This commentary should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations from the Company's Annual Report on Form 10-K for the fiscal year ended March 29, 2009.

Business Overview and Environment

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

Our first quarter revenues decreased by 10.9% compared to the first quarter of last year. This decrease was driven by a decline in each of our commercial lines of business. Gross profits also declined in each of our commercial lines of business. This overall decrease in gross profit, partially offset by a decrease in operating expenses, resulted in a 7.3% decline in net income but a 2.7% increase in diluted earnings per share over the prior-year quarter. The increase in diluted earnings per share was driven by a decrease in outstanding shares as a result of our stock buyback program and a large share repurchase made through a private transaction during the second quarter of fiscal year 2009.

Despite the unfavorable comparables to last year's first quarter, we experienced growth in both revenues and gross profits as compared with the prior year fourth quarter. Revenues and gross profits had sequential growth of 10.8% and 6.1%, respectively. Net income and diluted earnings per share increased 143.5% and 137.5%, respectively. While the current global economy is still having a negative affect on our business (as further discussed below), we have been able thus far to successfully navigate through a difficult environment to achieve these results.

The current global financial crisis - which has included, among other things, significant reductions in available capital and liquidity from banks and other providers of credit, substantial reductions and/or fluctuations in equity and currency values worldwide, significant decreases in consumer confidence and consumer and business spending, rising unemployment and concerns that the worldwide economy may enter into a prolonged recessionary period - may materially adversely affect our customers' access to capital or willingness to spend capital on our products, and/or their levels of cash liquidity with which to pay for our products. During the first quarter, we saw negative affects of the current global financial crisis, including a decline in our average number of monthly buying customers and in the average dollars purchased for each buying customer as compared to the corresponding prior year quarter. We expect the economic crisis to continue to have an impact on our operating results during the second quarter of the fiscal year, especially in our retail and public carriers and network operators businesses. In addition, the current global financial crisis may materially adversely affect our suppliers' access to capital and liquidity, which may in turn adversely impact their ability to maintain inventories, production levels, and/or product quality, or cause them to raise prices or lower production levels, or result in their ceasing operation. The impact of the crisis on our liquidity is further discussed below under the heading "Liquidity and Capital Resources."

The wireless communications distribution industry is competitive and fragmented, and is comprised of several national distributors. In addition, many manufacturers sell direct. Barriers to entry for distributors are relatively low, particularly in the mobile devices and accessories market, and the risk of new competitors entering the market is high. Consolidation of larger wireless carriers has and will most likely continue to impact our current and potential customer base. In addition, the agreements or arrangements with our customers or vendors looking to us for product and supply chain solutions are typically of limited duration and are terminable by either party upon several months or otherwise short notice. Our ability to maintain these relationships is subject to competitive pressures and challenges. We believe, however, that our strength in service, the breadth and depth of our product offering, our information technology system, and our large customer base and purchasing relationships with approximately 360 manufacturers, provide us with a significant competitive advantage over new entrants to the market.

Effective March 30, 2009, we retrospectively adopted Financial Accounting Standards Board ("FASB") Staff Position No. 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities." See Note 3 to the consolidated financial statements for a discussion of the impact of the change in accounting standards.

Results of Operations



The following table summarizes the unaudited results of our operations for the
fiscal quarters ended June 28, 2009 and June 29, 2008:



                                                                        Three Months Ended
(Amounts in thousands, except per share data)     June 28, 2009      June 29, 2008       $ Change       % Change
Commercial Revenues
Network Infrastructure:
Public Carriers and Network Operators            $        10,550    $        11,542    $       (992 )         (8.6 )%
Resellers                                                 16,791             18,550          (1,759 )         (9.5 )%
SMUs and Governments                                      12,448             12,856            (408 )         (3.2 )%
Total Network Infrastructure                              39,789             42,948          (3,159 )         (7.4 )%
Mobile Devices and Accessories:
Public Carriers and Network Operators                        467                684            (217 )        (31.7 )%
Resellers                                                 46,624             50,794          (4,170 )         (8.2 )%
SMUs and Governments                                       3,234              3,812            (578 )        (15.2 )%
Total Mobile Devices and Accessories                      50,325             55,290          (4,965 )         (9.0 )%
Installation, Test and Maintenance:
Public Carriers and Network Operators                      2,716              3,660            (944 )        (25.8 )%
Resellers                                                  1,881              2,718            (837 )        (30.8 )%
SMUs and Governments                                      10,859             14,787          (3,928 )        (26.6 )%
Total Installation, Test and Maintenance                  15,456             21,165          (5,709 )        (27.0 )%
Total Commercial Revenues                                105,570            119,403         (13,833 )        (11.6 )%
Consumer Revenues - Mobile Devices and
Accessories                                                3,231              2,665             566           21.2 %
Total Revenues                                   $       108,801    $       122,068    $    (13,267 )        (10.9 )%

Commercial Gross Profit
Network Infrastructure:
Public Carriers and Network Operators            $         2,679    $         3,060    $       (381 )        (12.5 )%
Resellers                                                  4,912              4,986             (74 )         (1.5 )%
SMUs and Governments                                       3,572              3,635             (63 )         (1.7 )%
Total Network Infrastructure                              11,163             11,681            (518 )         (4.4 )%
Mobile Devices and Accessories:
Public Carriers and Network Operators                        122                206             (84 )        (40.8 )%
Resellers                                                 12,324             12,112             212            1.8 %
SMUs and Governments                                         977              1,275            (298 )        (23.4 )%
Total Mobile Devices and Accessories                      13,423             13,593            (170 )         (1.3 )%
Installation, Test and Maintenance:
Public Carriers and Network Operators                        676                898            (222 )        (24.7 )%
Resellers                                                    470                754            (284 )        (37.7 )%
SMUs and Governments                                       2,331              3,089            (758 )        (24.5 )%
Total Installation, Test and Maintenance                   3,477              4,741          (1,264 )        (26.7 )%
Total Commercial Gross Profit                             28,063             30,015          (1,952 )         (6.5 )%
Consumer Gross Profit - Mobile Devices and
Accessories                                                  953                998             (45 )         (4.5 )%
Total Gross Profit                                        29,016             31,013          (1,997 )         (6.4 )%

Selling, general and administrative expenses              25,762             27,494          (1,732 )         (6.3 )%
Income from operations                                     3,254              3,519            (265 )         (7.5 )%
Interest expense, net                                        109                137             (28 )        (20.4 )%
Income before provision for income taxes                   3,145              3,382            (237 )         (7.0 )%
Provision for income taxes                                 1,233              1,319             (86 )         (6.5 )%
Net income                                       $         1,912    $         2,063    $       (151 )         (7.3 )%
Diluted earnings per share                       $          0.38    $          0.37    $       0.01            2.7 %

First Quarter of Fiscal Year 2010 Compared with First Quarter of Fiscal Year 2009

Revenues. Revenues for the first quarter of fiscal year 2010 decreased 10.9% as compared with the first quarter of fiscal year 2009, primarily due to a 11.6% decrease in commercial revenues, partially offset by a 21.2% increase in consumer revenues. Sales decreased across all commercial lines of business.

Network infrastructure sales decreased 7.4% as compared with the first quarter of fiscal year 2009, as a result of lower sales of broadband products to resellers and self-maintained users, but were partially offset by increased broadband sales to public carriers and network operators. Sales of Radio Frequency propagation products to public carriers and network operators and resellers declined significantly, but were partially offset by increased sales to self-maintained users.

Sales in the mobile devices and accessories line of business decreased 7.6% in the first quarter of fiscal year 2010, as compared with the same period last year. The decrease was due to a 9.0% decrease in commercial sales, partially offset by a 21.2% increase in consumer sales. The decrease in commercial revenues for mobile devices and accessories, which are sold primarily to resellers, was primarily due to decreased sales to smaller resellers and users. Sales of mobile devices and accessories to public carriers and network operators and SMUs and governments also decreased.

Revenues from our installation, test and maintenance line of business decreased 27.0% from the corresponding prior-year quarter, primarily due to a decline in sales of repair parts related to our major repair components relationship with Nokia, as well as decreased sales of test equipment, tools and supply products across all of our market categories. In January 2009, we extended our components relationship with Nokia through December 2010. As part of this extension, Nokia now plays a larger, and we a smaller, role in servicing a group of larger customers. We continue to earn fees from Nokia to fulfill product to these larger customers, but as a result of our reduced role in these transactions, we receive a smaller fee and we account for these sales on a net basis. We continue to manage the complete supply chain as primary obligor for smaller customers so we continue to record sales to these smaller customers on a gross basis. Because of the evolution of our relationship with Nokia, it has become less material to our consolidated financial statements, and we expect that trend to continue.

Gross Profit. Gross profit for the first quarter of fiscal year 2010 decreased 6.4% as compared with the first quarter of fiscal year 2009. Total commercial gross profit decreased 6.5%, while consumer gross profit decreased 4.5%. Gross profit margin increased to 26.7% in the first quarter of fiscal year 2010 from 25.4% in first quarter of fiscal year 2009. Gross profit margin in our network infrastructure segment increased from 27.2% in the first quarter of fiscal year 2009 to 28.1% in the first quarter of fiscal year 2010. This increase in gross profit margin was a result of changes in product mix. Gross profit margin in our mobile devices and accessories segment increased to 26.8% in the first quarter of this fiscal year from 25.2% in the first quarter of last fiscal year. This increase was primarily attributable to the commercial gross profit margin for our mobile devices and accessories, which increased to 26.7% in the first quarter of fiscal year 2010 from 24.6% for the first quarter of fiscal year 2009, principally due to product mix in sales to a large tier-one carrier and other retail customers. Consumer gross profit margin for our mobile devices and accessories decreased to 29.5% in the first quarter of this fiscal year from 37.4% for the first quarter of last fiscal year. Gross profit margin in our installation, test and maintenance line of business increased from 22.4% in the first quarter of fiscal year 2009 to 22.5% in the first quarter of fiscal year 2010. Generally, our gross margins by product within these segments have been sustained, except as noted above, and generally these variations are related to sales mix within the segment product offerings. We account for inventory at the lower of cost or market, and as a result, write-offs/write-downs occur due to damage, deterioration, obsolescence, changes in prices and other causes.

Our ongoing ability to earn revenues and gross profits from customers and vendors looking to us for product and supply chain solutions is dependent upon a number of factors. The terms, and accordingly the factors, applicable to each affinity relationship often differ. Among these factors are the strength of the customer's or vendor's business, the supply and demand for the product or service, including price stability, changing customer or vendor requirements, and our ability to support the customer or vendor and to continually demonstrate that we can improve the way they do business. In addition, the agreements or arrangements on which our customer and vendor relationships are based are typically of limited duration, and are terminable by either party upon several months or otherwise relatively short notice. Our customer relationships could also be affected by wireless carrier consolidation or the global financial crisis.

As total revenues and gross profits from larger customer and vendor relationships, including AT&T, increase, we occasionally experience and expect to continue to experience pricing pressures that may adversely affect future results. In an effort to mitigate the overall effect of these pressures and to meet these consistent challenges, we are focused on our continuing efforts to grow revenues and gross profits from other customer and vendor relationships.

Selling, General and Administrative Expenses. Total selling, general and administrative expenses decreased by 6.3% in the first quarter of fiscal year 2010 as compared with the first quarter of fiscal year 2009. Selling, general and administrative expenses as a percentage of revenues increased to 23.7% in the first quarter of fiscal year 2010 from 22.5% in the first quarter of fiscal year 2009. The largest factors contributing to the decrease in total selling, general and administrative expenses were decreased compensation, and marketing and sales promotion expenses during the first quarter of fiscal year 2010.

Compensation costs primarily decreased due to decreased quarterly bonus and 401(k) expenses as compared to last year's first quarter related to our cash and equity bonus programs as well as decreased variable sales compensation based on lower gross profit. Total compensation costs, including benefits and bonus expense, decreased approximately $858,000 in the first quarter of fiscal year 2010, as compared to the first quarter of fiscal year 2009.

Marketing and sales promotion expenses decreased by approximately $415,000 in the first quarter of fiscal year 2010 as compared with the first quarter of fiscal year 2009, primarily due to decreased expenses incurred for sponsorships and print and online advertising.

We continually evaluate the credit worthiness of our existing customer receivable portfolio and provide an appropriate reserve based on this evaluation. We also evaluate the credit worthiness of prospective and current customers and make decisions regarding extension of credit terms to such customers based on this evaluation. Accordingly, we recorded a provision for bad debts of $556,000 and $266,700 for the first quarter ended June 28, 2009 and June 29, 2008, respectively. This increase in bad debt expense is related to customer write-offs during the first quarter of this fiscal year and the anticipation for further increases in write-offs related to outstanding receivables as of June 28, 2009, due largely to the downturn in the global economy as discussed above.

Interest Expense, Net. Net interest expense decreased from $136,800 in the first quarter of fiscal year 2009 to $109,300 in the first quarter of fiscal year 2010, primarily due to decreased average borrowings on our revolving line of credit facility.

Income Taxes, Net Income and Diluted Earnings per Share. The effective tax rate in the first quarter of fiscal year 2010 was 39.2% as compared with 39.0% in the first quarter of fiscal year 2009. As a result of the factors discussed above, net income for the first quarter of fiscal year 2010 decreased 7.3% and diluted earnings per share increased 2.7%, compared to the corresponding prior-year quarter. The increase in diluted earnings per share despite a decrease in net income is primarily attributable to a decrease in outstanding shares as a result of our stock buyback program and a large share repurchase made through a private transaction during the second quarter of fiscal year 2009.

Liquidity and Capital Resources



                                                     Three Months Ended
                                               June 28, 2009     June 29, 2008
Cash flows provided by operating activities   $     6,641,500   $     8,209,900
Cash flows used in investing activities            (2,674,000 )      (1,659,400 )
Cash flows used in financing activities              (167,000 )      (3,618,900 )
Net increase in cash and cash equivalents     $     3,800,500   $     2,931,600

We generated $6.6 million of net cash from operating activities in the first three months of fiscal year 2010 compared with $8.2 million in the first three months of fiscal year 2009. In the first three months of fiscal year 2010, our cash inflow from operating activities was primarily driven by net income, net of depreciation and amortization and non-cash stock compensation expense, as well as by a significant increase in accounts payable and an increase in accrued income and sales tax liabilities, partially offset by a increase in trade accounts receivable and an increase in product inventory. The increase in accounts payable is largely due to the timing and credit terms of inventory receipts. The accrual for income

and sales tax liabilities increased primarily due to the amount and timing of estimated federal income tax payments. The increase in trade accounts receivable is primarily due to the timing of sales and collections largely related to our large tier-one carrier. The increased inventory levels are to improve our inventory availability for our customers.

Capital expenditures of $0.3 million in the first three months of fiscal year 2010 were in line with expenditures of $0.4 million in the first three months of fiscal year 2009. In both periods, capital expenditures primarily consisted of investments in information technology.

On April 21, 2006, we acquired substantially all the non-cash net assets of TerraWave Solutions, Ltd. and its commonly owned affiliate, GigaWave Technologies, Ltd. for an initial cash payment of approximately $3.9 million, and potential additional cash earn-out payment obligations accruing over a four-year period, contingent on the achievement by TerraWave/GigaWave business unit post acquisition of certain minimum earnings thresholds. Of the $3.9 million cash amount paid at closing, $1.5 million was a non-refundable prepayment against future earn-out obligations, amortizable over the four-year period. To the extent that the minimum earnings thresholds are not achieved over the remainder of the four-year period, we will not be able to apply the remainder of this prepayment ($375,000 as of June 28, 2009). To date, we have paid $5.9 million in earn-out payments, thus the maximum amount of contingent future earn-out payments that could be earned through April 2010 is $9.6 million. Contingent payments made under the terms of the acquisition agreement are treated as an additional cost of the acquired businesses and additional goodwill has been and will continue to be recorded through April 2010, if earnings targets are achieved. For the three month period ended June 28, 2009, approximately $2.4 million in earn-out payments were made, based on achievement of certain earnings thresholds in accordance with the terms of the purchase agreement. As of June 28, 2009, there is no accrual for additional earn-out obligations, because the final earn-out period does not end until April 2010, and thus no goodwill can be accrued until then.

Net cash used in financing activities was $0.2 million in the first three months of fiscal year 2010 compared with a net cash outflow from financing activities of $3.6 million for the first three months of fiscal year 2009. For the first three months of fiscal year 2010, our cash outflow from financing activities was primarily due to an excess tax loss from stock-based compensation as well as treasury stock transactions with employees and directors for minimum tax withholdings related to equity compensation, partially offset by borrowings on our Baltimore County Economic Development Revolving Loan Fund. The excess tax loss is due to the ultimate tax deduction we will be able to recognize for awards that vested during the quarter being less than the cumulative compensation cost previously recognized for financial reporting purposes. For the first three months of fiscal year 2009, our cash outflow from financing activities was primarily driven by repayments on our revolving line of credit and treasury stock transactions with employees and directors for minimum tax withholdings related to equity compensation. During the first three months of fiscal years 2010 and 2009, we did not repurchase any shares of our outstanding common stock pursuant to our stock buyback program. From the beginning of our stock buyback program (the first quarter of fiscal year 2004), through the end of the first quarter of fiscal year 2010, a total of 2,311,128 shares have been purchased under this program for approximately $30.3 million, or an average price of $13.12 per share. The Board of Directors has authorized the purchase of up to 2,395,567 shares in the aggregate pursuant to this program, and therefore, 84,439 shares remained available to be purchased as of the end of the first quarter of fiscal year 2010. We expect to fund future purchases, if any, from working capital and/or our revolving credit facility. No timetable has been set for the completion or expiration of this program. On July 1, 2008, separate from, and in addition to, our stock buyback program, we repurchased all 470,000 shares of our common stock then held by Brightpoint, Inc. ("Brightpoint") in a privately negotiated transaction. See Note 10 to the consolidated financial statements for additional discussion of the Brightpoint transaction.

We are party to an unsecured revolving credit facility with SunTrust Bank and Wachovia Bank, National Association, with interest payable monthly at the LIBOR rate plus an applicable margin. Pursuant to the terms of this facility, we are permitted to repurchase up to $25 million of common stock from May 31, 2007 forward and to pay cash dividends of up to a stated amount, annually. Borrowing availability under this facility is determined in accordance with a borrowing base and the applicable credit agreement includes financial covenants, including a minimum tangible net worth covenant, a minimum cash flow to debt service ratio, and a maximum funded debt to EBITDA ratio. The terms applicable to our revolving credit facility also limit our ability to engage in certain transactions or activities, including (but not limited to) investments and acquisitions, sales of assets, issuance of additional debt and other matters. As of June 28, 2009, we had a zero balance outstanding on our revolving credit facility; therefore, we had the full committed amount (then $50 million) available, subject to the limitations imposed by the borrowing base and continued compliance with the other applicable terms, including the covenants discussed above.

Since the end of the first quarter, we entered into a Third Modification Agreement (the "Third Modification Agreement"), dated as of July 22, 2009, with SunTrust Bank and Wachovia Bank, National Association, amending the Credit Agreement and related promissory note for the revolving credit facility discussed above. Pursuant to and in connection with the Third Modification Agreement, the maximum available principal amount was reduced to $35 million from $50 million, and the term of the revolving credit facility, as so modified, was extended (from May 2010) to May 31, 2012. The Third Modification Agreement also provides for modification of certain of the financial covenants on a going forward basis, including the "tangible net worth" and "maximum funded debt to EBITDA" covenants. In addition, the amount of allowable dividend payments under the Credit Facility was increased from $2.0 million (the previous stated amount) to $2.5 million in any 12 month period, assuming continued compliance with the otherwise applicable terms. The Third Modification Agreement also provides for increases in the applicable margins (from a range of 1.25% to 2.75% to a new range of 2.25% to 3.25%) and unused facility fees, as are not uncommon in the current borrowing and lending environment. In an effort to offset the impact of these increases, management considered the Company's track record of positive cash flows and relatively small historical borrowings under the revolving credit facility, and requested the reduction in the maximum available principal amount.

Pursuant to the relevant documents, the financial covenants included in the Credit Agreement for the unsecured revolving credit facility are also applicable to our existing Term Loan with the same lenders, having an original principal . . .