an effort toachieve a desired proportion of fixed and variable rate debt. We utilize thesederivative financial instruments to enhance our ability to manage risk,including interest rate exposures that exist as part of our ongoing businessoperations. However, our use of these instruments may not effectively limit or eliminateour exposure to a decline in operating results due to changes in interestrates.

***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, and customers. Inorder to compete, we must attract, retain and motivate executives and other keyemployees, including those in managerial, technical, sales, marketing andsupport positions. Hiring and retaining qualified executives, informationtechnology and business generation personnel are critical to our business. Whileour success depends upon the skills of many of our personnel, we areparticularly dependent upon the skills and leadership of Robert B. Barnhill, Jr.,our chairman, president and chief executive officer. The loss of any of theseindividuals, and particularly Mr. Barnhill, could have a material adverseaffect on our business, financial position and results of operations.

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

***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 accountingprinciples are subject to interpretation by the Financial Accounting StandardsBoard, the Public Company Accounting Oversight Board, the Securities andExchange Commission, the American Institute of Certified Public Accountants andvarious other bodies formed to interpret and create appropriate accountingpolicies. A change in these policies or a new interpretation of an existingpolicy could have a significant affect on our reported results and may affect our reporting of transactionsbefore a change is announced.

13

----

In December 2004, theFinancial Accounting Standards Board issued Statement of FinancialAccounting Standard (SFAS) No. 123R,“Share-Based Payment,” a revision of SFAS No. 123, “Accounting forStock-Based Compensation” and superseding Accounting Principles Board Opinion(APB) No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123R is a complex accountingstandard that requires companies to expense the fair value of employee stockoptions and similar awards and was adopted by us on March 27, 2006. Theadoption of the SFAS No. 123R could have an impact on our reported resultsof operations. SFAS No. 123R also requires the benefits of tax deductionsin excess of recognized compensation cost to be reported as a financing cashflow, rather than as an operating cash flow as required under current financialaccounting standards. This requirement may reduce our net operating cash flowsand increase net financing cash flows. Furthermore, the application of SFAS No. 123Rrequires significant judgment and the use of estimates, particularlysurrounding stock price volatility, option forfeiture rates and expected optionlives, to build a model for appropriately valuing share-based compensation.There is little experience or guidance with respect to developing theseassumptions and models. There is also uncertainty as to how SFAS No. 123Rwill be interpreted and applied as companies and their advisors gain moreexperience with the standard. There is a risk that, as we and others gainexperience with SFAS No. 123R or as a result of subsequent accountingguidelines, we could determine that the assumptions or model we used requiresmodification. Any such modification could result in significantly differentcharges in future periods and, potentially, could require us to correct thecharges taken in prior periods. Any such corrections of charges taken in aprior period could negatively affect our results of operations, stock price andour stock price volatility.

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

We may be subject to legalclaims or regulatory matters involving stockholder, consumer, antitrust andother issues. Litigation is subject to inherent uncertainties, and unfavorablerulings could occur. An unfavorable ruling could include money damagesor, other adverse affects. Were an unfavorable ruling to occur, thereexists the possibility of a material adverse impact on business, financial position and results of operations for the period inwhich the ruling occurred or future periods.

***The damage or destruction of either of ourprincipal facilities could materially adversely impact our business, financialposition and results of operations.***

If our Global LogisticsCenter in Hunt Valley,Maryland or our Americas Sales & Logistic Center in Reno, Nevada wereto be significantly damaged or destroyed, we could suffer a loss of productinventory and our ability to conduct our business in the ordinary course wouldbe materially and adversely affected.

On October 12, 2002, asignificant portion of our Global Logistics Center in Hunt Valley, Maryland wasdamaged as a result of a water main break occurring on an adjacent property.This event resulted in a temporary suspension of our operations and required a substantial commitment of funds and effort over time torebuild this facility. Since that time, our Americas Sales & LogisticCenter in Reno, Nevada has become fully operational. Nevertheless, anothertemporary or protracted loss of either facility could have a material adverseaffect on our business, financial position and results of operations. Currently,we maintain insurance coverage against damage to our property and equipment,and additional coverage for business interruption and extra expenses. If wehave underestimated our insurance needs, we will not have sufficient insuranceto cover losses above and beyond the limits on our policies.

***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 tosuccessfully execute these initiatives, our business, financial position and results of operations could beadversely affected.

***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 us withadequate protection against improper use or disclosure of confidentialinformation, and these agreements may be breached. A breach of confidentialitycould adversely affect our business. In addition, in some situations, theseagreements may conflict with, or be subject to, the

14

----

rights of third parties withwhom our employees, consultants and others have previous employment orconsulting relationships. Also, others may independently develop substantiallyequivalent proprietary information and techniques or otherwise gain access toour trade secrets. Adequate remedies may not exist in the event of unauthorizeduse or disclosure of our confidential information. The disclosure of ourproprietary information or trade secrets could impair our competitive positionand could have a material adverse affect on our business, financial conditionand results of operations. Others may obtain patent protection for technologiesthat are important to our business, and as a result, our business, financialposition and results of operations may be adversely affected. In response topatents of others, we may need to license the rights to use the technologypatented by others, or in the event that a license cannot be obtained, designour systems around the patents of others. There can be no assurances as to ourability to obtain any such licenses or to design around the patents of others,and our inability to do so could have an adverse affect on our business,financial position and results of operations.

**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 prevent a third party fromacquiring control of us or changing our Board of Directors and management. Theseprovisions include a classified Board of Directors with staggered three-yearterms, and limitations on the removal of directors other than for cause, andthen only upon the affirmative vote of 75% of our outstanding common stock. Weare also afforded the protections of Section 203 of the Delaware GeneralCorporation Law, which will prevent us from engaging in a business combinationwith a person who acquires at least 15% of our common stock for a period ofthree years from the date such person acquired such common stock, unless Boardof Director or shareholder approval were obtained. Any delay or prevention of a change of control transaction orchanges in our Board of Directors or management could deter potential acquirersor prevent the completion of a transaction in which our shareholders couldreceive a substantial premium over the then current market price for theirshares.

***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 March 26, 2006.  Robert B. Barnhill, Jr., our chairman, presidentand chief executiveofficer beneficially owned approximately 20% of our outstanding common stock asof March 26, 2006. Should these shareholders decide to act together, theywould have the ability to significantly influence all matters requiring shareholderapproval, including the election of directors and any significant corporatetransaction requiring shareholder approval.

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

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 located north of Baltimore in Hunt Valley, Maryland. Our sales,marketing and administrative offices are located in leased office space nearthe GLC. This lease expires in May 2007. Monthly rent payments range from$110,300 to $125,000 throughout the lease term. We are currently evaluating ourneeds for sales, marketing and administrative office space beyond May 2007.West coast sales and fulfillment is facilitated by our Company-owned 115,000square-foot Americas Sales & Logistics Center (ALC) located in Reno,Nevada. The ALC is used to configure and fulfill product and supply chainsolutions, provide disaster backup for the GLC, and allow for future growth ofstaffing and increased fulfillment capabilities. The GLC is encumbered by adeed of trust as security for a term loan. See Note 7 to our ConsolidatedFinancial Statements included in Item 8 of this Annual Report on Form 10-K.Each of our three business segments uses all of our properties for either salesor fulfillment purposes.

15

----

**Item 3. Legal Proceedings.**

Lawsuitsand claims are filed against us from time to time in the ordinary course ofbusiness. We do not believe that any lawsuits or claims currently pendingagainst the Company, individually or in the aggregate, are material, or willhave a material adverse affect on our financial condition or results ofoperations.

**Item 4. Submission of Matters to a Vote ofSecurity Holders.**

None.

**Part II**

**Item 5. Market for Registrant’s Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities.**

Our common stock has beenpublicly traded on the NASDAQ Stock Market since September 28, 1994, underthe symbol “TESS.” The quarterly range of prices per share during fiscal years2005 and 2006 are as follows:

|                    | ** ** | **High** | ** ** | **Low**  | ** ** |
|--------------------|------------|----------|------------|----------|------------|
| *Fiscal Year 2005* | * *   | * * | * *   | * * | * *   |
| First Quarter      |       | $        | 19.09      |     | $          | 11.50 |   |
| Second Quarter     |       | 18.65    |       | 7.86     |       |
| Third Quarter      |       | 14.12    |       | 9.87     |       |
| Fourth Quarter     |       | 17.69    |       | 12.50    |       |
| * *           | * *   | * * | * *   | * * | * *   |
| *Fiscal Year 2006* | * *   | * * | * *   | * * | * *   |
| First Quarter      |       | $        | 16.25      |     | $          | 12.35 |   |
| Second Quarter     |       | 15.52    |       | 12.07    |       |
| Third Quarter      |       | 17.40    |       | 12.50    |       |
| Fourth Quarter     |       | 18.80    |       | 15.20    |       |

 

Asof June 1, 2006, the number of shareholders of record of the Company was59. We estimate that the number of beneficial owners as of that date wasapproximately 2,500.

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.

During the first quarter of fiscal 2004, our Board ofDirectors established a stock buyback program and authorized the purchase of upto 450,000 shares of our common stock. On October 20, 2005, the Board ofDirectors amended the program, authorizing the purchase of an additional450,000 shares of our common stock. Through the end of the fiscal year 2006, wehave repurchased 500,703 shares of our outstanding common stock pursuant tothis program for approximately $5.7 million, or an average price of $11.44 pershare. Of the total shares repurchased, 133,800 shares were purchased in fiscalyear 2006 at an average price of $15.45 per share, 254,003 shares wererepurchased in fiscal year 2005 at an average price of $11.45 per share and112,900 shares were repurchased in fiscal year 2004 at an average price of$6.68 per share. An aggregate of 399,297 shares remain available for repurchaseunder this program. No repurchases were made in any month during the fourthquarter of fiscal year 2006, and no timetable has been set for the completionof this program.

The information required by Item 201(d) ofRegulation S-K, pursuant to paragraph (a) of this Item 5, is incorporatedby reference to the information set forth under the caption “EquityCompensation Plan Information” in the Company’s Proxy Statement for the 2006Annual Meeting of Stockholders, which is anticipated to be filed pursuant toRegulation 14A no later than one hundred twenty (120) days following the end ofthe fiscal year reported on.

16

----

**Item 6.Selected Financial Data.**
| ** **                                    | ** ** | **Fiscal Years Ended** | ** **  |
|-----------------------------------------------|------------|----------------------------------|-------------|
| ** **                                    | ** ** | **March 26,  2006**         | ** **  | **March 27,  2005** | ** ** | **March 28,  2004** | ** ** | **March 30,  2003** | ** ** | **March 31,  2002** | ** ** |
| **STATEMENT OF INCOME DATA**                  | ** ** | ** **                       | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                      |       | $                                | 477,329,300 |   | $ | 513,027,300 |   | $ | 352,674,300 |   | $ | 273,913,400 |   | $ | 248,915,100 |   |
| Cost of goods  sold                           |       | 374,316,300                      |        | 418,180,500 |   | 275,028,200 |   | 202,598,700 |   | 180,432,600 |   |
| Gross profit                                  |       | 103,013,000                      |        | 94,846,800 |   | 77,646,100 |   | 71,314,700 |   | 68,482,500 |   |
| Selling, general  and administrative expenses |       | 94,268,800                       |        | 84,747,400 |   | 73,444,300 |   | 67,462,900 |   | 61,608,600 |   |
| Benefit from  insurance proceeds(1)           |       | —                           |        | — |   | (3,054,000 | ) | (1,212,500 | ) | — |   |
| Restructuring  charges(2)                     |       | —                           |        | — |   | 2,285,700 |   | — |   | — |   |
| Income from  operations                       |       | 8,744,200                        |        | 10,099,400 |   | 4,970,100 |   | 5,064,300 |   | 6,873,900 |   |
| Interest, net                                 |       | 358,500                          |        | 166,200 |   | 167,700 |   | 105,500 |   | 484,000 |   |
| Income before  provision for income taxes     |       | 8,385,700                        |        | 9,933,200 |   | 4,802,400 |   | 4,958,800 |   | 6,389,900 |   |
| Provision for  income taxes                   |       | 3,270,500                        |        | 3,866,000 |   | 1,910,600 |   | 1,910,200 |   | 2,484,000 |   |
| Net income                                    |       | $                                | 5,115,200   |   | $ | 6,067,200 |   | $ | 2,891,800 |   | $ | 3,048,600 |   | $ | 3,905,900 |   |
| Diluted earnings  per share                   |       | $                                | 1.20        |   | $ | 1.39 |   | $ | 0.65 |   | $ | 0.67 |   | $ | 0.85 |   |
| Diluted weighted  average shares outstanding  |       | 4,274,300                        |        | 4,373,900 |   | 4,469,000 |   | 4,525,600 |   | 4,575,900 |   |
|                                          |       |                             |        |   |   |   |   |   |   |   |   |
| **Percentage of Revenues**                    |       |                             |        |   |   |   |   |   |   |   |   |
| Revenues                                      |       | 100.0                            | %           | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
| Cost of goods  sold                           |       | 78.4                             |        | 81.5 |   | 78.0 |   | 74.0 |   | 72.5 |   |
| Gross profit                                  |       | 21.6                             |        | 18.5 |   | 22.0 |   | 26.0 |   | 27.5 |   |
| Selling, general  and administrative expenses |       | 19.7                             |        | 16.5 |   | 20.8 |   | 24.6 |   | 24.7 |   |
| Benefit from  insurance proceeds              |       | —                           |        | — |   | (0.9 | ) | (0.4 | ) | — |   |
| Restructuring  charges                        |       | —                           |        | — |   | 0.6 |   | — |   | — |   |
| Income from  operations                       |       | 1.8                              |        | 2.0 |   | 1.4 |   | 1.8 |   | 2.8 |   |
| Interest, net                                 |       | 0.0                              |        | 0.0 |   | 0.0 |   | 0.0 |   | 0.2 |   |
| Income before  provision for income taxes     |       | 1.8                              |        | 1.9 |   | 1.4 |   | 1.8 |   | 2.6 |   |
| Provision for  income taxes                   |       | 0.7                              |        | 0.7 |   | 0.5 |   | 0.7 |   | 1.0 |   |
| Net income                                    |       | 1.1                              | %           | 1.2 | % | 0.8 | % | 1.1 | % | 1.6 | % |
| **SELECTED OPERATING DATA**                   | ** ** | ** **                       | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Average  commercial buyers per month          |       | 10,900                           |        | 9,900 |   | 9,400 |   | 9,200 |   | 8,900 |   |
| Average consumer  buyers per month            |       | 20,600                           |        | 36,100 |   | 34,500 |   | 22,700 |   | 13,600 |   |
| Return on  assets(3)                          |       | 3.6                              | %           | 4.2 | % | 2.1 | % | 2.3 | % | 4.2 | % |
| Return on  equity(3)                          |       | 8.1                              | %           | 10.4 | % | 4.4 | % | 4.4 | % | 8.0 | % |
| ** **                                    |       |                             |        |   |   |   |   |   |   |   |   |
| **BALANCE SHEET DATA**                        |       |                             |        |   |   |   |   |   |   |   |   |
| Working capital                               |       | $                                | 45,704,400  |   | $ | 41,000,200 |   | $ | 37,330,100 |   | $ | 35,543,900 |   | $ | 31,156,600 |   |
| Total assets                                  |       | 126,800,400                      |        | 160,557,200 |   | 129,128,700 |   | 100,238,000 |   | 100,229,300 |   |
| Short-term  debt                              |       | 442,500                          |        | 362,600 |   | 282,000 |   | 372,800 |   | 5,785,800 |   |
| Long-term  debt                               |       | 4,559,400                        |        | 5,000,700 |   | 5,354,700 |   | 5,660,800 |   | 6,063,400 |   |
| Shareholders’ equity                     |       | 65,106,800                       |        | 60,822,100 |   | 56,333,500 |   | 53,985,800 |   | 50,807,400 |   |

----

(1)          Represents the gain oninsurance proceeds and business interruption insurance received as a result ofthe October 12, 2002 disaster at our Global Logistics Center (see Note 10to our Consolidated Financial Statements included in Item 8 of this AnnualReport on Form 10-K).

(2)          Represents terminationcosts and facility consolidation costs associated with our profitabilityimprovement program (see Note 11 to our Consolidated Financial Statementsincluded in Item 8 of this Annual Report on Form 10-K).

(3)          Excludes the gain oninsurance proceeds and business interruption insurance received as a result ofthe October 12, 2002 disaster at our Global Logistics Center and thetermination costs and facility consolidation costs associated with ourprofitability improvements programs.

17

----

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

| ** **                                   | ** ** | **Fiscal Year 2006 Quarters Ended** | ** ** | **Fiscal Year 2005 Quarters Ended** | ** ** |
|----------------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                   | ** ** | **Mar. 26,  2006**                                 | ** ** | **Dec. 25,  2005**                                 | ** ** | **Sept. 25,  2005** | ** ** | **Jun. 26,  2005** | ** ** | **Mar. 27,  2005** | ** ** | **Dec. 26,  2004** | ** ** | **Sept. 26,  2004** | ** ** | **Jun. 27,  2004** | ** ** |
| Revenues                                     |       | $                                                       | 96,561,300 |                                                    | $          | 94,811,900 |   | $ | 137,632,800 |   | $ | 148,323,300 |   | $ | 150,907,500 |   | $ | 135,825,100 |   | $ | 115,689,700 |   | $ | 110,605,000 |   |
| Cost of goods sold                           |       | 71,899,900                                              |       | 70,849,000                                              |       | 109,266,200 |   | 122,301,200 |   | 125,836,300 |   | 111,420,400 |   | 92,708,200 |   | 88,215,600 |   |
| Gross profit                                 |       | 24,661,400                                              |       | 23,962,900                                              |       | 28,366,600 |   | 26,022,100 |   | 25,071,200 |   | 24,404,700 |   | 22,981,500 |   | 22,389,400 |   |
| Selling, general and administrative expenses |       | 22,761,300                                              |       | 22,004,200                                              |       | 25,543,500 |   | 23,959,800 |   | 22,879,500 |   | 21,569,300 |   | 20,309,500 |   | 19,989,100 |   |
| Income from operations                       |       | 1,900,100                                               |       | 1,958,700                                               |       | 2,823,100 |   | 2,062,300 |   | 2,191,700 |   | 2,835,400 |   | 2,672,000 |   | 2,400,300 |   |
| Interest, net                                |       | 165,800                                                 |       | 125,600                                                 |       | 29,100 |   | 38,000 |   | 51,800 |   | 37,100 |   | 42,700 |   | 34,600 |   |
| Income before provision for income taxes     |       | 1,734,300                                               |       | 1,833,100                                               |       | 2,794,000 |   | 2,024,300 |   | 2,139,900 |   | 2,798,300 |   | 2,629,300 |   | 2,365,700 |   |
| Provision income taxes                       |       | 676,500                                                 |       | 714,900                                                 |       | 1,089,600 |   | 789,500 |   | 826,600 |   | 1,091,400 |   | 1,025,400 |   | 922,600 |   |
| Net income                                   |       | $                                                       | 1,057,800  |                                                    | $          | 1,118,200 |   | $ | 1,704,400 |   | $ | 1,234,800 |   | $ | 1,313,300 |   | $ | 1,706,900 |   | $ | 1,603,900 |   | $ | 1,443,100 |   |
| Diluted earnings per share                   |       | $                                                       | 0.25       |                                                    | $          | 0.26 |   | $ | 0.40 |   | $ | 0.29 |   | $ | 0.31 |   | $ | 0.40 |   | $ | 0.36 |   | $ | 0.32 |   |
|                                         |       |                                                    |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Percentage of Revenues**                   |       |                                                    |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                     |       | 100.0                                                   | %          | 100.0                                                   | %          | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
| Cost of goods sold                           |       | 74.5                                                    |       | 74.7                                                    |       | 79.4 |   | 82.5 |   | 83.4 |   | 82.0 |   | 80.1 |   | 79.8 |   |
| Gross profit                                 |       | 25.5                                                    |       | 25.3                                                    |       | 20.6 |   | 17.5 |   | 16.6 |   | 18.0 |   | 19.9 |   | 20.2 |   |
| Selling, general and administrative expenses |       | 23.6                                                    |       | 23.2                                                    |       | 18.6 |   | 16.2 |   | 15.2 |   | 15.9 |   | 17.6 |   | 18.1 |   |
| Income from operations                       |       | 2.0                                                     |       | 2.1                                                     |       | 2.0 |   | 1.4 |   | 1.4 |   | 2.1 |   | 2.3 |   | 2.2 |   |
| Interest, net                                |       | 0.2                                                     |       | 0.1                                                     |       | 0.0 |   | 0.0 |   | 0.0 |   | 0.0 |   | 0.0 |   | 0.0 |   |
| Income before provision for income taxes     |       | 1.8                                                     |       | 1.9                                                     |       | 2.0 |   | 1.4 |   | 1.4 |   | 2.1 |   | 2.3 |   | 2.1 |   |
| Provision for income taxes                   |       | 0.7                                                     |       | 0.7                                                     |       | 0.8 |   | 0.5 |   | 0.5 |   | 0.8 |   | 0.9 |   | 0.8 |   |
| Net income                                   |       | 1.1                                                     | %          | 1.2                                                     | %          | 1.2 | % | 0.8 | % | 0.9 | % | 1.3 | % | 1.4 | % | 1.3 | % |
| ** **                                   |       |                                                    |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **SELECTED OPERATING DATA**                  |       |                                                    |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Average commercial buyers per month          |       | 11,500                                                  |       | 11,200                                                  |       | 10,600 |   | 10,300 |   | 9,900 |   | 10,000 |   | 9,800 |   | 9,700 |   |
| Average consumer buyers per month       |       | 8,100                                                   |       | 7,300                                                   |       | 29,400 |   | 37,700 |   | 37,900 |   | 37,200 |   | 34,300 |   | 35,000 |   |
| Return on assets                             |       | 3.3%                                                    |       | 3.6%                                                    |       | 5.2% |   | 3.2% |   | 3.4% |   | 4.7% |   | 4.9% |   | 4.7% |   |
| Return on equity                             |       | 6.6%                                                    |       | 7.0%                                                    |       | 10.8% |   | 8.0% |   | 8.7% |   | 11.7% |   | 11.0% |   | 10.1% |   |

 

18

----

## **Item 7. Management’s Discussion and Analysisof Financial Condition and Results of Operations.**

This Management’s Discussion and Analysis (MD&A) shouldbe read in conjunction with the other sections of this Annual Report on Form 10-K,including Part I, “Item 1: Business,” Part II, “Item 6: SelectedFinancial Data,” and Part II, “Item 8: Financial Statements andSupplementary Data.”  The varioussections of this MD&A contain a number of forward-looking statements, allof which are based on our current expectations and could be affected by theuncertainties and risk factors 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 tocustomers in over 100 countries, approximately 97% of our sales are made tocustomers in the United States. We have operations and office facilities inboth Hunt Valley, Maryland and Reno, Nevada. Due to the diversity in ourbusiness, we are not significantly affected by seasonality. 

We offer a wide range ofproducts that are classified into three business segments: networkinfrastructure; mobile devices and accessories; and installation, test andmaintenance. Network infrastructure products, which are sold to our commercialcustomers, are used to build, repair and upgrade wireless telecommunications,computing and Internet networks. Sales of traditional network infrastructureproducts, such as cable, transmission lines and antennas are in part dependenton capital spending in the wireless communications industry. However, we havealso been growing our offering of wireless broadband and network equipmentproducts, which are not as dependent on the overall capital spending of theindustry. Mobile devices and accessory products include cellular telephones andother data devices, pagers and two-way radios and related accessories. Mobiledevices and accessory products are widely sold to commercial customers andconsumers. Commercial customers include retail stores, value-added resellersand dealers. Consumers are primarily reached through our affinity partnerships,where we offer services including customized order fulfillment, outsourced callcenters, and building and maintaining private label Internet sites.Installation, test and maintenance products, which are sold to our commercialcustomers, are used to install, tune, maintain and repair wirelesscommunications equipment. Approximately 50% of all of our installation, testand maintenance sales for fiscal year 2006 were generated from the sales ofreplacement parts and materials for original equipment manufacturers, primarilyNokia, Inc. (Nokia). The arrangements on which these relationships arebased, like many of our other customer and vendor arrangements, are of limitedduration and are terminable by either party upon several months or otherwiseshort notice. The remainder of this segment is made up of sophisticatedanalysis equipment and various frequency-, voltage- and power-measuringdevices, as well as an assortment of tools, hardware and supplies required byservice technicians. Both our repair and replacement parts sales and consumersales through our affinity partnerships are reliant on relationships with asmall number of vendors.

We view our customer base inthree major categories:

·                  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 (SMUs),Governments and Resellers. SMUs 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 nationalproprietorships and retailers, as well as sales and installation centers operatedby cellular and paging carriers.

·                  Consumers. Consumers are customers buyingthrough any of our affinity-partner relationships or directly from our consumerwebsite, 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. Consolidation of larger wirelesscarriers has and will most likely continue to impact our current and potentialcustomer

19

----

base. In addition, the agreementsor arrangements with our customers or vendors looking to us for product andsupply chain solutions are typically of limited duration and are terminable byeither party upon several months or otherwise short notice. Our ability to maintainthese relationships is subject to competitive pressures and challenges. Webelieve, however, that our strength in service, the breadth and depth of ourproduct offering, our information technology system, our large customer baseand purchasing relationships with approximately 350 manufacturers provide uswith a significant competitive advantage over new entrants to the market.

In mid-September 2005, T-Mobile USA(T-Mobile), previously our largest affinity and overall customer relationship,completed the transition of the TESSCO provided e-commerce marketing and salessystem to an in-house web solution and alternative third-party logisticsprovider, and thus revenues then ceased from this relationship. At the end ofthe second fiscal quarter of 2006, we began to eliminate certain dedicatedexpenses related to this relationship, which included: freight out anddistribution supplies; compensation and benefit costs related to fulfillmentand returns processing, in-bound call center, program management, and creditand collections; credit card fees and bad debt expenses related to cash collectionsdirectly from end users; and e-commerce expenses. For the first six months offiscal year 2006, T-Mobile accounted for 45% and 22% of total revenues andgross profits, respectively. As a result of the termination of therelationship, our overall consumer revenues and gross profits for the fullfiscal year decreased 44% and 38%, respectively, from fiscal year 2005. However,due in part to our increased focus on our commercial business, these decreaseswere partially offset by a 26% and 27% increase in commercial sales and grossprofits, respectively, in fiscal year 2006 as compared with fiscal year 2005,and total revenues decreased 7% while gross profit grew 9% in the same period. Netincome in fiscal year 2006 decreased 16% as compared with fiscal year 2005.

### **Resultsof Operations**

The following tablessummarize the results of our operations for fiscal years 2006, 2005 and 2004:
| **(Dollars in thousands, except per share data)** | ** ** | ** **                      | ** ** | ** **                      | ** ** | **2005 to 2006**       | ** ** | ** **        | ** ** | **2004 to 2005**      | ** ** |
|---------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|----------------------------------|------------|-------------------|------------|---------------------------------|------------|
| ** **                                                                      | ** ** | **2006**                        | ** ** | **2005**                        | ** ** | **$ Change**                | ** ** | **% Change** | ** ** | **2004**                        | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Commercial  Revenues                                                            |       |                            |       |                            |       |                             |       |              |       |                            |       |   |   |   |   |
| Network Infrastructure:                                                         |       |                            |       |                            |       |                             |       |              |       |                            |       |   |   |   |   |
| Public Carriers and Network Operators                                           |       | $    53,104 |       | $    56,620 |       | $    (3,516) |       | (6.2%)            |       | $    46,912 |       | $     9,708 |   | 20.7% |   |
| SMUs, Governments and Resellers                                                 |       | 95,806                          |       | 74,277                          |       | 21,529                           |       | 29.0%             |       | 67,694                          |       | 6,583 |   | 9.7% |   |
| Total Network Infrastructure                                                    |       | 148,910                         |       | 130,897                         |       | 18,013                           |       | 13.8%             |       | 114,606                         |       | 16,291 |   | 14.2% |   |
|                                                                            |       |                            |       |                            |       |                             |       |              |       |                            |       |   |   |   |   |
| Mobile Devices and Accessories:                                                 |       |                            |       |                            |       |                             |       |              |       |                            |       |   |   |   |   |
| Public Carriers and Network Operators                                           |       | 2,794                           |       | 3,068                           |       | (274)                            |       | (8.9%)            |       | 4,094                           |       | (1,026) |   | (25.1%) |   |
| SMUs, Governments and Resellers                                                 |       | 113,758                         |       | 72,347                          |       | 41,411                           |       | 57.2%             |       | 54,699                          |       | 17,648 |   | 32.3 |   |
| Total Mobile Devices and Accessories                                            |       | 116,552                         |       | 75,415                          |       | 41,137                           |       | 54.5%             |       | 58,793                          |       | 16,622 |   | 28.3 |   |
|                                                                            |       |                            |       |                            |       |                             |       |              |       |                            |       |   |   |   |   |
| Installation, Test and Maintenance:                                             |       |                            |       |                            |       |                             |       |              |       |                            |       |   |   |   |   |
| Public Carriers and Network Operators                                           |       | 16,971                          |       | 19,905                          |       | (2,934)                          |       | (14.7%)           |       | 19,798                          |       | 107 |   | 0.5% |   |
| SMUs, Governments and Resellers                                                 |       | 57,601                          |       | 43,280                          |       | 14,321                           |       | 33.1%             |       | 31,904                          |       | 11,376 |   | 35.7% |   |
| Total Installation, Test and Maintenance                                        |       | 74,572                          |       | 63,185                          |       | 11,387                           |       | 18.0%             |       | 51,702                          |       | 11,483 |   | 22.2% |   |
| Total Commercial Revenues                                                       |       | 340,034                         |       | 269,497                         |       | 70,537                           |       | 26.2%             |       | 225,101                         |       | 44,396 |   | 19.7% |   |
| Consumer Revenues — Mobile Devices and Accessories                         |       | 137,295                         |       | 243,530                         |       | (106,235)                        |       | (43.6%)           |       | 127,573                         |       | 115,957 |   | 90.9% |   |
| Total Revenues                                                                  |       | $  477,329            |       | $  513,027            |       | $  (35,698)            |       | (7.0%)            |       | $  352,674            |       | $ 160,353 |   | 45.5% |   |

 

20

----

 
| **(Dollars in thousands, except per share data)** | ** ** | ** **                                      | ** ** | ** **                                      | ** ** | **2005 to 2006**           | ** ** | ** **        | ** ** | **2004 to 2005**          | ** ** |
|---------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|--------------------------------------|------------|-------------------|------------|-------------------------------------|------------|
| ** **                                                                      | ** ** | **2006**                                        | ** ** | **2005**                                        | ** ** | **$ Change**                    | ** ** | **% Change** | ** ** | **2004**                            | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Commercial Gross  Profit                                                        |       |                                            |       |                                            |       |                                 |       |              |       |                                |       |   |   |   |   |
| Network Infrastructure:                                                         |       |                                            |       |                                            |       |                                 |       |              |       |                                |       |   |   |   |   |
| Public Carriers and Network Operators                                           |       | $   12,669                       |       | $   13,248                       |       | $     (579) |       | (4.4%)            |       | $ 11,503                       |       | $   1,745 |   | 15.2% |   |
| SMUs, Governments and Resellers                                                 |       | 22,076                                          |       | 17,798                                          |       | 4,278                                |       | 24.0%             |       | 17,005                              |       | 793 |   | 4.7% |   |
| Total Network Infrastructure                                                    |       | 34,745                                          |       | 31,046                                          |       | 3,699                                |       | 11.9%             |       | 28,508                              |       | 2,538 |   | 8.9% |   |
|                                                                            |       |                                            |       |                                            |       |                                 |       |              |       |                                |       |   |   |   |   |
| Mobile Devices and Accessories:                                                 |       |                                            |       |                                            |       |                                 |       |              |       |                                |       |   |   |   |   |
| Public Carriers and Network Operators                                           |       | 781                                             |       | 851                                             |       | (70)                                 |       | (8.2%)            |       | 949                                 |       | (98) |   | (10.3%) |   |
| SMUs, Governments and Resellers                                                 |       | 27,858                                          |       | 19,572                                          |       | 8,286                                |       | 42.3%             |       | 14,015                              |       | 5,557 |   | 39.7% |   |
| Total Mobile Devices and Accessories                                            |       | 28,639                                          |       | 20,423                                          |       | 8,216                                |       | 40.2%             |       | 14,964                              |       | 5,459 |   | 36.5% |   |
|                                                                            |       |                                            |       |                                            |       |                                 |       |              |       |                                |       |   |   |   |   |
| Installation, Test and Maintenance:                                             |       |                                            |       |                                            |       |                                 |       |              |       |                                |       |   |   |   |   |
| Public Carriers and Network Operators                                           |       | 3,961                                           |       | 4,548                                           |       | (587)                                |       | (12.9%)           |       | 5,053                               |       | (505) |   | (10.0%) |   |
| SMUs, Governments and Resellers                                                 |       | 18,791                                          |       | 11,802                                          |       | 6,989                                |       | 59.2%             |       | 8,732                               |       | 3,070 |   | 35.2% |   |
| Total Installation, Test and Maintenance                                        |       | 22,752                                          |       | 16,350                                          |       | 6,402                                |       | 39.2%             |       | 13,785                              |       | 2,565 |   | 18.6% |   |
| Total Commercial Gross Profit                                                   |       | 86,136                                          |       | 67,819                                          |       | 18,317                               |       | 27.0%             |       | 57,257                              |       | 10,562 |   | 18.4% |   |
| Consumer Gross Profit — Mobile Devices and Accessories                     |       | 16,877                                          |       | 27,028                                          |       | (10,151)                             |       | (37.6%)           |       | 20,389                              |       | 6,639 |   | 32.6% |   |
| Total Gross Profit                                                              |       | $ 103,013                                  |       | $   94,847                       |       | $   8,166             |       | 8.6%              |       | $ 77,646                       |       | $ 17,201 |   | 22.2% |   |
|                                                                            |       |                                            |       |                                            |       |                                 |       |              |       |                                |       |   |   |   |   |
| Selling, general  and administrative expenses                                   |       | $   94,269                       |       | $   84,748                       |       | $   9,521             |       | 11.2%             |       | $ 73,444                       |       | $   1,304 |   | 15.4% |   |
| Benefit from  insurance proceeds                                                |       | —                                          |       | —                                          |       | —                               |       | —            |       | (3,054)                             |       | 3,054 |   | NM |   |
| Restructuring  charges                                                          |       | —                                          |       | —                                          |       | —                               |       | —            |       | 2,286                               |       | (2,286) |   | NM |   |
| Income from operations                                                          |       | 8,744                                           |       | 10,099                                          |       | (1,355)                              |       | (13.4%)           |       | 4,970                               |       | 5,129 |   | 103.2% |   |
| Interest, net                                                                   |       | 359                                             |       | 166                                             |       | 193                                  |       | 116.3%            |       | 168                                 |       | (2) |   | (1.2%) |   |
| Income before provision for income taxes                                        |       | 8,385                                           |       | 9,933                                           |       | (1,548)                              |       | (15.6%)           |       | 4,802                               |       | 5,131 |   | 106.9% |   |
| Provision for  income taxes                                                     |       | 3,270                                           |       | 3,866                                           |       | (596)                                |       | (15.4%)           |       | 1,910                               |       | 1,956 |   | 102.4% |   |
| Net income                                                                      |       | $     5,115            |       | $     6,067            |       | $     (952) |       | (15.7%)           |       | $   2,892            |       | $   3,175 |   | 109.8% |   |
|                                                                            |       |                                            |       |                                            |       |                                 |       |              |       |                                |       |   |   |   |   |
| Diluted earnings per  share                                                     |       | $       1.20 |       | $       1.39 |       | $    (0.19)      |       | (13.7%)           |       | $     0.65 |       | $     0.74 |   | 113.8% |   |

----

NM — not meaningful

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

Revenues. Revenues for fiscal year 2006decreased 7% as compared with fiscal year 2005, primarily due to a 44% decreasein consumer revenues as a result of the transition in the second quarter offiscal year 2006 of our T-Mobile relationship as discussed above. This decreasein consumer revenues was largely offset by a 26% increase in commercialrevenues, driven by growth in each of our three commercial lines of business.

Our mobile devices and accessories revenues,including both commercial and consumer sales, decreased 20% for fiscal year2006 compared with fiscal year 2005. We experienced significant growth incommercial sales of mobile devices and accessory products, which was offset bya significant decline in consumer sales. Commercial revenues for mobile devicesand accessories, which are sold primarily to SMUs, governments and resellers,but also to public carriers and network operators, increased 55% over the prioryear, due in part to new product introductions, enhanced merchandising andpackaging programs and new wireless carrier retail relationships. The decreasein consumer sales of mobile devices and accessories was primarily due to thetransition of our T-Mobile affinity relationship in the second quarter offiscal year 2006. Our T-Mobile affinity relationship accounted forapproximately 26% and 12% of total revenues and gross profit, respectively, infiscal year 2006 and approximately 44% and 20% of total revenues and grossprofit, respectively, in fiscal year 2005.

21

----

The 14% increase in our network infrastructure salesfor this fiscal year over the same period of last year is primarilyattributable to an increase in sales of fixed wireless broadband products andradio frequency (RF) propagation products. The market for broadband and networkequipment products continues to emerge and grow. All of our growth in sales ofnetwork infrastructure product was in sales to SMUs, governments and resellers,as we have focused on diversification beyond the traditional infrastructurecarrier customer. Although we believe the market for both broadband and RFpropagation products will continue to grow, there can be no assurance thatthese trends will continue.

Revenues from our installation, test and maintenanceline of business increased 18% from the prior-year period, primarily due toincreased sales of repairparts and components, tools, shop supplies and safety apparel andequipment, which were partially offset by decreased revenues from test and bench equipment.

**GrossProfit.**Gross profitgrew 9% in fiscal year 2006 compared with fiscal year 2005, driven by growth ineach of our three commercialbusiness segments. Commercial gross profit grew 27% and was partially offset bya 38% decrease in consumer gross profit. Gross profit margin increased to 21.6%in fiscal year 2006 from 18.5% in fiscal year 2005. Gross profit margindecreased slightly in our network infrastructure segment, from 23.7% to 23.3%,and increased to 30.5% from25.9% in our installation, test and maintenance segment. Generally, our grossmargins by product within these segments have been sustained and thesevariations are related to sales mix within the segment product offerings,including repair and replacement parts in our installation, test andmaintenance line of business, an increased portion of which wasaccounted for on a net revenue basis. Gross profit margin in our mobile devicesand accessories segment increased to 17.9% in fiscal year 2006 from 14.9% infiscal year 2005, due to changes in sales mix. The gross profit margin for ourconsumer sales increased slightly over the prior-year period due to the loss oflower margin handset sales and the receipt of standby fees from our T-Mobilerelationship which was transitioned in the second quarter of fiscal year 2006. Thedecrease in commercial gross profit margin for our mobile devices andaccessories segment, from 27.1% for fiscal year 2005 to 24.6% for fiscal year2006, is attributable to sales mix within the product offering in part due tonew retail relationships established during fiscal year 2006. During fiscalyear 2006, we began sourcing a significant portion of our private brandedsubscriber accessory product line directly from factories in China. Prior tofiscal 2006, we purchased this type of product from U.S. sources. While salesof these directly sourced products represent a relatively immaterial percentageof our total sales, we believe that this direct sourcing initiative has allowedus to realize lower costs of goods sold on sales of these products afteraccounting for additional supply chain costs and lead times. We also believethat these cost savings have allowed us to be more competitive in the market. Weaccount 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.

Our ongoing ability to earn revenues and gross profitsfrom customers and vendors looking to us for product and supply chain solutionsis dependent upon a number of factors. The terms, and accordingly the factors,applicable to each affinity relationship often differ. Among these factors arethe strength of the customer’s or vendor’s business, the supply and demand forthe product or service, including price stability, changing customer or vendorrequirements, and our ability to support the customer or vendor and to continually demonstrate that we canimprove the way they do business. In addition, the agreements or arrangements on which our affinityrelationships are based are typically of limited duration, and are terminableby either party upon several months or otherwise short notice. These affinityrelationships could also be affected by wireless carrier consolidation.

**Selling,General and Administrative Expenses.**Total selling, general and administrative expenses increased by 11%during fiscal year 2006 as compared with fiscal year 2005. Total selling,general and administrative expenses as a percentage of revenues increased from17% in fiscal year 2005 to 20% in fiscal year 2006 due to the increase inexpense as discussed below.

The largest factors contributing to the increase intotal selling, general and administrative expenses were increased labor fulfillmentcosts and expenses related to business generation activities. These increasesare reflective of our increased focus on our commercial business during fiscalyear 2006. During the fourth quarter of fiscal year 2005, fulfillment costs andlabor costs increased due to start-up issues associated with our newConfiguration, Fulfillment and Delivery technology system that was initiatedduring that quarter. We continued to see increases in fulfillment costs andlabor costs in the first quarter of fiscal year 2006 related to this system,but to a lesser extent. Labor costs have also increased over the prior-yearperiod, related to investments in business generation personnel in an effort todrive commercial revenue growth. Total labor costs, including benefits,increased by approximately $5.0 million from fiscal year 2005 to fiscal year2006.

Marketing expenses also increased in fiscal year 2006as 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 quarterof fiscal year 2006, we launched programs designed to increase our base ofcustomers and our customers’ monthly purchases. Although we believe that theseprograms contributed to the growth in our commercial business during

22

----

fiscal year 2006,there can be no assurance as to the extent that these programs will increasefuture revenues or gross profits. Total marketing and sales promotion expensesincreased by approximately $2.4 million from fiscal year 2005 to fiscal year2006.

We continually evaluate the credit worthiness of ourexisting customer receivable portfolio and provide an appropriate reserve basedon this evaluation. We also evaluate the credit worthiness of prospectivecustomers and make decisions regarding extension of credit terms to suchprospects based on this evaluation. Accordingly, we recorded a provision for bad debts of $742,800 and $1,227,000 for fiscal year2006 and fiscal year 2005, respectively.

**Interest,Net.**Net interestexpense increased from $166,200 in fiscal year 2005 to $358,500 in fiscal year2006, 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 receive variable/pay fixed interest rate swap on ourexisting bank loan, thus fixing the interest rate on this loan at 6.38%.Interest expense on our other debt instruments had only minor variances fromyear-to-year in total.

**Income Taxes, Net Income and DilutedEarnings Per Share.**The effective tax rates in fiscal year2006 and 2005 were 39.0% and 38.9%, respectively. The effective tax rate forfiscal year 2006 increased due to minor changes in our relationship betweennon-deductible expenses and taxable income, as well as changes in thetaxability in certain states. As a result of the factors discussed above, netincome and diluted earnings per share for fiscal year 2006 decreased 16% and14%, respectively, compared with fiscal year 2005.

**Fiscal Year 2005 Compared to Fiscal Year 2004**

**Revenues.**Revenuesgrew 46%, in fiscal year 2005 over fiscal year 2004 driven by growth in each ofour three business segments and both our commercial and consumer markets. Totalcommercial sales grew 20%, while consumer sales grew 91%.

We experienced significant growth in both commercialand consumer sales of mobile devices and accessory products. The increase inconsumer sales of mobile devices and accessories revenues was primarily due tostrong growth in our affinity consumer-direct sales channel, primarily attributed to increased volumes from ourT-Mobile affinity relationship. Handset and accessory revenues from thisaffinity relationship with T-Mobile collectively accounted for approximately44% of total revenues in fiscal year 2005; however, gross profit generatedthrough the T-Mobile relationship represented only 20% of our total grossprofit.  In fiscal year 2005, aggregatesales of mobile devices and accessories through both our T-Mobile relationshipand our other affinity consumer-direct sales channels represented 47% of ourtotal revenues, but because a significant portion of these sales relate tolower margin handset sales as described below, gross profit from these salesrepresented only 29% of our total gross profit. Commercial revenues for mobiledevices and accessories, which are sold primarily to SMUs, governments andresellers, but also to public carriers and network operators, increased 28%over the prior year, due in part to enhanced merchandising and packagingprograms and an increase in data product sales.

The 14% increase in our network infrastructure saleswas attributable to increases in sales of RF propagation products such asantennas and cable, as well as increased sales of broadband and in-buildingproducts. We believe that pent up demand for new technologies and increasedspending in homeland security and public safety contributed to our growth inthis line of business. During fiscal year 2005, we increased marketing effortsin this area, added several new vendors and improved inventory availability. Theseinitiatives led to growth in broadband sales of approximately 20% in fiscalyear 2005.

The 22% increase in installation, test and maintenancerevenues was primarily attributable to increased sales of high-dollar test equipment and increasedsales of repair and replacement parts under our relationships with severaloriginal equipment manufacturers. We believe that the increased capitalspending leading to our growth in network infrastructure sales also contributedto the increase in installation, test and maintenance sales.

**Gross Profit.**Grossprofit grew 22% in fiscal year 2005 compared to fiscal 2004, driven by growthin each of our three business segments and both of our commercial and consumermarkets. Total commercial gross profit grew 18%, while consumer gross profitgrew 33%. Gross profit margin decreased to 18.5% in fiscal year 2005 from 22.0%in fiscal 2004. Gross profit margin decreased to 23.7% from 24.9% in ournetwork infrastructure segment and decreased to 25.9%

23

----

from26.7% in our installation, test and maintenance segment. Generally, our grossmargins by product within these segments were sustained and these minorvariations were related to sales mix within the segment product offerings,including the sales growth of lower margin broadband products in our networkinfrastructure line of business. Gross profit margin in our mobile devices andaccessories segment decreased to 14.9% from 19.0%. This decrease was whollyattributable to a decrease in gross profit margin for our consumer sales, andwas minimally offset by an increase in gross profit margin for our commercialsales. The decrease in gross profit margin for our consumer sales, from 16.0%to 11.1%, was due to significantly increased volume of lower margin handsetsales attributable to our affinity relationship with T-Mobile. The minorincrease in commercial gross profit margin for our mobile devices andaccessories segment, from 25.5% in fiscal year 2004 to 27.1% in fiscal year2005, was attributable to sales mix within the product offering.

**Selling, General and AdministrativeExpenses**. Totalselling, general and administrative expenses increased by 15% in fiscal year 2005 compared with fiscal 2004. Due tothe increase in revenues and other factors discussed below, total selling, general and administrative expenses decreased as apercentage of revenues to 16.5% in fiscal year 2005, from 20.8% in fiscal 2004.

The largest factorcontributing to the increase in total selling, general and administrativeexpenses was increased fulfillment costs associated with the large growth inconsumer revenue and to a lesser extent, the growth in commercial sales. Largelybecause of the success of our affinity relationships, the number of orders wedelivered in fiscal year 2005 grew 36% compared to fiscal 2004. 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 the quarter.

Also contributing to the increase in total selling,general and administrative expenses were costs associated with our rewardplans, including the expensing of stock options, expenses associated withPerformance Stock Units (PSU), and accrual of bonus and other cash rewardpayments. During fiscal year 2005, we recognized stock compensation expense,primarily associated with the PSUs and the expensing of previously issued stockoptions, of $886,900.

Occupancy costs also increased due to rent and relatedcosts associated with our sales, marketing and administrative offices. Through May 2004,these occupancy obligations were reimbursed through insurance proceeds, and in June offiscal year 2005, we became solely responsible for these ongoing obligations. Thisleased space was originally used as temporary space during the October 2002disaster. Following the disaster and during the subsequent rebuilding of ourGlobal Logistics Center, we decided to continue using this facility. Thisrental expense increase was partially offset by rent expense savings related toa facility that was consolidated into our Global Logistics Center near the endof the third quarter of fiscal 2004, at which time we incurred a charge for theremaining lease payments for the consolidated facility, which ran through March 2006.

Beginning in fiscal year 2005, credit card and otherbanking and related fees are included in selling, general and administrativeexpenses; these fees had previously been classified as interest, fees and otherexpense, net on the Consolidated Statements of Income. Credit card and otherbanking and related fees for fiscal 2004 and prior years have been reclassifiedto selling, general and other administrative expenses to conform to the currentyear presentation. These fees increased $518,100 from fiscal year 2004 to fiscalyear 2005, primarily due to higher credit card fees associated with theincrease in consumer sales.

We continually evaluate the credit worthiness of ourexisting customer receivable portfolio and provide an appropriate reserve basedon this evaluation. We also evaluate the credit worthiness of prospectivecustomers and make decisions regarding extension of credit terms to suchprospects based on this evaluation. Accordingly, we recorded a provision forbad debts of $1,227,000 and $999,000 for the years ended March 27, 2005and March 28, 2004, respectively.

**Interest, Net.**Netinterest expense for fiscal year 2005 was flat as compared with fiscal year2004 as we only took minor draws on our revolving credit facility in each year.Interest expense on our other debt instruments had only minor variances fromyear-to-year in total.

**Income Taxes, Net Income and DilutedEarnings Per Share.**The effective tax rates in fiscal year2005 and 2004 were 38.9% and 39.8%, respectively. The effective tax rate forfiscal year 2005 decreased due to minor changes in the relationship betweennon-deductible expenses and taxable income. As a result of the factorsdiscussed above driving growth in sales, gross profit and selling, general andadministrative expenses, net income and diluted earnings per share for fiscalyear 2005 increased 110% and 114%, respectively, compared with fiscal year2004.

24

----

**Liquidity and Capital Resources**

We had a net cash inflow from operating activities of$3.3 million in fiscal year 2006 compared with a net cash inflow of $4.3million in fiscal year 2005. In fiscal year 2006, our cash inflow fromoperating 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. Thedecreases in inventory, trade accounts receivable and trade accounts payableare primarily related to the termination of our T-Mobile affinity relationshipin the second quarter of fiscal year 2006. 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 of $2.9 million in fiscal 2006were down approximately 34% from expenditures of $4.4 million in fiscal year2005. In both periods, capital expenditures primarily consisted of investmentin information technology.

Net cash used in financing activities was $2.0 millionin fiscal year 2006 compared with $2.8 million for fiscal year 2005. Duringfiscal year 2006, we purchased 133,800 shares of our outstanding common stockpursuant to our stock buyback program, compared with 254,003 shares purchasedin fiscal year 2005. From the beginning of our stock buyback program (the firstquarter of fiscal year 2004), through the end of fiscal year 2006, a total of500,703 shares have been purchased under this program for approximately $5.7million, or an average price of $11.44 per share. The Board of Directors hasauthorized the purchase of up to 900,000 shares in the aggregate, andtherefore, 399,297 shares remained available to be purchased as of the end offiscal year 2006. We expect to fund future purchases, if any, from workingcapital and/or our revolving credit facility. No timetable has been set for thecompletion of this program.

We have a term loan in the original principal amountof $4.5 million with Wachovia Bank, N.A. and SunTrust Bank and is payable inmonthly installments of principal and interest with the balance due atmaturity, June 30, 2011. The note bears interest at a floating rate ofLIBOR plus 1.75%. The note is secured by a first position deed of trustencumbering the Company-owned real property in Hunt Valley, Maryland. The loanis subject to generally the same financial covenants as our revolving creditfacility. This loan had a balance of $4,125,000 at March 26, 2006.

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 rateswap agreement locks the interest rate for the outstanding principal balance ofthe loan at 6.38% through June 30, 2011. There was no payment due orreceived 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 hedge qualified for hedge accounting using theshort-cut method since the swap terms match the critical terms of the hedgeddebt.

Working capital increased to $45.7 million as of March 26,2006, from $41.0 million as of March 27, 2005. Shareholders’ equityincreased to $65.1 million as of March 26, 2006, from $60.8 million as of March 27,2005.

To minimize interest expense, our policy is to useexcess available cash to pay down any balance on our $30 million revolvingcredit facility. We expect to meet short-term and long-term liquidity needsthrough operating cash flow, supplemented by our existing revolving creditfacility. In doing so, the balance on our revolving credit facility couldincrease depending on our working capital and other cash needs. If we were toundertake an acquisition or other major capital purchases that require funds inexcess of its existing sources of liquidity, we would look to sources offunding from additional credit facilities, debt and/or equity issuances. Therecan be no assurances that such additional future sources of funding would beavailable.

Our currently existing $30 million revolving creditfacility with Wachovia Bank, N.A. and Sun Trust Bank expires in September 2007,and although we expect to either extend or replace this facility, there can beno assurances that we will be able to do so on favorable terms, or at all. Thisfacility is unsecured and interest is payable monthly at the LIBOR rate plus anapplicable margin, which ranges from 1.5% to 2.0%. The facility is subject to aborrowing base based on levels of trade accounts receivable and inventory, andis also subject to certain financial covenants, conditions and representations.

25

----

We were in compliance with these covenants at March 26, 2006.There was no outstanding balance on our revolving line of credit facility at March 26,2006.

In April 2006,we acquired substantially all the non-cash net assets of TerraWave Solutions,Ltd. and its commonly owned affiliate, GigaWave Technologies, Ltd. for aninitial 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 prepayment against future earn-out payments, ifany). To the extent that certainminimum earnings thresholds are not achieved, we will not be able to recoverthis prepayment. The maximum amount of contingent future earn-outpayments (after subtracting the $1.5 million prepayment) is $15.5 million. The$3.8 million paid to date was funded through our revolving credit facility. Futureearn-out payments, if any, are expected to be funded through operating cashflow, supplemented by our revolving credit facility, if needed.

We generated $4.3 million of net cash from operatingactivities in fiscal year 2005 compared to $5.6 million in fiscal year 2004. Infiscal year 2005, our cash flow from operations was driven largely by netincome plus depreciation and amortization and a significant increase in tradeaccounts payable, partially offset by significant increases in both accountsreceivable and product inventory. The large increase in accounts payable islargely a result of increased inventory purchases. These inventory purchaseswere necessary to support increased sales volumes and are related to all linesof business, but were primarily related to handsets and accessories in theconsumer mobile devices and accessories business. In most cases, we havenegotiated open payment terms with our vendors and manufacturers. We negotiatethe duration of these payment terms when establishing and/or renewingrelationships with vendors and manufacturers and attempt to balance the paymentterms with other factors such as pricing, availability of competitive productsand anticipated demand. The timing of payments related to past purchases andthe amount of future inventory purchases will create periodic increases anddecreases in the accounts payable balance. Trade accounts receivable grewsignificantly in fiscal year 2005 due to increased sales to our customers, manyof whom maintain accounts with open terms.

Capital expenditures totaled $4.4 million in fiscalyear 2005, primarily related to investments in information technology,including our Configuration, Fulfillment and Delivery technology system. Infiscal year 2004, capital expenditures totaled $5.0 million, comprisedprimarily of investments in information technology and the rebuilding of theGlobal Logistics Center. Also in fiscal year 2004, insurance proceeds relatedto property and equipment totaled $7.2 million.

We used $2.8 million of net cash from financingactivities in fiscal year 2005 compared with a net usage of $0.9 million infiscal year 2004. The increase in cash used was primarily related to increasedpurchases of our common stock pursuant to our stock buyback program. Throughthe end of fiscal year 2005, 366,903 shares of our outstanding common stockwere purchased for approximately $3.7 million or an average price of $9.98 pershare. Of the total shares repurchased, 254,003 shares were repurchased infiscal year 2005 at an average price of $11.45 per share and 112,900 shareswere repurchased in fiscal year 2004 at an average price of $6.68 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 these financial statements requires us tomake estimates and judgments that affect the reported amount of assets,liabilities, revenues and expenses and related disclosure of contingent assetsand liabilities. Actual results may differ from these estimates under differentassumptions or conditions.

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

*Revenue Recognition.*We recordrevenue when 1) persuasive evidence of an arrangement exists, 2) delivery hasoccurred or services have been rendered, 3) our price to the buyer is fixed anddeterminable, and 4) collectibility is reasonably assured. Our revenuerecognition policy includes evidence of arrangements for significant revenuetransactions through either receipt of a customer purchase order or a web-basedorder. We record revenue when risk of loss has passed to the customer and, inmost cases, shipments are made using FOB shipping terms. For a small portion ofour sales, we use FOB destination terms and record the revenue when the productis received by the customer. Our prices are always fixed at

26

----

the time of sale. Historically, there have not been any materialconcessions provided to or by customers, future discounts, or other incentivessubsequent to a sale. We sell under normal commercial terms and, therefore, weonly record sales on transactions where collectibilty is reasonably assured.

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

Our current and potential customers are continuing tolook for ways to reduce their inventories and lower their total costs,including distribution, order taking and fulfillment costs, while stillproviding their customers excellent service. Some of these companies haveturned to us to implement supply chain solutions, including purchasinginventory, assisting in demand forecasting, configuring, packaging, kitting anddelivering products and managing customer relations, from order taking throughcash collections. In performing these solutions, we assume varying levels ofinvolvement in the transactions and varying levels of credit and inventory risk.As our solutions offerings continually evolve to meet the needs of ourcustomers, we constantly evaluate our revenue accounting based on the guidanceset forth in accounting standards generally accepted in the United States. Whenapplying this guidance in accordance with Emerging Issues Task Force (EITF) No. 99-19,“Reporting Revenue Gross as a Principal versus Net as an Agent,” we look at thefollowing indicators: whether we are the primary obligor in the transaction;whether we have general inventory risk; whether we have latitude inestablishing price; the extent to which we change the product or perform partof the service; whether we have responsibility for supplier selection; whetherwe are involved in the determination of product and service specifications;whether we have physical inventory risk; whether we have credit risk; andwhether the amount we earn is fixed. Each of our 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 our sales relationships, we haveconcluded that we are the principal in the transaction and we record revenuebased upon the gross amounts earned and booked. However, we do have certainrelationships where we are not the principal and we record revenue on a net feebasis, regardless of amounts billed (less than 5% of our total revenue). Ifapplying this revenue recognition guidance resulted in recording revenue on adifferent basis from which we have previously concluded, or if the factorsabove change significantly, revenues could increase or decrease; however, ourgross profit and net income would remain constant.

Most of our sales arrangements do not contain multipleelements. However, when we enter into arrangements that do contain multipleelements, we follow the guidance under EITF No. 00-21, “RevenueArrangements with Multiple Deliverables.” Therefore, at the inception of the arrangement, we determine if eachdeliverable under the arrangement represents a separate unit of accounting. Wedo this by determining whether the undelivered items have value to the customeron a stand-alone basis (if it is sold separately by any other vendor or thecustomer could resell the delivered item on a stand-alone basis), if there isobjective and reliable evidence of the fair value of the item, and whether thedelivery or performance of the undelivered item is considered probable andsubstantially in our control (in cases where the arrangement includes a generalright of return relative to the delivered item). During the first six months ofthe fiscal year, we had one significant multiple element arrangement, whichincluded product configuration and distribution, web development, and webhosting/maintenance activities. All of the elements were delivered and billedbased on output measures on a monthly basis. Fees and the billings for theseelements were structured in a manner that reflected performance on the contractin accordance with the output measures; therefore, we recognized revenues basedon the billing provisions in the contract. This relationship was terminated atthe end of the second quarter.

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

27

----

transactions. We charge-off receivables deemed to be uncollectible tothe allowance for doubtful accounts. Accounts receivable balances are notcollateralized.

*Impairment of Long-Lived and Indefinite-LivedAssets.*Our Consolidated Balance Sheet includes goodwill ofapproximately $2.5 million. We perform an annual impairment test for goodwillon the first day of our fourth quarter. We also periodically evaluate ourlong-lived assets and intangible assets for potential impairment indicators. Ourjudgments regarding the existence of impairment indicators are based onestimated future cash flows, market conditions, operational performance andlegal factors. Future events, such as significant changes in cash flowassumptions, could cause us to conclude that impairment indicators exist andthat the net book value of goodwill, long-lived assets or intangible assets areimpaired. Had the determination been made that the goodwill asset was impaired,the value of this asset would have been reduced by an amount up to $2.5million, resulting in a charge to operations.

*Income Taxes.*We recognizedeferred tax assets and liabilities based on the differences between thefinancial statement carrying amounts and the tax bases of assets andliabilities. We regularly review our deferred tax assets for recoverability. Thisreview is based on historical taxable income, projected future taxable incomeand the expected timing of the reversals of existing temporary differences. Basedon this review, we have not established a valuation allowance.  If we are unable to generate sufficienttaxable income, or if there is a material change in the actual effective taxrates or time period within which the underlying temporary differences becometaxable or deductible, we could be required to establish a valuation allowanceagainst all or a significant portion of our deferred tax assets, resulting in asubstantial increase in our effective tax rate and a material adverse impact onour operating results.

*Stock-Based Compensation.*EffectiveMarch 29, 2004, we adopted the fair value provisions of SFAS No. 123,“Accounting for Stock-Based Compensation,” using the modified prospectivemethod, as prescribed by SFAS No. 148, “Accounting for Stock-BasedCompensation-Transition and Disclosure.” Accordingly, beginning in fiscal year 2005, we began recognizing stockcompensation expense related to stock options and other equity instrumentsusing fair-value methods.

Also under SFAS No. 123, we record compensationexpense on our PSUs over the vesting period, based on the number of sharesmanagement estimates will ultimately be issued. Accordingly, we determine theperiodic financial statement compensation expense based upon the stock price atthe PSU grant date; our projections of probable future EPS performance over theperformance cycle; and the resulting amount of estimated share grants, net ofactual forfeitures. Future changes in factors impacting the ultimate number ofshares granted could cause these estimates to change significantly in futureperiods.

In December 2004, the Financial AccountingStandards Board (FASB) issued SFAS No. 123R, “Share-Based Payment,” arevision of SFAS No. 123, “Accounting for Stock-Based Compensation” andsuperseding APB No. 25, “Accounting for Stock Issued to Employees.”  This statement requires companies to expensestock options and other equity compensation instruments using fair valuemethods. Under the provisions of SFAS No. 123R, the amount of tax benefitsrelating to stock compensation, which have been included in operating cashflows for the period prior to the effective date will be reported in financingcash flows once the statement becomes effective. We adopted the fair valueexpense recognition provisions of SFAS No. 123 on March 29, 2004. Accordingly,other than the timing issue discussed below, the adoption of SFAS No. 123Ris not expected to have a material impact on our consolidated financialposition or results of operations. Currently, our calculation of stockcompensation expense includes actual forfeitures; however, SFAS No. 123Rwill require us to include estimated forfeitures, and therefore, the requiredadoption of SFAS No. 123R could have a material impact on the timing ofand, based on the accuracy of estimates of future actual forfeiters, the amountstock compensation expense. SFAS No. 123R is effective for us beginning infiscal year 2007. We may adopt SFAS No. 123R using either the modifiedprospective transition method, or the retrospective transition method. Weanticipate adopting the standard using the modified prospective method.

Further, in March 2005, the SEC issued StaffAccounting Bulletin (SAB) No. 107 regarding the interaction between SFAS No. 123Rand certain SEC rules and regulations and provided the staff’s viewsregarding the valuation of share-based payment arrangements for publiccompanies. In particular, SAB No. 107 provides guidance related toshare-based payment transactions with non-employees, valuation methods(including assumptions such as expected volatility and expected term), theaccounting for certain redeemable financial instruments issued undershare-based payment arrangements, the classification of compensation expense,non-GAAP financial measures, first-time adoption of SFAS No. 123R in aninterim period, capitalization of compensation cost related to share-basedpayment arrangements, the accounting

28

----

for income taxeffects of share-based payment arrangements upon adoption of SFAS No. 123R,the modification of employee share options prior to adoption of SFAS No. 123Rand disclosures in Management’s Discussion and Analysis subsequent to adoptionof the SFAS No. 123R.

**Summary Disclosures about Contractual Obligationsand Commercial Commitments**

The following tables reflect a summary of ourcontractual cash obligations and other commercial commitments as of March 26,2006:
| ** **                          | ** ** | **Payment Due by Fiscal Year** | ** ** |
|-------------------------------------|------------|----------------------------------------------------|------------|
| ** **                          | ** ** | **Total**                                          | ** ** | **Less Than  1 Year** | ** ** | **Years 1-3** | ** ** | **Years 4-5** | ** ** | **More Than  5 Years** | ** ** |
|                                |       |                                               |       |   |   |   |   |   |   |   |   |
| Long-term debt                      |       | $                                                  | 5,001,900  |   | $ | 442,500 |   | $ | 716,300 |   | $ | 732,700 |   | $ | 3,110,400 |   |
| Revolving credit  facility          |       | —                                             |       | — |   | — |   | — |   | — |   |
| Operating  lease—office        |       | 1,478,600                                          |       | 1,478,600 |   | — |   | — |   | — |   |
| Interest  payments                  |       | 1,277,200                                          |       | 280,500 |   | 502,800 |   | 429,000 |   | 64,900 |   |
| Other long-term  liabilities        |       | 1,379,000                                          |       | — |   | 801,000 |   | 150,000 |   | 428,000 |   |
| Total  contractual cash obligations |       | $                                                  | 9,136,700  |   | $ | 2,201,600 |   | $ | 2,020,100 |   | $ | 1,311,700 |   | $ | 3,603,300 |   |

 

Other long-term liabilities include amounts owed underthe deferred compensation plan and Supplemental Executive Retirement Plan. Interestpayments include amounts owed on notes payable at their stated contractualrate, as well as interest payments on our note with a bank at a fixed rate of6.38%.

The table above does not include the cash payment ofapproximately $3.8 million in April 2006 for the acquisition of non-cashassets and businesses of TerraWave Solutions, Ltd. and its commonly ownedaffiliate, GigaWave Technologies, Ltd. Also excluded from the table arepotential additional cash earn-out payments of up to $15.5 million related tothis acquisition over the next four-year period, which are contingent on theachievement of certain minimum earnings thresholds. While these contingentpayments are not fixed at present, they represent potential future commitments.

**Off-Balance Sheet Arrangements**

We have no materialoff-balance sheet arrangements.

**Recent Accounting Pronouncements**

In December 2004, the FASB issued SFAS No. 123R,“Share-Based Payment,” a revision of SFAS No. 123, “Accounting forStock-Based Compensation” and superseding APB No. 25, “Accounting forStock Issued to Employees.”  Thisstatement requires companies to expense stock options and other equitycompensation instruments using fair value methods. Under the provisions of SFASNo. 123R, the amount of tax benefits relating to stock compensation, whichhave been included in operating cash flows for the period prior to theeffective date will be reported in financing cash flows once the statementbecomes effective. We adopted the fair value expense recognition provisions ofSFAS No. 123 on March 29, 2004. Accordingly, other than the timingissue discussed below, the adoption of SFAS No. 123R is not expected tohave a material impact on our consolidated financial position or results ofoperations. Currently, our calculation of stock compensation expense includesactual forfeitures; however, SFAS No. 123R will require us to includeestimated forfeitures, and therefore, the required adoption of SFAS No. 123Rcould have a material impact on the timing and, based on the accuracy of ourestimates of future actual forfeitures, the amount of stock compensationexpense. SFAS No. 123R is effective for us beginning in fiscal year 2007. Wemay adopt SFAS No. 123R using either the modified prospective transitionmethod, or the retrospective transition method. We anticipate adopting thestandard using the modified prospective method.

Further, in March 2005, the SEC issued SAB No. 107regarding the interaction between SFAS No. 123R and certain SEC rules andregulations and provided the staff’s views regarding the valuation ofshare-based payment arrangements for public companies. In particular, SAB No. 107provides guidance related to share-based payment

29

----

transactions withnon-employees, valuation methods (including assumptions such as expectedvolatility and expected term), the accounting for certain redeemable financialinstruments issued under share-based payment arrangements, the classificationof compensation expense, non-GAAP financial measures, first-time adoption ofSFAS No. 123R in an interim period, capitalization of compensation costrelated to share-based payment arrangements, the accounting for income taxeffects of share-based payment arrangements upon adoption of SFAS No. 123R,the modification of employee share options prior to adoption of SFAS No. 123Rand disclosures in Management’s Discussion and Analysis subsequent to adoptionof the SFAS No. 123R.

**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 considerall forward-looking statements in light of the risks to which they are subject.

### Available Information

Our Internet Web site address is:www.tessco.com. We make available free of charge through our Web site, ourannual report on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K and amendments to those reports filed orfurnished pursuant to Section 13 or 15(d) of the Exchange Act as soonas reasonably practicable after such documents are electronically filed with,or furnished to, the Securities and Exchange Commission. Also available on ourWeb site is our Code of Business Conduct and Ethics. We have not incorporatedherein by reference the information on our Web site, and it should not beconsidered a part of this filing.

**Item 7A. Quantitative and Qualitative Disclosuresabout 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 mayutilize derivative financial instruments, among other strategies. We do not usederivative financial instruments for speculative purposes.

Forthe balance of the information required by this Item, see the “Liquidity andCapital Resources” section of “Management’s Discussion and Analysis ofFinancial Condition and Results of Operation” contained in Item 7 of Part IIof this report, which is incorporated herein by reference.

30

----

**Item 8. Consolidated Financial Statements andSupplementary Data.**

**Consolidated Balance Sheets**
| ** **                                                                                                                                                                                                                                | ** ** | **March 26, 2006** | ** **  | **March 27, 2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|-------------|------------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                                |       |                         |        |                         |       |
| Current assets:                                                                                                                                                                                                                           |       |                         |        |                         |       |
| Cash and cash equivalents                                                                                                                                                                                                                 |       | $                            | 2,286,900   |                         | $          | 3,880,800 |   |
| Trade accounts receivable, net of allowance for  doubtful accounts of $853,600 and $1,196,400, respectively                                                                                                                               |       | 43,576,500                   |        | 60,907,400                   |       |
| Product inventory                                                                                                                                                                                                                         |       | 47,615,700                   |        | 60,832,600                   |       |
| Deferred tax asset                                                                                                                                                                                                                        |       | 2,396,000                    |        | 2,170,000                    |       |
| Prepaid expenses and other current assets                                                                                                                                                                                                 |       | 2,799,200                    |        | 2,828,400                    |       |
| Total current assets                                                                                                                                                                                                                      |       | 98,674,300                   |        | 130,619,200                  |       |
|                                                                                                                                                                                                                                      |       |                         |        |                         |       |
| Property and  equipment, net                                                                                                                                                                                                              |       | 24,619,800                   |        | 26,193,000                   |       |
| Goodwill, net                                                                                                                                                                                                                             |       | 2,452,200                    |        | 2,452,200                    |       |
| Other long-term  assets                                                                                                                                                                                                                   |       | 1,054,100                    |        | 1,292,800                    |       |
| Total assets                                                                                                                                                                                                                              |       | $                            | 126,800,400 |                         | $          | 160,557,200 |   |
| ** **                                                                                                                                                                                                                                |       |                         |        |                         |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                                                                                                                                                            |       |                         |        |                         |       |
| Current liabilities:                                                                                                                                                                                                                      |       |                         |        |                         |       |
| Trade accounts payable                                                                                                                                                                                                                    |       | $                            | 44,984,000  |                         | $          | 82,618,000 |   |
| Accrued expenses and other current liabilities                                                                                                                                                                                            |       | 7,543,400                    |        | 6,638,400                    |       |
| Current portion of long-term debt                                                                                                                                                                                                         |       | 442,500                      |        | 362,600                      |       |
| Total current liabilities                                                                                                                                                                                                                 |       | 52,969,900                   |        | 89,619,000                   |       |
|                                                                                                                                                                                                                                      |       |                         |        |                         |       |
| Deferred tax  liability                                                                                                                                                                                                                   |       | 2,785,300                    |        | 3,561,300                    |       |
| Long-term  debt, net of current portion                                                                                                                                                                                                   |       | 4,559,400                    |        | 5,000,700                    |       |
| Other long-term  liabilities                                                                                                                                                                                                              |       | 1,379,000                    |        | 1,554,100                    |       |
| Total liabilities                                                                                                                                                                                                                         |       | 61,693,600                   |        | 99,735,100                   |       |
|                                                                                                                                                                                                                                      |       |                              |        |                              |       |
| 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; 4,960,697 shares  issued and 4,152,584 shares outstanding as of March 26, 2006, and 4,885,481 shares issued and  4,211,168 shares outstanding as ofMarch 27, 2005 |       | 49,600                       |        | 48,900                       |       |
| Additional paid-in capital                                                                                                                                                                                                                |       | 24,748,700                   |        | 23,578,600                   |       |
| Treasury stock, at cost, 808,113 shares as of  March 26, 2006, and 674,313 shares as of March 27, 2005                                                                                                                          |       | (9,521,100)                  |        | (7,454,400)                  |       |
| Retained earnings                                                                                                                                                                                                                         |       | 49,764,200                   |        | 44,649,000                   |       |
| Accumulated other comprehensive income                                                                                                                                                                                                    |       | 65,400                       |        | —                       |       |
| Total shareholders’ equity                                                                                                                                                                                                           |       | 65,106,800                   |        | 60,822,100                   |       |
| Total  liabilities and shareholders’ equity                                                                                                                                                                                          |       | $                            | 126,800,400 |                         | $          | 160,557,200 |   |

 

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

31

----

**Consolidated Statements of Income**
| ** **                                    | ** ** | **Fiscal Years Ended** | ** **  |
|-----------------------------------------------|------------|----------------------------------|-------------|
| ** **                                    | ** ** | **March 26, 2006**     | ** **  | **March 27, 2005** | ** ** | **March 28, 2004** | ** ** |
|                                          |       |                             |        |   |   |   |   |
| Revenues                                      |       | $                                | 477,329,300 |   | $ | 513,027,300 |   | $ | 352,674,300 |   |
| Cost of goods  sold                           |       | 374,316,300                      |        | 418,180,500 |   | 275,028,200 |   |
| Gross profit                                  |       | 103,013,000                      |        | 94,846,800 |   | 77,646,100 |   |
| Selling, general  and administrative expenses |       | 94,268,800                       |        | 84,747,400 |   | 73,444,300 |   |
| Benefit from  insurance proceeds              |       | —                           |        | — |   | (3,054,000 | ) |
| Restructuring  charges                        |       | —                           |        | — |   | 2,285,700 |   |
| Income from operations                        |       | 8,744,200                        |        | 10,099,400 |   | 4,970,100 |   |
| Interest, net                                 |       | 358,500                          |        | 166,200 |   | 167,700 |   |
| Income before provision for income taxes      |       | 8,385,700                        |        | 9,933,200 |   | 4,802,400 |   |
| Provision for  income taxes                   |       | 3,270,500                        |        | 3,866,000 |   | 1,910,600 |   |
| Net income                                    |       | $                                | 5,115,200   |   | $ | 6,067,200 |   | $ | 2,891,800 |   |
| Basic earnings  per share                     |       | $                                | 1.22        |   | $ | 1.41 |   | $ | 0.65 |   |
| Diluted earnings  per share                   |       | $                                | 1.20        |   | $ | 1.39 |   | $ | 0.65 |   |
| Basic weighted  average shares outstanding    |       | 4,199,600                        |        | 4,308,000 |   | 4,432,400 |   |
| Diluted weighted  average shares outstanding  |       | 4,274,300                        |        | 4,373,900 |   | 4,469,000 |   |

 

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

32

----

**ConsolidatedStatements of Changes in Shareholders’ Equity**
| ** **                             | ** ** | **Common Stock** | ** ** | **Additional  Paid-in** | ** ** | **Treasury** | ** ** | **Retained** | ** ** | **Accumulated  Other  Comprehensive** | ** ** | **Total  Shareholders’** | ** ** |
|----------------------------------------|------------|-----------------------|------------|-------------------------|------------|--------------|------------|--------------|------------|---------------------------------------|------------|-------------------------------|------------|
| ** **                             | ** ** | **Shares**            | ** ** | **Amount**              | ** ** | **Capital**  | ** ** | **Stock**    | ** ** | **Earnings**                          | ** ** | **Income**                    | ** ** | **Equity** | ** ** |
| Balance at March 30, 2003         |       | 4,521,130             |       | $                       | 48,300     |         | $          | 22,040,100   |       | $                                     | (3,792,600 | )                             | $          | 35,690,000 |   | $ | — |   | $ | 53,985,800 |   |
| Net proceeds from issuance of stock    |       | 21,879                |       | 200                     |       | 210,100      |       | —       |       | —                                |       | —                        |       | 210,300 |   |
| Treasury stock purchase                |       | (112,900              | )          | —                  |       | —       |       | (754,400     | )          | —                                |       | —                        |       | (754,400 | ) |
| Net income                             |       | —                |       | —                  |       | —       |       | —       |       | 2,891,800                             |       | —                        |       | 2,891,800 |   |
| Balance at March 28, 2004         |       | 4,430,109             |       | 48,500                  |       | 22,250,200   |       | (4,547,000   | )          | 38,581,800                            |       | —                        |       | 56,333,500 |   |
| Net proceeds from issuance of stock    |       | 35,062                |       | 400                     |       | 421,400      |       | —       |       | —                                |       | —                        |       | 421,800 |   |
| Treasury stock purchase                |       | (254,003              | )          | —                  |       | —       |       | (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         |       | 4,211,168             |       | 48,900                  |       | 23,578,600   |       | (7,454,400   | )          | 44,649,000                            |       | —                        |       | 60,822,100 |   |
| Net proceeds from issuance of stock    |       | 75,216                |       | 700                     |       | 424,100      |       | —       |       | —                                |       | —                        |       | 424,800 |   |
| Treasury stock purchase                |       | (133,800              | )          | —                  |       | —       |       | (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        |       | 4,152,584             |       | $                       | 49,600     |         | $          | 24,748,700   |       | $                                     | (9,521,100 | )                             | $          | 49,764,200 |   | $ | 65,400 |   | $ | 65,106,800 |   |

 

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

33

----

### **ConsolidatedStatements of Cash Flows**

 
| ** **                                                                              | ** ** | **Fiscal Years Ended** | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                              | ** ** | **March 26, 2006**     | ** ** | **March 27, 2005** | ** ** | **March 28, 2004** | ** ** |
|                                                                                    |       |                             |       |   |   |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                  |       |                             |       |   |   |   |   |
| Net income                                                                              |       | $                                | 5,115,200  |   | $ | 6,067,200 |   | $ | 2,891,800 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                             |       |   |   |   |   |
| Depreciation and amortization                                                           |       | 4,498,700                        |       | 4,192,500 |   | 4,132,100 |   |
| Non-cash restructuring charges                                                          |       | —                           |       | — |   | 2,023,400 |   |
| Non-cash stock compensation expense                                                     |       | 746,000                          |       | 907,000 |   | 38,100 |   |
| Deferred income taxes and other                                                         |       | (890,100                         | )          | (367,200 | ) | 893,900 |   |
| Change in trade accounts receivable                                                     |       | 17,330,900                       |       | (13,782,800 | ) | (14,908,600 | ) |
| Change in product inventory                                                             |       | 13,216,900                       |       | (19,845,500 | ) | (14,347,400 | ) |
| Change in prepaid expenses and other current assets                                     |       | 29,200                           |       | (334,100 | ) | 243,300 |   |
| Change in trade accounts payable                                                        |       | (37,634,000                      | )          | 27,368,000 |   | 27,775,800 |   |
| Change in accrued expenses and other current  liabilities                               |       | 905,000                          |       | 49,900 |   | (3,189,300 | ) |
| Net cash provided by operating activities                                               |       | 3,317,800                        |       | 4,255,000 |   | 5,553,100 |   |
|                                                                                    |       |                             |       |   |   |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                  |       |                             |       |   |   |   |   |
| Acquisition of property and equipment                                                   |       | (2,908,400                       | )          | (4,380,800 | ) | (5,032,300 | ) |
| Insurance proceeds relating to property and  equipment                                  |       | —                           |       | — |   | 7,185,800 |   |
| Net cash (used in) provided by investing activities                                     |       | (2,908,400                       | )          | (4,380,800 | ) | 2,153,500 |   |
|                                                                                    |       |                             |       |   |   |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                  |       |                             |       |   |   |   |   |
| Net repayments under revolving credit facility                                          |       | —                           |       | — |   | — |   |
| Payments on long-term debt                                                              |       | (361,400                         | )          | (273,400 | ) | (396,900 | ) |
| Net proceeds from issuance of stock                                                     |       | 424,800                          |       | 421,800 |   | 210,300 |   |
| Purchase of treasury stock                                                              |       | (2,066,700                       | )          | (2,907,400 | ) | (754,400 | ) |
| Net cash used in financing activities                                                   |       | (2,003,300                       | )          | (2,759,000 | ) | (941,000 | ) |
|                                                                                    |       |                             |       |   |   |   |   |
| Net (decrease)  increase in cash and cash equivalents                                   |       | (1,593,900                       | )          | (2,884,800 | ) | 6,765,600 |   |
|                                                                                    |       |                             |       |   |   |   |   |
| CASH AND CASH  EQUIVALENTS, beginning of period                                         |       | 3,880,800                        |       | 6,765,600 |   | — |   |
|                                                                                    |       |                                  |       |  |   |  |   |
| CASH AND CASH  EQUIVALENTS, end of period                                               |       | $                                | 2,286,900  |   | $ | 3,880,800 |   | $ | 6,765,600 |   |

 

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

34

----

### **Notesto 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. Approximately 97% of the Company’s sales are made tocustomers 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 years ended March 26, 2006, March 27, 2005and March 28, 2004 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.

*Allowancefor Doubtful 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 commercial customers are due 30 days fromthe date of the invoice. Sales made to consumers are primarily made throughcredit card transactions. The Company charges-off receivables deemed to beuncollectible to the allowance for doubtful accounts. Accounts receivablebalances are not collateralized.

*Product Inventory*

Product inventory is stated at the lower of cost ormarket. Cost is determined using the first-in, first-out (FIFO) method andincludes certain charges directly and indirectly incurred in bringing productinventories to the point of sale. Inventory is accounted for at the lower ofcost or market, and as a result, write-offs/write-downs occur due to damage,deterioration, obsolescence, changes in prices and other causes.

*Property and Equipment*

Property and equipment is stated at cost. Depreciationis recorded using the straight-line method over the estimated useful lives ofthe assets as follows:

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

 

35

----

The Configuration, Fulfillment and Delivery (CFD)technology system, which was implemented during fiscal year 2005, is a majorautomated materials-handling system that is integrated with the Company’sproduct planning and procurement system. The Company believes this CFD systemhas an estimated useful life that is longer than its other software assets andthus is depreciating the system over 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 Costof Computer Software Developed or Obtained for Internal Use.”

*Goodwill and Other Intangible Assets*

Goodwill represents the excess of the purchase pricein a business combination over the fair value of net tangible and intangibleassets acquired. Goodwill amounts are not amortized, but rather are tested forimpairment at least annually. The Company performs its annual impairment teston the first day of its fourth quarter. Intangible assets that are notconsidered to have an indefinite useful life are amortized over their usefullife of 15 years using the straight-line method. The carrying amount of theseassets is also reviewed whenever events or changes in circumstances indicatethat the carrying value of an asset may not be recoverable. Recoverability ofthese assets is measured by comparison of the carrying amount of the asset tothe future undiscounted cash flows the asset is expected to generate. If theasset is considered to be impaired, the amount of any impairment is measured asthe difference between the carrying value and the fair value of the impairedasset. The Company did not recognize any goodwill or intangible assetimpairment charges in fiscal years 2006, 2005 or 2004.

*Revenue Recognition*

TheCompany records revenue when 1) persuasive evidence of an arrangement exists,2) delivery has occurred or services have been rendered, 3) price to the buyeris fixed 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 Company records revenue when risk of loss haspassed to the customer and, in most cases, shipments are made using FOBshipping terms. FOB destination terms are used for a small portion of sales,and revenue is recorded when the product is received by the customer. Pricesare always fixed at the time of sale. Historically, there have not been anymaterial concessions provided to or by customers, future discounts, or otherincentives subsequent to a sale. TheCompany sells under normal commercial terms and, therefore, only recordssales on transactions where collectibilty is reasonably assured.

Becausethe Company’s sales transactions meet the conditions set forth in Statement ofFinancial Accounting Standard (SFAS) No. 48, “Revenue Recognition WhenRight of Return Exists,” it recognizes revenues from sales transactionscontaining sales returns provisions at the time of the sale. These conditionsrequire that 1) the price be substantially fixed and determinable at the dateof sale, 2) the buyer is obligated to pay, and is not contingent on theirresale of the product, 3) the buyer’s obligation to the Company does not changein the event of theft or physical destruction or damage of the product, 4) thebuyer has economic substance apart from the Company, 5) the Company does nothave significant obligations for future performance to directly bring aboutresale of the product by the buyer, and 6) the amount of future returns can bereasonably estimated. Because the Company’s normal terms and conditions of saleare consistent with conditions 1-5 above, and the Company is able toperform condition 6, it makes a reasonable estimate of product returns in salestransactions and accrues a sales return reserve based on this estimate.

Certaincompanies have turned to TESSCO to implement supply chain solutions, includingpurchasing inventory, assisting in demand forecasting, configuring, packaging,kitting and delivering products and managing customer relations, from ordertaking through cash collections. In performing these solutions, the Companyassumes varying levels of involvement in the transactions and varying levels ofcredit and inventory risk. As the Company’s solutions offerings continuallyevolve to 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, “ReportingRevenue Gross as a Principal versus Net as an 

36

----

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 review of the factors above, in the majorityof the Company’s sales relationships, it has concluded that it is the principalin the transaction and records revenue based upon the gross amounts earned andbooked. 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 recognitionguidance resulted in recording revenue on a different basis from which theCompany has previously concluded, or if the factors above change significantly,revenues could increase or decrease; however, gross profit and net income wouldremain constant.

**Mostof the Company’s sales arrangements do not contain multiple elements. However,when the Company enters into arrangements that do contain multiple elements, itfollows the guidance under EITF No. 00-21, “Revenue Arrangementswith Multiple Deliverables.”  Therefore,at the inception of the arrangement, the Company determines if each deliverableunder the arrangement represents a separate unit of accounting. The Companydoes this by determining whether the delivered items have value to the customeron a stand-alone basis (if it is sold separately by any other vendor or thecustomer could resell the delivered item on a stand-alone basis), if there isobjective and reliable evidence of the fair value of the item, and whether thedelivery or performance of the undelivered item is considered probable andsubstantially in the Company’s control (in cases where the arrangement includesa general right of return relative to the delivered item).**During the first six months of the fiscalyear, we had one significant multiple element arrangement, which includedproduct configuration and distribution, web development, and web hosting/maintenance activities. All of theelements were delivered and billed based on output measures on a monthly basis.Fees and the billings for these elements were structured in a manner thatreflected performance on the contract in accordance with the output measures;therefore, we recognized revenues based on the billing provisions in thecontract. This relationship was terminated at the end of the second quarter.

Otherthan subscriber accessory sales relating to the Company’s private brand,Wireless Solutions®,TESSCO offers no product warranties in excess of original equipmentmanufacturers’ warranties. The Company’s warranty expense is estimated andaccrued at the time of sale. Warranty expense was immaterial for the fiscalyears 2006, 2005 and 2004.

*Shipping and Handling Costs*

Shipping and handling costs are included in selling,general and administrative expenses in the Consolidated Statements of Incomeand totaled $20,916,500, $20,445,600, and $14,454,900 for the fiscal yearsended March 26, 2006, March 27, 2005, and March 28, 2004,respectively.

*StockCompensation Awards Granted to Team Members*

In December 2002,the Financial Accounting Standards Board (FASB) issued SFAS No. 148, “Accountingfor Stock Based Compensation — Transition and Disclosure.”  SFAS No. 148amends the transition and disclosure requirements of SFAS No. 123, “Accountingfor Stock-Based Compensation.”  This statement was effective for financialstatements for fiscal years ending after December 15, 2002 and for interimperiods beginning after December 15, 2002. Prior to fiscal year 2005, aspermitted by SFAS No. 148 and SFAS No. 123, the Company used the intrinsicvalue method to account for stock options in accordance with AccountingPrinciples Board Opinion (APB) No. 25, “Accounting for Stock Issued toEmployees,” and related interpretations. Accordingly, no compensation expense,except as noted below, had been recognized for the Company’s stock optionsprior to fiscal year 2005, because all options were granted at an exerciseprice equal to the market value of the underlying stock on the grant date.

EffectiveMarch 29, 2004, the Company elected to adopt the fair value provisions ofSFAS No. 123 using the modified prospective method in accordance with SFASNo. 148. Accordingly, beginning in fiscal year 2005, the Company beganexpensing stock options and other equity compensation instruments using fairvalue methods. Stock-based employee compensation cost recognized in fiscal year2005 and fiscal year 2006 are the same as that which would have been recognizedhad the fair value recognition provisions of SFAS No. 123 been applied toall awards granted after August 1, 1995.

37

----

Inaccordance with SFAS No. 123, the fair value of the Company’s stockoptions is determined using the Black-Scholes option pricing model, based uponfacts and assumptions existing at the date of grant. The value of each optionat the date of grant is amortized as compensation expense over the optionvesting period. This occurs without regard to subsequent changes in stockprice, volatility or interest rates over time, provided that the option remainsoutstanding. This model, and other option pricing models, were developed foruse in estimating the fair value of traded options, which have no vestingrestrictions and are fully transferable. The Company’s options are not tradedand have certain vesting restrictions. The use of different models could resultin differences in the amounts and timing of expense.

Beginningin fiscal year 2005, the Company’s equity-based compensation philosophy andpractice shifted away from awarding stock options to granting performance-basedand time-vested stock grants. Accordingly, in April 2004, the Company’sBoard of Directors established a Performance Stock Unit Award Program under theCompany’s Amended and Restated 1994 Stock and Incentive Plan (the 1994 Plan). Underthe program, Performance Stock Units (PSUs) have been granted to selectedindividuals. Each PSU entitles the participant to earn TESSCO common stock, butonly after earnings per share and, for non-director employee participants,individual performance targets are met over a defined performance cycle. Performancecycles, which are fixed for each grant at the date of grant, have ranged fromone to three years, depending on the grant. Once earned, shares vest and areissued over a specified period of time determined at the time of the grant,provided that the participant remains employed by or associated with theCompany at the time of share issuance. Earnings per share targets, which takeinto account the earnings impact of this program, are set by the Board ofDirectors in advance for the complete performance cycle at levels designed togrow shareowner value, and for those PSUs which are based upon multiple yearperformance cycles, typically represent continual increases in earnings pershare. If actual performance does not reach the minimum annual and/orcumulative threshold targets, no shares are issued. Under SFAS No. 123,the Company records compensation expense on its PSUs over the vesting period,based on the number of shares management estimates will ultimately be issued. Accordingly,the Company determines the periodic financial statement compensation expensebased upon the stock price at the PSU grant date, management’s projections offuture EPS performance over the performance cycle, and the resulting amount ofestimated share grants, net of actual forfeitures. Future changes in factorsimpacting the ultimate number of shares granted could cause these estimates tochange significantly in future periods. Also, as discussed in Note 2, theadoption of SFAS No. 123R in fiscal year 2007 will require the Company toinclude in its calculation of stock compensation expense an estimate offorfeitures as opposed to actual. This change could have a material impact onthe timing and, based on the accuracy of the Company’s estimate of futureforfeitures, the amount of stock compensation expense. Currently, as allowed bySFAS No. 123, the Company includes forfeitures in its calculation of stockcompensation expense when the PSUs are actually forfeited. Forfeitures occurwhen a participant who is holding earned but unvested PSUs voluntarilyterminates their association with the Company.

Asof March 26, 2006, PSUs covering an aggregate of 428,125 shares of theCompany’s common stock remained outstanding. Of these shares, 93,359 shares areearned but not yet issued and will vest and be issued ratably on or about May 1of 2007 and 2008, provided that the participant remains employed by orassociated with the Company at the time of issuance. The remaining 334,766shares may be earned depending upon: (1) whether cumulative and/or annualearnings per share performance of the Company over fiscal years 2005, 2006and  2007, as applicable to therespective PSUs, reaches or exceeds at least the threshold performance targets;(2) the extent to which current participants meet applicable individualperformance goals; and (3) whether the participants remain employed by orassociated with the Company for all or a portion of the period ended May 2008.Any shares earned based on fiscal year 2007 performance will vest and be issuedon or about May 1 of 2007 and 2008, provided that the participant remainsemployed by or associated with the Company at the time of issuance.

In summary, as of March 26,2006, the following represents the activity under the Company’s PSU program forfiscal years 2006 and 2005:

|                                            | ** ** | **2006**              | ** ** | **2005**              | ** ** |
|--------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| Outstanding  shares, beginning of year     |       | 546,370               |       | —                |       |
| Granted                                    |       | 165,458               |       | 623,750               |       |
| Cancelled                                  |       | (212,123              | )          | (43,000)              |       |
| Forfeited                                  |       | (18,711               | )          | —                |       |
| Earned and  vested shares                  |       | (52,869               | )          | (34,380               | )          |
| Outstanding  shares, end of year           |       | 428,125               |       | 546,370               |       |
| Earned but not  yet vested                 |       | 93,359                |       | 103,138               |       |
| Vesting period                             |       | May 1, 2006-2008 |       | May 1, 2005-2008 |       |
| Weighted average fair  value at grant date |       | $                     | 13.18      |                  | $          | 13.80 |   |
|                                            |            |                       |            |                       |            |  |  |

 

38

----

In May 2005, 34,380 shareswere earned and became vested related to fiscal year 2005 performance. In May 2006,52,869 shares were earned and became vested related to fiscal year 2005 and/orfiscal year 2006 performance.

On May 4, 2006, the Compensation Committee, with theconcurrence of the full Board of Directors, granted additional PSUs to selectedkey individuals, providing them with the opportunity to earn up to 150,000additional shares of the Company’s common stock in the aggregate, dependingupon whether certain threshold or goal earnings per share targets are met andindividual performance metrics are satisfied in fiscal year 2007. These PSUshave only one measurement year (fiscal year 2007), with any shares earned atthe end of fiscal year 2007 to vest 25% on or about each of May 1 of 2007,2008, 2009 and 2010, provided that the participant remains employed by orassociated with the Company on each such date.

In addition, during fiscal year 2006, the Company issued34,650 shares of common stock related to stock option exercises, 401(k) Planmatches and sales to employees under the Team Member Stock Purchase Plan.

During fiscal years 2006 and 2005, the Company recognizedstock compensation expense, primarily associated with the PSUs and, to a lesserextent, stock options issued prior to fiscal year 2005, of $702,300 and$886,900, respectively, which is included as selling, general andadministrative expense in the Consolidated Statements of Income.

Ifthe Company had used the fair value accounting provisions of SFAS No. 123,pro forma net income for the year ended March 28, 2004 would have been asfollows (in thousands, except per share information):

| Net income, as reported                                                                                                                                                                                           |   | $      | 2,892  |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Stock  compensation expense included in net income, net of tax (a)                                                                                                                                                |   | 330    |   |
| Stock-based compensation  expense, relating to the previously unrecognized compensation expense of  options purchased in the option repurchase program, as if the fair value  method had been applied, net of tax |   | (1,625 | )      |
| Stock-based  compensation expense, relating to continuing stock options as if the fair  value method had been applied, net of tax                                                                                 |   | (325   | )      |
| Pro-forma income                                                                                                                                                                                                  |   | $      | 1,272  |   |
|                                                                                                                                                                                                              |   |   |   |
| Basic earnings  per share, as reported                                                                                                                                                                            |   | $      | 0.65   |   |
| Pro-forma basic  earnings per share                                                                                                                                                                               |   | 0.29   |   |
|                                                                                                                                                                                                              |   |   |   |
| Diluted earnings  per share, as reported                                                                                                                                                                          |   | $      | 0.65   |   |
| Pro-forma diluted  earnings per share                                                                                                                                                                             |   | 0.28   |   |

----

(a) Amount principally relates to cashpaid/expense recognized (net of tax) related to a stock option repurchaseprogram in fiscal 2004.

*Use ofEstimates*

The preparation of financial statements in conformitywith U.S. generally accepted accounting principles (GAAP) requires managementto make estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities as of thedate of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results could significantly differfrom those estimates.

39

----

*Impactof Recently Issued Accounting Standards*

In December 2004, FASB issued SFAS No. 123R,“Share-Based Payment,” a revision of SFAS No. 123, “Accounting forStock-Based Compensation” and superseding Accounting Principles Board Opinion(APB) No. 25, “Accounting for Stock Issued to Employees.”  This statement requires companies to expensestock options and other equity compensation instruments using fair valuemethods. Under the provisions of SFAS No. 123R, the amount of tax benefitsrelating to stock compensation, which have been included in operating cashflows for the period prior to the effective date will be reported in financingcash flows once the statement becomes effective. The Company adopted the fairvalue expense recognition provisions of SFAS No. 123 on March 29,2004. Accordingly, other than the timing issue discussed below, the adoption ofSFAS No. 123R is not expected to have a material impact on the Company’sconsolidated financial position or results of operations. Currently, theCompany’s calculation of stock compensation expense includes actualforfeitures; however, SFAS No. 123R will require the Company to includeestimated forfeitures, and therefore, the required adoption of SFAS No. 123Rcould have a material impact on the timing and, based on the accuracy of theCompany’s estimates of future actual forfeitures, the amount of stockcompensation expense. SFAS No. 123R is effective for the Company beginningin fiscal year 2007. The Company may adopt SFAS No. 123R using either themodified prospective transition method, or the retrospective transition method.The Company anticipates adopting the standard using the modified prospectivemethod.

Further, in March 2005, the Securities andExchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 107regarding the interaction between SFAS No. 123R and certain SEC rules andregulations and provided the staff’s views regarding the valuation ofshare-based payment arrangements for public companies. In particular, SAB No. 107provides guidance related to share-based payment transactions withnon-employees, valuation methods (including assumptions such as expectedvolatility and expected term), the accounting for certain redeemable financialinstruments issued under share-based payment arrangements, the classificationof compensation expense, non-GAAP financial measures, first-time adoption ofSFAS No. 123R in an interim period, capitalization of compensation costrelated to share-based payment arrangements, the accounting for income taxeffects of share-based payment arrangements upon adoption of SFAS No. 123R,the modification of employee share options prior to adoption of SFAS No. 123Rand disclosures in Management’s Discussion and Analysis subsequent to adoptionof the SFAS No. 123R.

*Reclassifications*

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

**Note 3. Property and Equipment**

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

|                                                 | ** ** | **2006**    | ** ** | **2005**    | ** ** |
|-------------------------------------------------|------------|-------------|------------|-------------|------------|
|                                            |       |        |       |        |       |
| Land                                            |       | $           | 4,803,200  |        | $          | 4,803,200 |   |
| Building and  improvements                      |       | 14,439,500  |       | 14,143,100  |       |
| Information  technology equipment and software  |       | 22,058,500  |       | 19,763,100  |       |
| Equipment, furniture  and tooling               |       | 4,497,300   |       | 4,244,600   |       |
|                                            |       | 45,798,500  |       | 42,954,000  |       |
| Less accumulated  depreciation and amortization |       | (21,178,700 | )          | (16,761,000 | )          |
| Property and  equipment, net                    |       | $           | 24,619,800 |        | $          | 26,193,000 |   |

 

Depreciation of property and equipment was $4,438,700,$4,132,500 and $4,072,100 for fiscal years 2006, 2005 and 2004, respectively.

**Note 4.Other Intangible Assets**

Amortization expense relating to other intangibleassets was $60,000 for fiscal years 2006, 2005 and 2004. Intangible assets, netof accumulated amortization, which are included in other long-term assets onthe Consolidated Balance Sheets, totaled $9,000 and $69,000 as of March 26,2006 and March 27, 2005, respectively.

40

----

#### **Note 5.Accrued Expenses and Other Current Liabilities**

Accrued expenses and other current liabilities aresummarized as follows:

|                                                 | ** ** | **2006**  | ** ** | **2005** | ** ** |
|-------------------------------------------------|------------|-----------|------------|----------|------------|
|                                            |       |      |       |     |       |
| Payroll,  benefits and taxes                    |       | $         | 5,226,500  |     | $          | 4,449,000 |   |
| Income and sales  taxes                         |       | 1,187,600 |       | 662,300  |       |
| Lease  termination costs (see Note 11)          |       | —    |       | 553,300  |       |
| Other                                           |       | 1,129,300 |       | 973,800  |       |
| Accrued expenses and  other current liabilities |       | $         | 7,543,400  |     | $          | 6,638,400 |   |

 

**Note 6. Borrowings Under Revolving CreditFacility**

Effective September 30, 2003, the Companyestablished a $30 million revolving credit facility with Wachovia Bank, N.A.and SunTrust Bank, replacing its previously existing $30 million revolvingcredit facility with another lender. This facility has a term expiring September 2007and is unsecured. Interest is payable monthly at the LIBOR rate plus anapplicable margin, which ranges from 1.5% to 2.0%. At March 26, 2006 and March 27,2005, the Company had no outstanding balances on its revolving credit facility.

The weighted average interest rate on borrowings underthis and the Company’s prior revolving credit facility was 6.00%, 4.15% and2.86% for fiscal years 2006, 2005 and 2004, respectively. Interest expense onthis and the Company’s prior revolving credit facility for fiscal years 2006,2005 and 2004 totaled $151,500, $10,100 and $400, respectively. Averageborrowings under this and the Company’s prior credit facility totaled$1,689,300, $244,200 and $15,200 and maximum borrowings totaled $10,961,000,$4,605,000 and $1,256,000, for fiscal years 2006, 2005 and 2004, respectively.

The terms of the current and prior credit facilitieseach require the Company to meet certain financial covenants and ratios andcontain other limitations including a restriction on dividend payments. Thecurrent facility is also subject to a borrowing base, based on levels of tradeaccounts receivable and inventory. The Company was in compliance with the termsof each facility, as applicable, during fiscal years 2006, 2005 and 2004.

**Note 7. Long-Term Debt**

On June 30, 2004, the Company refinanced itspreviously existing term loan with a bank. The new term loan had an original principal amount of $4.5 million and ispayable in monthly installments of principal and interest with the balance dueat maturity, June 30, 2011.The note bears interest at a floating rate of LIBOR plus 1.75%. The note issecured by a first position deed of trust encumbering the Company-owned realproperty in Hunt Valley, Maryland. The loan is generally subject to the samefinancial covenants as the Company’s revolving credit facility, which requiresthe Company to meet certain financial covenants and ratios and contains otherlimitations, including a restriction on dividend payments. The balance of thisnote at March 26, 2006 and March 27, 2005 was $4,125,000 and$4,350,000, respectively. Interest expense under this note and the prior termloan was $230,700, $151,900 and $137,300 for fiscal years 2006, 2005 and 2004,respectively.

On October 1, 2005, the Company entered into areceive variable/pay fixed interest rate swap on a total notional amount of$4.2 million with Wachovia Bank, N.A. to avoid the risks associated withfluctuating interest rates on the Company’s existing term bank loan, whichbears interest at a floating rate of LIBOR plus 1.75%, and to eliminate thevariability in the cash outflow for interest payments. 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 receivedat inception of the swap. No hedge ineffectiveness will be recognized as theinterest rate swaps’ provisions match the applicable provisions of the termbank loan. This cash flow hedge qualified for hedge accounting using theshort-cut method since the swap terms match the critical terms of the hedgeddebt. The fair value of this interest rate swap at March 26, 2006 of$65,400, net of tax, is included in Other Long-Term Assets and AccumulatedOther Comprehensive Income on the Company’s Consolidated Balance Sheet.

41

----

At March 26, 2006 and March 27, 2005, theCompany had a note payable outstanding to Baltimore County, Maryland of $90,200and $103,100, respectively. The note is payable in equal monthly installmentsof principal and interest of $1,600, with the balance due at maturity, August 16,2006. The note bears interest at 4.75% per annum. Interest expense under thisnote was $4,300, $5,600 and $5,800 for fiscal years 2006, 2005 and 2004,respectively. The note is secured by a subordinate position on Company-ownedreal property located in Hunt Valley, Maryland.

At March 26, 2006 and March 27, 2005, theCompany had a note payable outstanding to the Maryland Economic DevelopmentCorporation of $786,700 and $910,200, 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 $25,900, $28,700 and$32,400 for fiscal years 2006, 2005 and 2004, respectively. The note is securedby a subordinate position on Company-owned real property located in HuntValley, Maryland.

As of March 26, 2006, scheduled annual maturitiesof long-term debt are as follows:

| **Fiscal year:** |   |      |      |
|------------------|--------|-----------|-----------|
| 2007             |   | $         | 442,500   |   |
| 2008             |   | 356,200   |      |
| 2009             |   | 360,100   |      |
| 2010             |   | 364,200   |      |
| 2011             |   | 368,500   |      |
| Thereafter       |   | 3,110,400 |      |
|             |   | $         | 5,001,900 |   |

 

**Note 8. Commitments and Contingencies**

Following the October 12, 2002 disaster (see Note10), the Company relocated its sales, marketing and administrative offices to asubleased location near its Global Logistics Center. The sublease for thisspace, the rent for which was paid by insurance proceeds, expired May 31,2004; and the Company entered into a direct lease for this space for a termbeginning June 1, 2004 and expiring May 31, 2007. However, theCompany can terminate the lease by giving twelve months written notice at anytime after June 1, 2004. The Company is evaluating its needs for sales,marketing and administrative office space beyond May 2007. The monthlyrental fee ranges from $117,500 to $125,000 throughout the lease term. Leaseholdimprovements are amortized over the initial lease term. Rent expense for fiscalyears 2006, 2005 and 2004 totaled $1,393,800, $1,089,900 and $452,000,respectively.

As of March 26, 2006, the Company’s minimumfuture obligations under existing leases are as follows:

| **Fiscal year:** |   |   |      |
|------------------|--------|--------|-----------|
| 2007             |   | $      | 1,478,600 |   |
|                  |        |        |           |  |

 

Lawsuits and claims are filed against the Company fromtime to time in the ordinary course of business. The Company does not believethat any lawsuits or claims pending against the Company, individually or in theaggregate, are material, or will have a material adverse affect on the Company’sfinancial condition or results of operations.

**Note 9. Business Segments**

The Company evaluates revenue, gross profit andinventory as three business segments:  (1) Networkinfrastructure products, which are used to build, repair and upgrade wirelesstelecommunications, computing and Internet networks, and generally complementradio frequency transmitting and switching equipment provided directly byoriginal equipment manufacturers (OEMs); (2) Mobile devices and accessoryproducts, which include cellular telephones and other data devices, pagers andtwo-way radios and related accessories such as replacement batteries, cases,speakers, mobile amplifiers, power supplies, headsets, mounts, car antennas andvarious wireless data devices; and (3) Installation, test and maintenanceproducts, which are used to install, tune, maintain and repair wirelesscommunications equipment. Within the mobile devices and accessories line ofbusiness, the Company sells to both commercial and consumer markets. Thenetwork infrastructure and installation, test and maintenance lines of businesssell primarily to commercial markets.

42

----

Beginning infiscal 2005, the Company also began regularly reviewing its commercial resultsof operations in two customer categories. Results of operations for fiscalyears 2005 and 2004 have been reclassified to conform with the current presentation.These two customer categories and the consumer customer category, for whichresults of operations are also separately reviewed, are described furtherbelow:

·                  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 customersinclude commercial entities such as major utilities and transportationcompanies, federal agencies and state and local governments, including publicsafety organizations. Resellers include dealers and resellers that sell, installand service cellular telephone, paging and two-way radio communicationsequipment primarily for the consumer and small business markets. Theseresellers include local and national proprietorships and retailers, as well assales and installation centers operated by cellular and paging carriers.

·                  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 on segmentgross profit. The segment operations develop their product offering, pricingand strategies, which are collaborative with one another and the centralizedsales and marketing function. Therefore, the Company does not segregate assets,other than inventory, for internal reporting, evaluating performance orallocating capital. Product delivery revenue and certain cost of sales expenseshave been allocated to each segment based on a percentage of revenues and/orgross profit, as applicable.

43

----

Segment activity for thefiscal years 2006, 2005 and 2004 is as follows:
| **(in thousands)**               | ** ** | **Network  Infrastructure** | ** ** | **Mobile Devices  and Accessories** | ** ** | **Installation, Test  and Maintenance** | ** ** | **Total**  | ** ** |
|---------------------------------------|------------|-----------------------------|------------|-----------------------------------------------|------------|---------------------------------------------------|------------|------------|------------|
| **Year ended March 26, 2006**    | ** ** | ** **                  | ** ** | ** **                                    | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Commercial Revenues:                  |       |                        |       |                                          |       |                                              |       |       |       |
| Public Carriers and Network Operators |       | $                           | 53,104     |                                          | $          | 2,794                                             |       | $          | 16,971     |   | $ | 72,869 |   |
| SMUs, Governments and Resellers       |       | 95,806                      |       | 113,758                                       |       | 57,601                                            |       | 267,165    |       |
| Total Commercial  Revenue             |       | 148,910                     |       | 116,552                                       |       | 74,572                                            |       | 340,034    |       |
| Consumer  Revenues                    |       | —                      |       | 137,295                                       |       | —                                            |       | 137,295    |       |
| Total Revenue                         |       | $                           | 148,910    |                                          | $          | 253,847                                           |       | $          | 74,572     |   | $ | 477,329 |   |
|                                  |       |                        |       |                                          |       |                                              |       |       |       |
| Commercial Gross  Profit:             |       |                        |       |                                          |       |                                              |       |       |       |
| Public Carriers and Network Operators |       | $                           | 12,669     |                                          | $          | 781                                               |       | $          | 3,961      |   | $ | 17,411 |   |
| SMUs, Governments and Resellers       |       | 22,076                      |       | 27,858                                        |       | 18,791                                            |       | 68,725     |       |
| Total Commercial  Gross Profit        |       | 34,745                      |       | 28,639                                        |       | 22,752                                            |       | 86,136     |       |
| Consumer Gross  Profit                |       | —                      |       | 16,877                                        |       | —                                            |       | 16,877     |       |
| Total Gross  Profit                   |       | $                           | 34,745     |                                          | $          | 45,516                                            |       | $          | 22,752     |   | $ | 103,013 |   |
|                                  |       |                        |       |                                          |       |                                              |       |       |       |
| Product  Inventory                    |       | $                           | 16,761     |                                          | $          | 17,590                                            |       | $          | 13,265     |   | $ | 47,616 |   |
|                                  |       |                        |       |                                          |       |                                              |       |       |       |
| **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                    |       | $                           | 21,651     |                                          | $          | 31,650                                            |       | $          | 7,532      |   | $ | 60,833 |   |
|                                  |       |                        |       |                                          |       |                                              |       |       |       |
| **Year ended March 28, 2004**    | ** ** | ** **                  | ** ** | ** **                                    | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Commercial Revenues:                  |       |                        |       |                                          |       |                                              |       |       |       |
| Public Carriers and Network Operators |       | $                           | 46,912     |                                          | $          | 4,094                                             |       | $          | 19,798     |   | $ | 70,804 |   |
| SMUs, Governments and Resellers       |       | 67,694                      |       | 54,699                                        |       | 31,904                                            |       | 154,297    |       |
| Total Commercial  Revenue             |       | 114,606                     |       | 58,793                                        |       | 51,702                                            |       | 225,101    |       |
| Consumer  Revenues                    |       | —                      |       | 127,573                                       |       | —                                            |       | 127,573    |       |
| Total Revenue                         |       | $                           | 114,606    |                                          | $          | 186,366                                           |       | $          | 51,702     |   | $ | 352,674 |   |
|                                  |       |                        |       |                                          |       |                                              |       |       |       |
| Commercial Gross  Profit:             |       |                        |       |                                          |       |                                              |       |       |       |
| Public Carriers and Network Operators |       | $                           | 11,503     |                                          | $          | 949                                               |       | $          | 5,053      |   | $ | 17,505 |   |
| SMUs, Governments and Resellers       |       | 17,005                      |       | 14,015                                        |       | 8,732                                             |       | 39,752     |       |
| Total Commercial  Gross Profit        |       | 28,508                      |       | 14,964                                        |       | 13,785                                            |       | 57,257     |       |
| Consumer Gross  Profit                |       | —                      |       | 20,389                                        |       | —                                            |       | 20,389     |       |
| Total Gross  Profit                   |       | $                           | 28,508     |                                          | $          | 35,353                                            |       | $          | 13,785     |   | $ | 77,646 |   |
|                                  |       |                        |       |                                          |       |                                              |       |       |       |
| Product Inventory                     |       | $                           | 16,093     |                                          | $          | 19,549                                            |       | $          | 5,345      |   | $ | 40,987 |   |

 

44

----

**Note 10. Benefit from Insurance Proceeds**

During fiscal year 2004, the Company recorded a $3.1million benefit from insurance proceeds relating to the damage caused by theflood of the Company’s primary office, distribution center and networkoperating center on October 12, 2002. Of this amount, $1.7 million relatesto business interruption insurance and the remaining $1.4 million representedthe gain on assets destroyed in the disaster, net of fees and deductibles.

**Note 11. Restructuring Charges**

On October 21, 2003, theCompany announced a program designed to improve profitability at then currentrevenue levels and to strengthen the foundation for future profitable growth. Thecost of this program, which primarily consisted of termination charges, was$164,000 and was expensed and paid during fiscal year 2004. There were 21employees terminated as a result of this program. Also during the quarter, theCompany consolidated its distribution operations from three facilities to two. Consolidationcharges of $2.1 million, which were based on then current assumptions,represent exit costs, including asset write-offs of $823,000, and the presentvalue of the continuing lease obligation associated with the vacated facility. Theseprofitability program costs and facility consolidation charges, which total$2.3 million in the aggregate, are included as restructuring charges on theCompany’s Consolidated Statement of Income for the year ended March 28,2004. No restructuring charges were incurred during fiscal years 2006 and 2005.At March 27, 2005, the Company had a remaining liability of $553,300,representing the present value of continuing lease obligations related to thevacated facility. The liability was paid in its entirety during fiscal year2006.

**Note 12. Stock Buyback**

On April 28, 2003, the Company’s Board ofDirectors approved a stock buyback program, authorizing the purchase of up to450,000 shares of its outstanding common stock. On October 20, 2005, theBoard of Directors amended the program, authorizing the purchase of anadditional 450,000 shares. Shares may be purchased from time to time in theopen market, by block purchase, or through negotiated transactions, or possiblyother transactions managed by broker-dealers. No time limit has been set forcompletion of the program. As of March 26, 2006, the Company had purchased500,703 shares for approximately $5.7 million, or an average of $11.44 pershare. Of the total shares repurchased, 133,800 shares were repurchased infiscal year 2006 at an average price of $15.45 per share, 254,003 shares wererepurchased in fiscal year 2005 at an average price of $11.45 per share and112,900 shares were repurchased in fiscal year 2004 at an average price of$6.68 per share.

**Note 13. 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:
| ** **                           | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                 |       |     |       |     |       |     |       |
| Statutory  federal rate              |       | 34.0     | %          | 34.0     | %          | 34.0     | %          |
| State taxes, net  of federal benefit |       | 2.4      |       | 2.3      |       | 2.8      |       |
| Nondeductible  expenses              |       | 1.5      |       | 1.5      |       | 1.6      |       |
| Other                                |       | 1.1      |       | 1.1      |       | 1.4      |       |
| Effective rate                       |       | 39.0     | %          | 38.9     | %          | 39.8     | %          |

 

The provision for incometaxes was comprised of the following:
| ** **                                                                                   | ** ** | **2006** | ** ** | **2005** | ** ** | **2004**  | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|
|                                                                                         |       |     |       |     |       |      |       |
| Federal: Current                                                                             |       | $        | 3,858,700  |     | $          | 3,451,000 |       | $ | 1,405,700 |   |
|               Deferred |       | (939,000 | )          | 362,200  |       | 320,400   |       |
| State:      Current                                                 |       | 421,600  |       | 102,500  |       | 146,800   |       |
|               Deferred |       | (70,800  | )          | (49,700  | )          | 37,700    |       |
| Provision for income  taxes                                                                  |       | $        | 3,270,500  |     | $          | 3,866,000 |       | $ | 1,910,600 |   |

 

45

----

Total deferred tax assetsand deferred tax liabilities as of March 26, 2006 and March 27, 2005,and the sources of the differences between financial accounting and tax basesof the Company’s assets and liabilities which give rise to the deferred taxassets and liabilities are as follows:
| ** **                    | ** ** | **2006**  | ** ** | **2005** | ** ** |
|-------------------------------|------------|-----------|------------|----------|------------|
| Deferred tax assets:          |       |      |       |     |       |
| Accrued expenses and reserves |       | $         | 2,348,400  |     | $          | 2,124,800 |   |
| Other assets                  |       | 47,600    |       | 45,200   |       |
|                          |       | $         | 2,396,000  |     | $          | 2,170,000 |   |
| Deferred tax  liabilities:    |       |      |       |     |       |
| Depreciation                  |       | $         | 1,734,800  |     | $          | 2,627,100 |   |
| Other assets                  |       | 1,050,500 |       | 934,200  |       |
|                          |       | $         | 2,785,300  |     | $          | 3,561,300 |   |

** **

**Note 14. Retirement Plans**

The Company has a 401(k) planthat covers all eligible employees. Contributions to the plan can be made byemployees, and the Company may make matching contributions at its discretion. Expenserelated to this matching contribution was $129,000, $235,900 and $135,800during fiscal years 2006, 2005 and 2004, respectively. As of March 26,2006, plan assets included 42,508 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. EffectiveJanuary 1, 2005, the plan was closed to all new contributions and balancesin the old plan now continue to exist under the prior plan structure. All planassets are held in an irrevocable Rabbi trust. These assets and the relatedliabilities are included in other long-term assets and other long-termliabilities, respectively, in the Company’s Consolidated Balance Sheets.

The Company maintains a Supplemental ExecutiveRetirement Plan for Robert B. Barnhill, Jr., chairman, president and CEOof the Company. This plan is funded through a life insurance policy for whichthe Company is the sole beneficiary. The cash surrender value of the life insurancepolicy and the net present value of the benefit obligation are included inother long-term assets and other long-term liabilities in the Company’sConsolidated Balance Sheets.

**Note 15. Earnings Per Share**

The dilutive effect ofall options and earned PSUs outstanding has been determined by using thetreasury stock method. The weighted average shares outstanding is calculated asfollows:
| ** **                                   | ** ** | **2006**  | ** ** | **2005**  | ** ** | **2004**  | ** ** |
|----------------------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
|                                         |       |      |       |      |       |      |       |
| Basic weighted  average shares outstanding   |       | 4,199,600 |       | 4,308,000 |       | 4,432,400 |       |
| Effect of dilutive common equivalent shares  |       | 74,700    |       | 65,900    |       | 36,600    |       |
| Diluted weighted  average shares outstanding |       | 4,274,300 |       | 4,373,900 |       | 4,469,000 |       |

 

Options to purchase 28,000, 54,375 and 65,875 sharesof common stock in fiscal years 2006, 2005 and 2004, respectively, were notincluded in the computation of diluted earnings per share because the options’exercise prices were greater than the average market price of the common sharesand, therefore, the effect would be antidilutive.

**Note 16. Stock-Based Compensation**

The Company has two stock incentive plans, the 1984Employee Incentive Stock Option Plan (the 1984 Plan) and the Amended andRestated 1994 Stock and Incentive Plan (the 1994 Plan). The 1984 Plan allowedfor the grant of awards in respect of an aggregate of 401,250 shares of theCompany’s common stock; no shares are available for issue with respect toadditional awards under the 1984 Plan and no awards are outstanding under the1984 Plan. The 1994 Plan allows for the 

46

----

grant of awards inrespect of an aggregate of 1,172,500 shares of the Company’s common stock. Asof March 26, 2006,  328,021 shareswere available for issue in respect of awards available for future grant underthe 1994 Plan. The 1994 Plan allows for the grant of incentive stock options, nonqualifiedstock options, stock appreciation rights, restricted stock and restricted stockunits and other performance awards, but no additional awards can be made underthe 1994 Plan after July 22, 2009, without shareholder approval of anextension of the plan term. Options and Performance Stock Unit Awards (see Note2) have been granted as awards under the 1994 Plan. Shares which are subject tooutstanding PSU awards and which are not earned, are returned to the 1994 Planand become available for future issuance.

In addition to optionsand other performance-based awards outstanding under the 1994 Plan, nonplanoptions to purchase an aggregate of 293,888 shares of the Company’s commonstock have been granted at the discretion of the Board of Directors or theCompensation Committee of the Board of Directors. As of March 26, 2006,there were no shares available for issue under the nonplan options and noawards were outstanding. Transactions involving options are summarized asfollows:
| ** **                      | ** ** | **2006**   | ** ** | **2005**                               | ** ** | **2004**   | ** ** |
|---------------------------------|------------|------------|------------|----------------------------------------|------------|------------|------------|
| ** **                      | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| Outstanding,  beginning of year |       | 257,875    |       | $                                      | 13.41      |       | 504,375    |   | $ | 12.74 |   | 1,273,000 |   | $ | 18.38 |   |
| Granted                         |       | —     |       |                                   |       | —     |       |   |   | 15,000 |   | 6.62 |   |
| Exercised                       |       | (24,800    | )          | 11.60                                  |       | (24,500    | )          | 12.19 |   | — |   | — |   |
| Cancelled                       |       | (73,075    | )          | 15.97                                  |       | (222,000   | )          | 12.02 |   | (783,625 | ) | 21.79 |   |
| Outstanding, end  of year       |       | 160,000    |       | $                                      | 12.51      |       | 257,875    |   | $ | 13.41 |   | 504,375 |   | $ | 12.74 |   |
| Exercisable, end of  year       |       | 137,000    |       |                                   |       | 162,675    |       |   |   | 295,075 |   |   |   |

 

Cancelled options infiscal 2004 include those options repurchased and cancelled under the Company’sstock option repurchase program completed in fiscal 2004.

Information about stockoptions outstanding and exercisable as of March 26, 2006 is as follows:
| **Range of  Exercise Price** | ** ** | **Outstanding  Shares** | ** ** | **Outstanding  Weighted Average  Remaining  Contractual Life** | ** ** | **Outstanding  Weighted Average  Exercise Price** | ** ** | **Exercisable  Shares** | ** ** | **Exercisable  Weighted Average  Exercise Price** | ** ** |
|----------------------------------------|------------|-------------------------|------------|--------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|-------------------------|------------|-------------------------------------------------------------|------------|
| $0.00-15.00                            |       | 132,000                 |       | 4.02                                                                     |       | $                                                           | 10.91      |                    | 109,000    |                                                        | $          | 11.43 |   |
| 15.01-25.00                            |       | 27,000                  |       | 3.58                                                                     |       | 19.47                                                       |       | 27,000                  |       | 19.47                                                       |       |
| 25.01-35.00                            |       | 1,000                   |       | 0.43                                                                     |       | 35.00                                                       |       | 1,000                   |       | 35.00                                                       |       |
| $0.00-35.00                            |       | 160,000                 |       | 3.92                                                                     |       | $                                                           | 12.51      |                    | 137,000    |                                                        | $          | 13.19 |   |

 

During fiscal 2000, theCompany adopted the Team Member Stock Purchase Plan. This plan permits eligibleemployees to purchase up to an aggregate of 200,000 shares of the Company’scommon stock at 85% of the lower of the market price on the first day of asix-month period or the market price on the last day of that same six-monthperiod. The Company’s expenses relating to this plan are for its administrationand expense associated with the fair value of this benefit in accordance withSFAS No. 123, which totaled approximately $16,000 and $15,000 in fiscalyears 2006 and 2005, respectively. During fiscal years 2006 and 2005, 1,887 and4,788 shares, respectively, were sold to employees under this plan. Theweighted average market value of the shares sold in fiscal years 2006 and 2005was $11.05 and $9.58, respectively.

**Note 17.Fair Value of Financial Instruments**

The carrying amounts ofcash and cash equivalents, trade accounts receivable, product inventory, tradeaccounts payable, accrued expenses and other current liabilities and the notepayable to a bank, which bears interest at variable rates, approximate theirfair value as of March 26, 2006 and March 27, 2005.

47

----

Fair value of long-term debt, calculated using currentinterest rates and future principal payments, excluding the note payable to abank, as of March 26, 2006 and March 27, 2005 is as follows:

|                                                                | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                           |       |     |       |     |       |
| Note payable to  Baltimore County, Maryland                    |       | $        | 88,500     |     | $          | 103,900 |   |
| Note payable to  the Maryland Economic Development Corporation |       | 727,400  |       | 882,400  |       |
|                                                           |       | $        | 815,900    |     | $          | 986,300 |   |

 

**Note 18.Supplemental Cash Flow Information**

Cash paid for interestduring fiscal years 2006, 2005 and 2004 totaled $260,600, $178,300 and$177,700, respectively. Cash paid for income taxes, net of refunds, for fiscalyears 2006, 2005 and 2004 totaled $3,143,100, $3,159,600 and $2,282,600,respectively.

**Note 19.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 2006, 2005 and 2004, salesof products purchased from the Company’s top ten vendors accounted for 55%, 60%and 40% of total revenues, respectively, with sales of products purchased fromthe Company’s largest vendor, T-Mobile, which consist primarily of handsetsales, accounted for approximately 24%, 41% and 29% of total revenues,respectively. The Company is dependent on the ability of its vendors to provideproducts on a timely basis and on favorable pricing terms. Although the Companybelieves that alternative sources of supply are available for many of theproduct types it carries, the loss of certain principal suppliers, or the lossof one or more of certain ongoing affinity relationships, could have a materialadverse effect on the Company.

The Company’s future results could also be negativelyimpacted by the loss of certain customers, and/or the loss of one or more ofcertain ongoing affinity relationships. For fiscal years 2006, 2005 and 2004,sales of products to the Company’s top ten customer relationships accounted for35%, 53% and 41% of total revenues, respectively, with sales to the Company’slargest customer relationship, T-Mobile, accounting for approximately 26%, 44%and 31% 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 transition ofthe TESSCO provided e-commerce marketing and sales system to an in-house websolution and alternative third-party logistics provider, and thus revenuesthen ceased from this relationship. As of March 26, 2006, there were no outstandingaccounts receivable or accounts payable related to this relationship.

**Note 20.Subsequent Events**

In April 2006, the Company acquired substantiallyall the non-cash net assets of TerraWave Solutions, Ltd. and its commonly ownedaffiliate, GigaWave Technologies, Ltd. for an initial cash payment ofapproximately $3.8 million, and additional cash earn-out payments over afour-year period, contingent on the achievement of certain minimum earningsthresholds ($1.5 million of the $3.8 million cash amount paid at closing is aprepayment against future earn-out payments, if any). To the extentthat certain minimum earnings thresholds are not achieved, the Company will notbe able to recover this prepayment. The maximum amount of contingent future earn-outpayments (after subtracting the $1.5 million prepayment) is $15.5 million. The$3.8 million paid to date has been funded through our revolving credit facility.Future earn-out payments are expected to be funded through operating cash flow,supplemented by our revolving credit facility, if needed.

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, nowowned by TESSCO, provides curriculum development and hands-on, instructor-ledtraining courses for the Wireless Local Area Network (WLAN) industry. GigaWavedevelops and delivers wireless networking courseware for Cisco Systems, allowingIT professionals to obtain Cisco Wireless Certifications. The combinedun-audited revenues of TerraWave and GigaWave were approximately $12 million incalendar year 2005.

48

----

Reportof 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 March 26,2006 and March 27, 2005, and the related consolidated statements ofincome, changes in shareholders’ equity, and cash flows for each of the threeyears in the period ended March 26, 2006. Our audits also included thefinancial statement schedule listed in the Index as Schedule II for each of thethree years in the period ended March 26, 2006. These financial statementsand schedule are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements andschedule 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 toperform an audit of the Company’s internal control over financial reporting. Ouraudit included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management,and evaluating the overall financial statement 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 March 26, 2006 and March 27, 2005,and the consolidated results of their operations and their cash flows for eachof the three years in the period ended March 26, 2006, in conformity withU.S. generally accepted accounting principles.

/s/ Ernst & Young, LLP

Baltimore, MarylandApril 24, 2006

49

----

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

Not applicable.

**Item 9A.********Controls and Procedures.**

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 andchief financial officer have evaluated this system of disclosure controls andprocedures as of the end of the period covered by this annual report, and haveconcluded that the system is effective. There have been no changes in ourinternal control over financial reporting during the most recent fiscal quarterthat have materially affected, or are reasonably likely to materially affect,the Company’s internal control over financial reporting.

**Item 9B. Other Information.**

None.

**Part III**

**Item 10. Directors and Executive Officers of theRegistrant.**

Theinformation with respect to the identity and business experience of thedirectors of the Company and their remuneration is incorporated by reference tothe information set forth in the section captioned “Election of Directors” inthe Company’s Proxy Statement for the 2006 Annual Meeting of Stockholders,which is anticipated to be filed pursuant to Regulation 14A no later than onehundred twenty (120) days following the end of the fiscal year reported upon(the “Proxy Statement”). The information with respect to the identity andbusiness experience of executive officers of the Company is set forth in Part Iof this Form 10-K. The information with respect to the Company’sAudit Committee is incorporated by reference to the information set forth inthe section captioned “Meetings and Committees of the Board of Directors” inthe Proxy Statement. The information with respect to compliance with Section 16(a) ofthe Exchange Act is incorporated by reference to the section captioned “Section 16(a) BeneficialOwnership Reporting Compliance” in the Proxy Statement. The information withrespect to the Company’s Code of Ethics is incorporated by reference to thesection captioned “Code of Ethics” in the Proxy Statement.

**Item 11. Executive Compensation.**

Theinformation required by this item is incorporated by reference to theinformation set forth under the caption “Executive Compensation and OtherInformation” in the Company’s Proxy Statement for the 2006 Annual Meeting ofStockholders which is anticipated to be filed pursuant to Regulation 14Ano later than one hundred twenty (120) days following the end of the fiscalyear reported upon.

**Item 12. Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters.**

Theinformation required by this item is incorporated by reference to theinformation set forth under the caption “Security Ownership of Management andPrincipal Stockholders” in the Company’s Proxy Statement for the 2006 AnnualMeeting of Stockholders which is anticipated to be filed pursuant toRegulation 14A no later than one hundred twenty (120) days following theend of the fiscal year reported upon.

**Item 13. Certain Relationships and RelatedTransactions.**

Theinformation required by this item, if any, is incorporated by reference to theinformation set forth under the caption “Certain Relationships and RelatedTransactions” in the Company’s Proxy Statement for the 2006 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 upon.

50

----

**Item 14. PrincipalAccountant Fees and Services.**

Theinformation required by this item is incorporated by reference to theinformation set forth under the caption “Principal Accountant Fees and Services”in the Company’s Proxy Statement for the 2006 Annual Meeting of Stockholderswhich is anticipated to be filed pursuant to Regulation 14A no later thanone hundred twenty (120) days following the end of the fiscal year reportedupon.

**Part IV**

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

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

1.               The followingconsolidated financial statements are included in Item 8 of this report:
|        |   | Consolidated Balance Sheets as of March 26,  2006 and March 27, 2005                                                                                |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | Consolidated Statements of Income for the fiscal  years ended March 26, 2006, March 27, 2005 and March 28, 2004                                |
|   |   | Consolidated Statements of Changes in Shareholders’  Equity for the fiscal years ended March 26, 2006, March 27, 2005  and March 28, 2004 |
|   |   | Consolidated Statements of Cash Flows for the fiscal  years ended March 26, 2006, March 27, 2005 and March 28, 2004                            |
|   |   | 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) ofthis Item 15 included herewith:
|  |   | Schedule II            Valuation  and 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). |
|   3.2.1 |   | Amended and Restated By-laws of the Registrant  (incorporated by reference to Exhibit 3.2.1 to the Company’s  Registration Statement on Form S-1 (No. 33-81834)).                                                                             |
|   3.2.2 |   | First Amendment to Amended and Restated By-laws  of the Registrant (incorporated by reference to Exhibit 3.2.2 to the  Company’s Registration Statement on Form S-1 (No. 33-81834)).                                                          |
| 10.1.1            |   | Employment Agreement dated March 31, 1994 with  Robert B. Barnhill, Jr. (incorporated by reference to Exhibit 10.1  to the Company’s Registration Statement on Form S-1 (No. 33-81834)).                                            |
| 10.1.2            |   | Amendment to Employment Agreement for Robert B.  Barnhill, Jr. dated May 1, 2003 (incorporated by reference to  Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q  for the fiscal quarter ended June 29, 2003).           |

 

51

----

 

| 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). |
| 10.9.1  |   | Stock Compensation Plan for Chief Executive Officer  dated January 15, 1996 (incorporated by reference to Exhibit 10.11  to the Company’s Annual Report on Form 10-K for the fiscal year  ended March 29, 1996).                                                                                                                                                                                                                                                                                                                                                                                   |
| 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).                                                                                                                                                                                                                                                           |
| 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).                                                                                                                                                                                                                                                                                                                            |
| 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

 

52

----

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

*For thefiscal years ended:*
| ** **                          | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**  | ** ** |
|-------------------------------------|------------|------------|------------|------------|------------|-----------|------------|
| *Allowance for doubtful  accounts:* |       |       |       |       |       |      |       |
| Balance,  beginning of period       |       | $          | 1,196,400  |       | $          | 1,071,600 |       | $ | 694,100 |   |
| Provision for  bad debts            |       | 742,800    |       | 1,227,000  |       | 999,000   |       |
| Write-offs and  other adjustments   |       | (1,085,600 | )          | (1,102,200 | )          | (621,500  | )          |
| Balance, end of period              |       | $          | 853,600    |       | $          | 1,196,400 |       | $ | 1,071,600 |   |

 

53

----

**Signatures**

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.
|        |   | TESSCO Technologies Incorporated |
|--------|--------|----------------------------------|
|   |   |                             |
|   |   |                             |
|   |   | By:                              |   | /s/ Robert B. Barnhill, Jr. |
|   |   |                             |   | Robert B. Barnhill, Jr., President |
|   |   |                             |   | June 19, 2006 |

 

Pursuant to the requirements of the Securities ExchangeAct of 1934, this report has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated.
| /s/ Robert B.  Barnhill, Jr. |       | Chairman of the Board, President and Chief Executive  Officer  |       | June 19, 2006 |
|-----------------------------------|------------|----------------------------------------------------------------|------------|--------------------|
| Robert B. Barnhill, Jr.      | ** ** | (principal executive officer)                                  | ** ** | ** **         |
|                              | ** ** |                                                           | ** ** | ** **         |
| /s/ David M. Young                |       | Senior Vice President, Chief Financial Officer, and  Corporate |       | June 19, 2006 |
| David M. Young                    |       | Secretary (principal financial and accounting officer)         |       |               |
|                              |       |                                                           |       |               |
| /s/ John D. Beletic               |       | Director                                                       |       | June 19, 2006 |
| John D. Beletic                   |       |                                                           |       |               |
|                              |       |                                                           |       |               |
| /s/ Jerome C. Eppler              |       | Director                                                       |       | June 19, 2006 |
| Jerome C. Eppler                  |       |                                                           |       |               |
|                              |       |                                                           |       |               |
| /s/ Susan D. Goodman              |       | Director                                                       |       | June 19, 2006 |
| Susan D. Goodman                  |       |                                                           |       |               |
|                              |       |                                                           |       |               |
| /s/ Benn R. Konsynski             |       | Director                                                       |       | June 19, 2006 |
| Benn R. Konsynski                 |       |                                                           |       |               |
|                              |       |                                                           |       |               |
| /s/ Daniel Okrent                 |       | Director                                                       |       | June 19, 2006 |
| Daniel Okrent                     |       |                                                           |       |               |
|                              |       |                                                           |       |               |
| /s/ Dennis J. Shaughnessy         |       | Director                                                       |       | June 19, 2006 |
| Dennis J. Shaughnessy             |       |                                                           |       |               |
|                              |       |                                                           |       |               |
| /s/ Morton F. Zifferer            |       | Director                                                       |       | June 19, 2006 |
| Morton F. Zifferer                |       |                                                           |       |               |

 

54

----