SECURITIES 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 ended January 31, 1999 or

 [ ] Transition  report  pursuant  to  Section  13 or  15(d)  of the  Securities
     Exchange Act of 1934

For the transition period from       to 
                               ------    ------        

Commission File Number 0-5449
                                  COMARCO, INC.

             (Exact name of registrant as specified in its charter)

                CALIFORNIA                             95-2088894
       -------------------------------    ----------------------------------- 
      (State or other jurisdiction of
      incorporation or organization)      (I.R.S. Employer Identification No.)

      1551 N. Tustin Avenue, Suite 840
            Santa Ana, California                         92705
   (Address of principal executive office)             (Zip Code)

                                 (714) 796-1808
           ----------------------------------------------------------- 
              (Registrant's telephone number, including area code)
           Securities registered pursuant to Section 12(b) of the Act:
                                      none


           Securities registered pursuant to Section 12(g) of the Act:
                                  Common Stock
                                (Title of class)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                            Yes      X        No
                                                   -----          -----

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  X        

            Common stock outstanding at February 26, 1999 - 4,456,460
                                     shares.

                                                    Aggregate market value of
           Class                                 shares held by non-affiliates

          Common Stock........................................      $56,607,691

     The total number of shares held by  non-affiliates on February 26, 1999 was
2,310,518.  This number was  multiplied  by $24.50 per share (the  closing  sale
price of the Common  Stock on February  26, 1999 in the NASDAQ  National  Market
System,  as reported  by NASDAQ) to  determine  the  aggregate  market  value of
non-affiliate  shares  set forth  above.  (The  assumption  is made,  solely for
purposes of the above computation,  that all Officers,  Directors and holders of
more than 5% of the outstanding Common Stock of registrant are affiliates.)


                       DOCUMENTS INCORPORATED BY REFERENCE

     The Company intends to file with the Securities and Exchange  Commission by
May 30, 1999 a definitive Proxy Statement (the "1999 Proxy Statement")  relating
to its 1999 Annual Meeting of Stockholders,  which meeting involves the election
of  directors  and  certain  related  matters.   The  1999  Proxy  Statement  is
incorporated  by  reference in Part III of this Form 10-K and shall be deemed to
be a part hereof.


                              CROSS REFERENCE SHEET

     The  following  table  indicates  the headings in the 1999 Proxy  Statement
under which the information required in Part III of this Form 10-K may be found.
<TABLE>

Form
10-K
Item No.
                             Item in Form 10-K                               Item in 1999 Proxy Statement
                             -----------------                               ----------------------------
<S>                                                                     <C>
10. "Directors and Executive Officers of the Registrant"..............  "Election of Directors and Officers"
11. "Executive Compensation"..........................................  "Executive Compensation"
12. "Security Ownership of Certain Beneficial Owners
        and Management"...............................................  "Ownership of Securities"
13. "Certain Relationships and Related Transactions"..................  "Executive Compensation"
</TABLE>

     Copies of all documents  incorporated  by reference  other than exhibits to
such  documents  will be provided  without  charge to each person who receives a
copy of this Annual Report on Form 10-K upon written request.

<PAGE>
                                     PART I

Except for the historical information contained herein, the matters discussed in
this Form 10-K are forward-looking  statements within the meaning of Section 21E
of the  Securities  Exchange  Act of 1934,  as  amended,  and Section 27A of the
Securities Act of 1933, as amended,  that involve risks and  uncertainties.  The
actual  results  that  the  Company  achieves  may  differ  materially  from any
forward-looking  projections due to such risks and uncertainties.  Factors which
could cause a material  difference in results  include,  but are not limited to,
the following:  regional and national economic  conditions;  changes in interest
rates;  changes in government  spending  policies  and/or  decisions  concerning
specific  programs;  individual  business  decisions of  customers  and business
partners;   developments  in  technology;   new  and  expanding  product  lines;
competition for employee  resources;  competitive factors and pricing pressures;
the Year 2000 compliance of the Company's  customers and business partners;  the
Company's  ability to achieve the objectives of its business plans;  and changes
in government  laws or  regulations.  Words such as  "believes,"  "anticipates,"
"expects," "future," "intends," and similar expressions are intended to identify
forward-looking  statements but are not the exclusive means of identifying  such
statements.


ITEM 1.  Business

COMARCO,   Inc.  and  its  subsidiaries  (the  "Company",   "COMARCO",   or  the
"registrant") is a California  corporation  whose common stock has been publicly
traded  since 1971 when it was  spun-off  from  Genge  Industries,  Inc.  Active
subsidiaries   other  than  the  parent  company   include:   Comarco   Wireless
Technologies,  Inc.  ("Comarco  Wireless"),  which was formed in January 1994 to
further  develop  the  Company's  wireless   communications  products  business;
Manufacturing  Technology  Training  Center,  Inc.  (MTTC),  which was formed in
January 1996 to further  develop the  Company's  technology  training  business;
Comarco Wireless International, Inc. (formerly known as Comarco Wireless Europe,
Inc.), a wholly-owned  subsidiary of Comarco Wireless Technologies,  Inc., which
was formed in April 1996 to market and provide  post-contract  customer  support
for the Company's wireless communications  products to international  customers;
Comarco Staffing,  Inc. which was formed in August 1996 to acquire the assets of
a commercial outsourced staffing services company;  Comarco Systems, Inc., which
was  formed  in  January  1997 to  further  develop  the  Company's  information
technology and staffing services business; and Comarco Services, Inc., which was
formed in January  1999 to further  develop  the  Company's  airport  management
services and staffing business.


BUSINESS AREAS

The  business  and  major  customer   information   provided  in  the  Company's
Consolidated  Financial  Statements  contained  in this report are  incorporated
herein by  reference.  In  particular,  see Note 1 of the Notes to  Consolidated
Financial Statements and Item 7, Management's Discussion and Analysis of Results
of Operations and Financial Condition.

The Company has  historically  engaged in providing  information  technology and
staffing services (engineering,  technical,  and airport management) to agencies
of the  United  States  Government,  government  prime  contractors,  and  local
government agencies. To broaden its existing information technology and staffing
services  business,  the  Company  acquired  a  commercial  outsourced  staffing
services  company in August  1996.  During  the past four  years,  the  Company,
through its subsidiary,  Comarco Wireless Technologies,  Inc., has invested more
of its  corporate  resources in expanding its wireless  communications  products
business area. This effort has resulted in COMARCO realizing the majority of its
operating income from this business area.

Summarized  financial  information by business  segment for the Company's Fiscal
Year 1999, which ended January 31, 1999, is as follows:

<TABLE>
                                                  Information
                             Wireless             Technology
                          Communications          and Staffing      Corporate and
                             Products               Services            Other                   Total
                       ----------------------------------------------------------------------------------------
                                                     (Dollars in Thousands)
<S>                    <C>                   <C>                   <C>                   <C>      
Revenues               $       34,004        $       57,960        $          ---        $       91,964
Operating income                7,148                 1,729                    (9)                8,868
Identifiable assets            22,392                16,404                 8,491                47,287
</TABLE>

     o   Wireless Communications Products

The Company's wireless communications products business, through its subsidiary,
Comarco  Wireless  Technologies,  Inc.,  is presently  comprised of four product
families: test and measurement, revenue assurance, callbox systems, and portable
device power adapters.

          o    The test and  measurement  marketplace  is  covered  by the LTX00
               product  family  used to  monitor  network  performance,  the X50
               family  used  to  solve  complex  engineering  problems,  and the
               BaseLINE(TM) family used to benchmark competitors. These products
               provide a method for monitoring,  analyzing, and benchmarking the
               performance   of  wireless   system   networks  of  a  customer's
               competitor, as well as that of its own network.

          o    The  revenue  assurance  marketplace  is  covered  by  RAP(TM) to
               automate  call-through  testing  and to verify the  accuracy  and
               integrity of the billing system.

          o    The callbox systems marketplace is covered by a number of callbox
               products  that  provide  emergency  service  over  wire-line  and
               wireless backbones. In addition to providing the callbox product,
               Comarco Wireless Technologies  also provides project installation
               and long-term maintenance services.  In October 1996, the Company
               purchased  certain  callbox  product  line  assets from  GTE. The
               installed  base purchased from GTE consists of over 14,000 units,
               of which approximately 11,000  are being serviced  by the Company
               under long-term maintenance  contracts.  In addition, in February
               1997, the Company acquired certain assets of the Cubic Communica-
               tions,  Inc. callbox product line. The installed base   purchased
               from Cubic Communications  consists of approximately 5,200 units.
               Management  believes  that the  combination  of these two product
               lines  establishes the Company as a major vendor to this niche of
               the wireless  applications  products marketplace.

          o    Universal power adapters for cellular phones,  laptop  computers,
               personal   assistants  and  other  portable   devices  are  under
               development,  and market trials are in progress. If market trials
               are  successful,  the Company plans to continue its investment in
               this marketplace.

Comarco Wireless  Technologies' revenues increased to 37% of the Company's total
revenue in Fiscal  Year 1999,  representing  an  increase  of 15% over the prior
fiscal year. Operating income increased 6% year-to-year and represented over 80%
of the Company's  consolidated  operating income for Fiscal Year 1999. Continued
growth in Comarco  Wireless  revenues  and income is  predicated  on a number of
factors,  including the continued success of the Company's  product  development
efforts,  continued geographical  expansion to international markets,  continued
growth and increased availability of cellular and other wireless  communications
services, including PCS, in the United States and internationally, and continued
acceptance  of the  Company's  products by its  customers,  none of which can be
assured.

International  revenues in Fiscal Year 1999 totaled $5.6 million, down from $8.9
million in the prior fiscal year.  Year-to-year decreased  international revenue
is due to lower  activity in Asia due to the  general  economic  conditions  and
lower  activity  in Europe  due to one  large  order in Fiscal  Year  1998.  The
majority  of these  sales  have  been  made to  Europe,  Asia-Pacific  and Latin
America.  The Company expects that international  revenues will continue to be a
key area of growth,  although  the  activity may continue to be weak in the near
term.  Marketing  and  post-contract  customer  support  offices  are opened and
staffed in Singapore, England, and Mexico.


PRODUCT DEVELOPMENT

The  Company  continues  its  product   development   program  in  its  wireless
communications business.  Because a common thread of technology runs through all
Comarco  Wireless  product lines,  the Company believes that it can leverage its
investment  and  maintain  the  focus and  concentration  of its  technical  and
marketing  resources,  although  there can be no assurance  in that regard.  The
Company in general has been developing and plans to continue to develop products
that  will  be  compatible  with  all  wireless  communications  air  interfaces
worldwide.  New  product  introductions  this  year  included  adding  other air
interfaces to the Company's line of test and measurement  and revenue  assurance
products including CDMA, GSM, PC 1800/1900, and IS-136; further expansion of the
Company's  LT line with the  introduction  of the LT 200; and the release of the
BaseLINE(TM)  range of products which  represents state of the art technology in
comparative  network  analysis.  The BaseLINE(TM)  product also includes Comarco
Wireless'  innovative Q-MOS(TM)  technology,  which permits wireless carriers to
assess the audio  quality of their  networks  and compare it directly  with that
offered by competing  carriers.  The  Company's  wireless  product life cycle is
estimated to be two to five years, depending on the product.

The Company is also  continuing  its  development of a new product line, a power
adapter for laptop  computers  and cellular  telephones.  The  objective of this
product is to be smaller,  lighter and more versatile than existing  products on
the market and is based on the Company's  patented power conversion  technology.
The Company commenced market trials including limited sales of the first version
of this  product in Fiscal Year 1999,  with a more  powerful  version  currently
under  development.  Potential  customers  are  replacement  market  buyers  and
original  equipment  manufacturers.  The  Company's  market  trial is focused on
replacement  market  buyers.  The power  requirements  of laptop  computers  are
increasing due to the  introduction  of more powerful  microprocessors  and more
advanced battery technologies. This requires the Company to continue its product
development  program  to  increase  the  power  capacity  of its  power  adapter
products.  There can be no  assurance  that the Company  will be  successful  in
bringing the higher power adapter  product to market,  or that this product will
be  successful.  The Company is aware that the power supply  market is extremely
competitive.  If the Company is successful, the production,  marketing, and sale
of this  product will require a  significant  amount of working  capital for the
financing  of  inventory  and  accounts  receivable  arising  from  sales of the
product.

The Company  plans to continue to invest  substantially  in product  development
efforts.  Its  products  are  characterized  by rapidly  changing  technologies,
evolving standards,  and continuous  improvements in products and services.  The
Company's  future  prospects  will  depend in part on its ability to enhance the
functionality of its existing products in a timely and cost-effective manner and
to identify, develop, and achieve market acceptance of new products that address
new  technologies  and  standards  and  meet  customer  needs  in  the  wireless
communications  marketplace.  There can be no assurance that the Company will be
able to respond to technological advances, changes in customer requirements,  or
changes in regulatory  requirements or industry  standards,  and any significant
delays in development,  introduction or shipment of products,  or achievement of
acceptable  product costs, could have a material adverse effect on the Company's
business, operating results and financial condition.

As part of its  product  development  program,  the  Company is  continuing  its
software product  development program in its wireless  communications  business.
During  Fiscal  Year  1999  and  Fiscal  Year  1998,   the  Company's   wireless
communications business capitalized  approximately $2.9 million and $2.5 million
of  software  product  development  costs,  respectively,   in  accordance  with
Statement of Financial  Accounting Standards No. 86, Accounting for the Costs of
Computer  Software to be Sold,  Leased,  or Otherwise  Marketed.  Of the amounts
capitalized,  $1.9 million and $1.4  million,  respectively,  were  amortized in
Fiscal Years 1999 and 1998 against  product sales in accordance  with  Statement
No. 86.

In addition,  during Fiscal Years 1999,  1998,  and 1997,  Comarco  Wireless had
expenditures of $.8 million,  $1.2 million and $1.3 million,  respectively,  for
research  and  development   expenses  (including   Company-sponsored   software
development  costs prior to  determination of  technological  feasibility),  for
product design and development  expenses,  as well as design expenses associated
with   component   replacements,   reducing   the  cost,   and   improving   the
manufacturability  of existing  products.  The reduced Fiscal Year 1999 research
and  development  expenses  are due to the  transition  of the  universal  power
adapter  development to initial production and market trial shipments during the
year.


BACKLOG

Unfilled  orders at Comarco  Wireless as of January  31, 1999 are  approximately
$17.2  million,  compared to $17.7  million as of January 31, 1998.  The current
year  balance  includes  $2.5  million  of  product  orders  for  the  test  and
measurement and revenue  assurance  product lines,  and $2.7 million of deferred
revenue for basic and extended  warranty  commitments.  The current year balance
also includes $1.0 million of product orders for the power adapter product line.
Management  believes  that  substantially  all of this  backlog  amount (of $6.2
million) will result in revenue during Fiscal Year 2000. In general, most of the
Company's product orders are filled within months from the receipt of the order.
The  remaining  unfilled  orders of $11.0  million  are  related to the  callbox
product  line.  This  backlog  balance  consists of $1.2  million of new product
orders, $6.0 million of long-term maintenance agreements, and the remaining $3.8
million is to upgrade the Los Angeles  County  callbox system to comply with the
Americans with  Disabilities  Act's  requirements  for use by hearing and speech
impaired  individuals.  The Company  currently  expects the  majority of the Los
Angeles contract to be performed in Fiscal Year 2000.


SEASONALITY/FLUCTUATION IN QUARTERLY RESULTS

Comarco  Wireless has  experienced,  in each of the past five years,  a seasonal
fluctuation in wireless  communications products activity, with greater sales in
the latter half of its fiscal  year and lesser  amounts in the first half of the
fiscal year,  although this trend has been  declining  over the same five years.
This fluctuation may or may not continue due to a number of factors,  including:
the timing, cancellation, or delay of customer orders; the timing of new product
introductions  by the Company or its  competitors;  the  deployment  schedule of
wireless  network  operators in both North American and  international  markets,
which  can be  delayed  by both  economic  and  political  issues;  the  size of
customers' capital budgets, which are the traditional source of customer funding
for the purchase of the Company's products; market acceptance of the Company and
its customers' products;  variations in manufacturing  capacities,  efficiencies
and costs;  the  availability  and cost of  components;  capacity and production
constraints  associated  with  single  source  component  suppliers;  and  other
competitive  factors.  Therefore,  the  nature  of the  wireless  communications
products business is inherently  unpredictable;  sales and profits may fluctuate
significantly   from  quarter  to  quarter;   and  therefore,   period-to-period
comparisons  of its operating  results are not  necessarily  meaningful and such
comparisons cannot be relied upon as indicators of future performance.


MARKETING, SALES DISTRIBUTION, FOREIGN SALES

Comarco  Wireless  maintains its own internal  sales force for the marketing and
sales of the Company's product offerings in the United States. In addition,  the
Company has opened and staffed  direct  sales and  customer  support  offices in
Singapore, England, and Mexico to service Asia-Pacific,  Europe, and Latin/South
America,  respectively. The international offices manage a network of agents and
distributors  for the  coordination  of sales  activity  outside  of the  United
States. This expansion overseas faces a number of inherent barriers,  including:
the need for export  licenses;  tariffs and other potential trade  restrictions;
changes in laws  governing the  imposition of duties,  quotas,  taxes,  or other
charges relating to the import or export of its products; political and economic
instability,  the difficulty of administering business globally, longer accounts
receivable cycles, and currency exchange fluctuations. The Company currently has
limited  experience  in  penetrating  the foreign  marketplace  and,  therefore,
companies  having a  presence  or already  doing  business  overseas  may have a
competitive  advantage  over the  Company.  There can be no  assurance  that the
Company's international sales efforts will be successful.

The Company  currently  sells to its major  customers under purchase orders that
are usually placed with short-term delivery requirements. Therefore, the Company
maintains  significant  inventory levels and associated production and technical
staff  in order to  respond  to the  short-term  delivery  requirements.  If the
customer orders, as forecasted,  do not materialize or are delayed,  the Company
will have higher levels of inventory than otherwise needed,  increasing the risk
of  obsolescence.  The higher levels of inventory and  production  and technical
staffing would also reduce the Company's liquidity and profitability.

The Company's  standard terms require foreign customers to pay for the Company's
products  with U.S.  dollars.  As such, a  strengthening  of the U.S.  dollar as
compared to a foreign customer's local currency  effectively  increases the cost
of the  Company's  products  for that  customer,  thereby  making the  Company's
products  less  attractive to that  customer.  For those orders  denominated  in
foreign  currencies,  the Company may limit its  exposure to losses from foreign
currency  transactions  by the purchase of forward foreign  exchange  contracts.
Such activity to date has been  insignificant.  There can be no assurance that a
currency hedging strategy will be successful in avoiding exchange-related losses
in the future.

Significant weakness in foreign currency exchange rates can also create economic
uncertainty,  including  weakness in banking  systems and equity  markets.  Such
weaknesses  can impact  customers'  demand for the Company's  products and their
ability to pay for the Company's products with U.S. dollars.

Therefore,  any  significant  change  in a  foreign  country's  exchange  rates,
economy,  or a  deterioration  of  U.S.  trade  relations  or the  economies  or
political stability of foreign locations in which the Company sells its products
could  have a  material  adverse  effect on the  Company's  business,  operating
results, and financial condition.

The Company is still in the process of receiving its ISO 9002  certification,  a
uniform   worldwide   quality-control   standard,   on  its   headquarters   and
manufacturing  facility located in Irvine,  California.  Customers and potential
customers  throughout the world,  particularly in Europe, may require that their
suppliers be ISO certified.  In addition,  some customers may require that their
suppliers purchase  components only from  subcontractors that are ISO certified.
Therefore,  the Company's  current status could have an impact on its ability to
successfully compete in the international marketplace.


SERVICE AND WARRANTY

The Company's  warranties  vary by product type and  typically  cover defects in
materials and workmanship.  Warranty  obligations and other maintenance services
for the  Company's  products  are  primarily  performed  by the  Company  at its
facilities in California. The Company currently has service employees located in
Singapore, England, and Mexico to service their respective geographical regions.


CAPITAL REQUIREMENTS

Comarco  Wireless'  working capital needs  primarily  consist of the cost of the
upfront  product  development  effort  required to expand the Company's  product
offerings,  inventory requirements,  including long lead time materials, and the
financing of accounts  receivable,  which will generally  become longer upon the
Company's continued planned geographical expansion into Europe, Asia-Pacific and
Latin America.  Certain  components used by the Company in its existing products
are only  available  from single  sources,  and  certain  other  components  are
presently  available or acquired only from a limited  number of  suppliers.  The
radio interface  devices designed into the Company's  products are key purchased
components  whose lack of availability  could have a material  adverse impact on
sales and  profits.  In the event that any of its single  source  suppliers  are
unable to fulfill  Company  requirements or discontinue the manufacture of a key
component, the Company would be required to purchase a comparable component from
other sources and modify its products to function  properly with the replacement
component  or redesign  its  products to use other  components,  either of which
could result in delays in production and delivery.  Working capital requirements
are expected to be financed from  operations and the financial  resources of the
Company.

Comarco Wireless also operates from a single-site  manufacturing  operation. Any
material disruption in the manufacturing operations of Comarco Wireless, whether
due to fire,  natural  disasters,  or  otherwise,  will have a material  adverse
effect on the Company's business, operating results, and financial condition.


TECHNICAL REQUIREMENTS

Comarco  Wireless is selling its products into a market that is growing  rapidly
and  subject  to  technological  obsolescence,  and  market  timing  of  product
introductions  is critical for success.  In the  development  of new or expanded
product offerings, the Company's access to the technical design of air interface
devices is  essential  for the  Company to  anticipate  and  develop  compatible
wireless communications  products. The inability to obtain the technical designs
on a timely basis will have a direct  impact on product  design and schedule and
could  have a  material  adverse  effect on the  Company's  business,  operating
results, and financial condition.


EMPLOYEES

As of April 1, 1999, Comarco Wireless employed approximately 150 employees.  The
Company  believes  its  employee  relations  to be  good.  The  majority  of the
Company's  employees are professional or technical personnel having training and
experience in  engineering,  computer  science,  and  management.  The Company's
future  success  depends  in  large  part on the  continued  service  of its key
technical,  marketing,  and management personnel, and on its ability to continue
to attract and retain  qualified  employees,  particularly  those highly skilled
design, process, and test engineers involved in the development of new products.
The competition for such personnel is intense,  and the loss of key employees as
well as the failure to recruit and train  additional  technical  personnel  in a
timely manner could have a material  adverse  effect on the Company's  business,
operating  results,  and financial  condition.  Recognizing  this  reality,  the
Company has instituted a long-term  incentive  stock option plan for key Comarco
Wireless  employees,  whereby they will directly  participate  in the success of
Comarco   Wireless  (see  Note  12  of  the  Notes  to  Consolidated   Financial
Statements).  The  Company  obtains  its  employees  through a variety  of means
including  advertisements,  technical  job fairs,  engineering  recruiters,  and
engineering temporary staffing firms.


COMPETITION

Comarco  Wireless  competes in small  niches  (test and  measurement  equipment,
revenue assurance  equipment,  and emergency roadside callboxes) of the wireless
communications  marketplace.  The  business is  competitive  and there are other
companies,  many of which are larger and have greater financial  resources,  who
provide or could  provide the same type of products.  The ability of the Company
to compete successfully depends upon a number of factors,  including the rate at
which  customers  accept the  Company's  products in overseas  markets,  product
quality  and  performance,  experienced  sales and  marketing  personnel,  rapid
development of new products and features,  evolving industry standards,  and the
number and nature of the Company's  competitors.  The Company believes there are
companies  that  provide or have the ability to provide the products the Company
is planning for overseas  users.  Also,  companies  having a presence or already
doing  business  overseas may have an advantage in  penetrating  those  markets.
There can be no assurance that the Company will be able to compete  successfully
in the future, either domestically or internationally.


PROPRIETARY INFORMATION

The Company has three patents for its small power  adapter for laptop  computers
and cellular  telephones,  and patents  covering its emergency  roadside callbox
product.  However,  the Company  currently  relies primarily on a combination of
trade secrets,  copyrights,  and contractual  rights to protect its intellectual
property in the wireless communications products area. There can be no assurance
that the steps taken by the Company  will be adequate to deter  misappropriation
or impede third-party  development of its technology.  In addition,  the laws of
certain  foreign  countries in which the  Company's  products may be sold do not
protect the Company's  intellectual property rights to the same extent as do the
laws of the United States. The failure of the Company to protect its proprietary
information  could have a material  adverse  effect on the  Company's  business,
operating results, and financial condition.


     o   Information Technology and Staffing Services Revenue

     These services are primarily in the fields of:

         o    Information Technologies
         o    Intelligent Instrumentation and Automated Test Systems
         o    Ordnance and Weapon Systems Engineering Services
         o    Airport Management Services
         o    Commercial Staffing Services
         o    Manufacturing Training

     Approximately  $58.0  million  or  63%  of  the  Company's  revenues,   and
     approximately  $1.7  million of its  operating  income for the fiscal  year
     ended  January 31, 1999 were derived from  contracts and  subcontracts  for
     such services.


     Information Technologies
     ------------------------

     The Company  specializes in the application of information  technologies to
     support  agencies  of  the  U.S.  Department  of  Defense,   other  Federal
     Government agencies,  local governments,  and various commercial customers.
     This includes:

         o Creating and operating  computer-based  environments  that  simulate,
           emulate,  and  stimulate  communications  and  target  computer-based
           systems.
         o Designing, building, and employing instrumentation for testing infor-
           mation systems.
         o Designing,  engineering,  integrating,  testing,  administering,  and
           maintaining  local-  and  wide-area  network  and  office  automation
           systems.
         o Designing, populating, and maintaining complex databases.
         o Specifying,   developing,   testing,   integrating,  and  supporting
           communications protocols, links, and application software.
         o Developing and  employing  data  reduction  and  analysis  techniques
           and records management systems, including image processing systems.
         o Developing and integrating Geographic Information Systems.

     The Company also designs, specifies, acquires, integrates, tests, installs,
     operates, and maintains systems for its customers' uses.


     Intelligent Instrumentation and Automated Test Systems
     ------------------------------------------------------

     The  Company  also  specializes  in  the  development  and  application  of
     computer-based  test instruments and automated test systems with particular
     focus on:

         o Interoperability testing of communications and information systems;
         o Developmental  and  operational  testing of C4I,  ordnance,  tactical
           weapon and data systems; and o Automated Test Systems (ATS).

     The  Company  provides  engineering  and  testing  support  to assure  that
     communications  and  computer-based  systems  interoperate  effectively and
     reliably.

     The Company provides design and fabrication of special purpose test support
     software and hardware for testing aircraft,  missile  launchers,  missiles,
     gun and other complex  electronics-based  systems and their  subsystems and
     components.

     The Company develops test program sets (TPS's) and interface devices (ID's)
     for  operational   performance   verification  and  failure   diagnosis  of
     mission-critical electronic assemblies and subassemblies.


     Ordnance and Weapon Systems Engineering Services
     ------------------------------------------------

     The  Company  offers  U.S.  military  customers  a variety  of  specialized
     engineering services applicable to ordnance and weaponry, including:

        o System  engineering for  complex  C4I, ordnance,  weapon  and  weapon-
          platform integration concepts.
        o Design and test engineering of embedded computers, avionics, software,
          lasers, optics, seekers,   guidance  and  control  systems,   interior
          and  exterior ballistics, airframes, electronics, energetic materials,
          propulsion, warheads, fuses, and insensitive munitions.
        o Quality  assurance,  reliability,   maintainability,  system   safety,
          productibility, logistics, and standard engineering.
        o Documentation,  CAD/CAE  (CALS  and  EDMICS  compliant), configuration
          and data  management,  and  records archiving and management services.

     The Company is providing environmental and safety engineering including:

         o Pollution prevention studies
         o Evaluation of site developments for  environmental  compliance
         o Air, water,  and soil sampling and analysis
         o Waste system analysis
         o Permit renewal preparation
         o Other environmental support

     Current customers for information technologies, intelligent instrumentation
     and  automated  test systems and ordnance and weapons  systems  engineering
     services  include  agencies of the U.S.  Government  and  government  prime
     contractors.

     Airport Management Services
     ---------------------------

     The Company  provides  airport  management  services  for local  government
     agencies.  The Company's  contract  supporting the Metropolitan  Washington
     Airports  Authority at Reagan  Washington  National Airport ended September
     30, 1998. The Company  decided not to pursue the recompete of this contract
     since it was marginally profitable,  and it would have been unprofitable if
     reawarded  to the Company.  The Company has a long-term  contract to manage
     five general aviation airports in Los Angeles County.  Support in this area
     includes  managing  airport  operations,  ground  transportation  services,
     computerized revenue collection,  and general management support functions.
     In addition,  the Company has similar long-term airport services  contracts
     with Riverside County,  California and with Tacoma Narrows Airport, Tacoma,
     Washington.


     Commercial Staffing Services
     ----------------------------

     In August  1996 the  Company  acquired  the  assets of RAL  Consulting  and
     Staffing  Services,  Inc. This operation provides  engineering,  technical,
     light industrial,  and  administrative  staffing services to the commercial
     marketplace.  Specific  areas of expertise  include:  temporary  personnel,
     general recruitment,  substance abuse testing,  OSHA compliance,  and human
     resources  consulting.  The  main  office  is in  Victorville,  California,
     serving the Apple Valley area of the High Desert.  During Fiscal Year 1998,
     the Company opened an office in Corona,  California, and during Fiscal Year
     1999, the Company opened an office in Temecula, California.

     Manufacturing Training
     ----------------------

     Created under a Cooperative Research and Development Agreement (CRADA) with
     the Navy,  the  Company's  subsidiary,  MTTC,  Inc.,  operates  a school to
     provide training in world-class electronics manufacturing.  Specializing in
     both manual and automated electronics  interconnection methods, the Company
     offers   certification   and  operator  training  in  accordance  with  the
     commercial standard, IPC A-610.


BACKLOG

The Company's backlog from information  technology and staffing services revenue
believed  to be firm as of January  31,  1999 was $47  million,  compared to $35
million as of January 31,  1998.  The source of backlog is  primarily  contracts
with the U.S. and local governments.  Government  contracts normally have a base
and option periods totaling three to five years in duration.  In many instances,
government  entities  must issue work orders,  delivery  orders,  or task orders
prior to the Company  commencing  work.  These  entities have the  discretion to
terminate any contract at their convenience,  and are normally obligated only to
pay for costs incurred to date under a contract. In addition, these entities may
elect to remove funding previously attached to a contract. Many of the Company's
contracts  are  multi-year,  with  options to provide  services  for  additional
periods of time.  There can be no assurances  that the government  entities will
exercise the options,  will not withdraw  funds already  committed,  or that the
entities  will fund the  unfunded  portions of the  Company's  contracts.  It is
estimated that  approximately 55% of the firm backlog will be realized in Fiscal
Year 2000.


GOVERNMENT CONTRACTS

A significant  portion of the Company's  total  revenues  (approximately  34% in
FY99,  32% in FY98,  and 39% in FY97) was derived from contracts with the United
States   Government,   principally   agencies  of  the  Department  of  Defense.
Significant  portions of the  Company's  Fiscal Year 1999  revenues were derived
from contracts with the U.S. military services:  Department of Defense, 8%; U.S.
Army, 8%; U.S. Navy, 12%; and U.S. Air Force,  6%. Should changes in procurement
policies or reductions in government  expenditures occur, revenue and net income
of the Company could be adversely  affected  (see  Management's  Discussion  and
Analysis  of Results of  Operations  and  Financial  Condition).  The  Company's
government  contracts business is not seasonal;  however variations may occur at
the  expiration  of major  contracts  until such  contracts  are  renewed or new
contracts  obtained.  Further,  the Federal  Government is increasing its use of
General  Services  Administration  multiple award  schedules (GSA MAS) and other
very broad-based  contract vehicles to acquire  information  technology  related
services.  The Company  has  responded  to this shift in its Federal  Government
market by successfully  obtaining awards of its own GSA MAS in February 1998 and
teaming with other companies on similar vehicles they have obtained. As of April
1999,  orders  under these  vehicles  total  approximately  $5.3  million  since
September  1997.  In the course of the  Company's  business,  its  contracts are
periodically  opened for competition.  In March 1998, the Company  announced the
award of a  five-year  Government  contract  (three-year  base  period  with two
one-year  options) with an estimated value of $75 million to continue to provide
engineering and management services to the U.S. Navy at Crane, Indiana. Contract
periods are  generally  three to five years,  including  options.  The Company's
airport management services contract at Reagan Washington National Airport ended
on September 30, 1998.  The Company  decided not to pursue the recompete of this
contract since it was marginally profitable, and it would have been unprofitable
if reawarded to the Company.  The Company plans to aggressively  compete for its
existing work and selectively  pursue other high value Government  procurements.
There can be no  assurance  that the Company  will be selected  and awarded work
under any future proposals.


COMPETITION

Approximately 80% of the Company's information  technology and staffing services
business is awarded through  competitive  procurements.  Government  contracting
services industries consist of thousands of companies,  many of which are larger
and have greater financial resources than the Company,  who can provide the same
type of services.  The business is highly competitive.  The Company obtains much
of its  business  on the  basis  of  submitted  proposals  to new  and  existing
customers.  Competition generally centers on price, past performance,  technical
capability,  management  plan,  and  personnel.  There is no single company that
competes  directly  with  the  Company  on  all of the  Company's  services  and
products.


PROPRIETARY INFORMATION

The United States Government has certain proprietary rights in software programs
and  products  developed  by  the  Company  in  its  performance  of  government
contracts.


SEASONALITY

The Company's  information  technology and staffing services business in general
is not seasonal,  although the summer and winter holiday  seasons affect revenue
of the Company because of their impact on the Company's labor sales.  Variations
in the Company's  business may also occur at the  expiration of major  contracts
until such contracts are renewed or new contracts obtained.


EMPLOYEES

As of April 1, 1999, the Company employed approximately 780 full-time employees,
of which 630 were  part of the  information  technology  and  staffing  services
business area. In addition,  the Company has  approximately  440 employees (on a
full-time equivalent basis) working as temporaries in its commercial  outsourced
staffing  business.  The Company believes its employee relations to be good. The
majority of the Company's  employees  are  professional  or technical  personnel
having training and experience in engineering, computer science, and management.


ITEM 2.  Properties

The   Company's   principal   facilities   on  January  31,  1999,   aggregating
approximately  128,000  square  feet,  are  located  in the cities of Santa Ana,
Irvine,  Camarillo,  Victorville,  Corona, Temecula and Ridgecrest,  California;
Vienna and Petersburg,  Virginia; Sierra Vista, Arizona; Warner Robins, Georgia;
Bloomfield,   Indiana;   Colorado  Springs,   Colorado;   Huntsville,   Alabama;
Germantown,  Maryland;  London,  England; and Singapore,  and are occupied under
leases expiring prior to Fiscal Year 2005. With the exception of an 8,000 square
foot area used for  light  manufacturing,  all  facilities  are used for  office
space. The Company's  aggregate annual property rent during Fiscal Year 1999 was
approximately  $1.4  million.  The  aggregate  annual  property rent in the year
ending January 31, 2000 is expected to be approximately $1.5 million. Management
believes  that  all  facilities   currently  occupied  by  the  Company  provide
sufficient space for the Company's  present needs, and that suitable  additional
space will be available, if needed. Comarco Wireless operates from a single-site
manufacturing operation. Any material disruption in the manufacturing operations
of Comarco Wireless,  whether due to fire, natural disaster, or otherwise,  will
have a material adverse effect on the Company's business, operating results, and
financial condition.


ITEM 3.  Legal Proceedings

The  Company  is  subject  to legal  proceedings  and  claims  that arise in the
ordinary  course of its business.  In the opinion of  management,  the amount of
ultimate  liability with respect to these actions will not materially affect the
Company's operating results and financial condition. In particular,  see Note 20
of the Notes to Consolidated Financial Statements.


ITEM 4.  Submission of Matters to a Vote of Security Holders

Not applicable.

<PAGE>
                                    PART II


ITEM 5.  Market for the Company's Common Equity and Related Stockholder Matters

The Company's  Common Stock is traded in the  over-the-counter  market under the
NASDAQ  symbol CMRO.  The  following  table sets forth the range of high and low
closing prices in the NASDAQ National Market System for the Common Stock for the
periods indicated,  as reported by the National  Quotation Bureau  Incorporated.
Prices represent actual reported sale prices.


                          Fiscal Years Ended January 31
<TABLE>

                                                                Price
                                                       ------------------------
                                                        High            Low
                                                      --------       ---------
      <S>                                              <C>            <C>
      1999
         First Quarter...........................      $ 22.38        $ 20.50
         Second Quarter..........................        23.19          19.63
         Third Quarter...........................        21.50          16.81
         Fourth Quarter..........................        24.25          19.88
      1998
         First Quarter...........................      $ 18.13        $ 16.38
         Second Quarter..........................        20.00          16.38
         Third Quarter...........................        24.00          19.38
         Fourth Quarter..........................        24.00          20.13
</TABLE>


The Company had approximately 544 shareholders of record on February 26, 1999.

The terms of the  Company's  current  bank loan  agreement  limit the payment of
dividends under certain  circumstances.  The Company  anticipates that dividends
will not be paid for the  foreseeable  future  and  that  all  earnings  will be
retained for use in the Company's business and for stock repurchases.

<PAGE>

ITEM 6.  Selected Financial Data

                             SELECTED FINANCIAL DATA
                (Figures in thousands, except per share amounts)

<TABLE>
                                                                       Years Ended January 31,
                                              ---------------------------------------------------------------------------
                                                  1999            1998           1997           1996            1995
                                              --------------  -------------   ------------  -------------   -------------
<S>                                           <C>             <C>             <C>           <C>             <C>          
Revenues:
   Contract revenues......................    $      57,910   $      55,030   $     50,858  $     54,278    $    58,796
   Product sales..........................           34,054          30,109         20,556        15,563          9,520
                                               -------------   -------------   ------------  ------------    -----------
                                                     91,964          85,139         71,414        69,841         68,316
Direct costs:
   Contract costs.........................           39,411          37,960         35,599        36,540         39,271
   Cost of product sales..................           14,857          14,050          7,417         6,644          5,388
                                               --------------  -------------   ------------  -------------   -------------
                                                     54,268          52,010         43,016        43,184          44,659
                                                              
Indirect costs............................           28,828          24,960         21,780        21,112          18,652     
Intangible asset write-off.....................          --             710             --            --              --
                                              --------------  -------------   ------------  -------------   -------------
                                                     83,096          77,680         64,796        64,296          63,311

Operating income .........................            8,868           7,459          6,618         5,545           5,005
Interest expense..........................               __             __              __            44             231
Interest income...........................              298             404            559           541             298
                                               --------------  -------------   ------------  -------------   -------------

Income before income taxes ...............            9,166           7,863          7,177         6,042           5,072
Income tax expense .......................            3,483           2,988          2,512         2,157           1,743
                                              --------------  -------------   ------------  -------------   -------------

Net income ...............................    $       5,683     $     4,875     $    4,665   $     3,885     $     3,329
                                              ==============  =============   ============  =============   =============
Earnings per share:
     Basic:
         Net income.......................    $        1.23     $      1.03     $      .98   $       .84     $       .71
                                              ==============  =============   ============  =============   =============
       Diluted:
         Net income.......................    $        1.13     $       .89     $      .86   $       .75     $       .68
                                              ==============  =============   ============  =============   =============
Dividends declared per share..............             None            None           None          None            None
</TABLE>
<PAGE>

                             SELECTED FINANCIAL DATA
                                 (In thousands)
<TABLE>


                                                                            January 31,
                                              ------------------------------------------------------------------------

                                                  1999           1998           1997          1996           1995
                                              --------------  ------------  -------------  ------------  -------------
<S>                                           <C>             <C>           <C>            <C>           <C>
Working capital ..........................    $    21,833     $    20,937   $    20,429    $    16,049   $    12,394
Total assets..............................         47,287          43,894        39,210         29,989        25,810
Borrowings under bank line of credit......             --              --            --             --            --
Long-term debt, including current maturities
   (1)....................................             --              --            --             --           844
Stockholders' equity .....................         31,202          30,470        26,977         21,738        17,203

</TABLE>

(1)  Includes  Convertible  Subordinated  Debentures of  $844,000 at January 31,
     1995.


ITEM 7.  Management's  Discussion  and  Analysis  of  Results of  Operations and
         Financial Condition


Results of Operations

The following tables set forth, for the periods indicated,  the percentage which
certain items in the consolidated statements of income bear to revenues, and the
percentage change from period to period of these items:

Percentage of Revenues
<TABLE>

                                                         Years Ended January 31,
                                           -----------------------------------------------------
                                               1999                1998               1997
                                           -------------       -------------      --------------
<S>                                           <C>                 <C>                <C> 
Revenues...............................       100.0%              100.0%             100.0%
Operating income.......................         9.6                 8.8                9.3
Interest expense.......................          --                  --                 --
Interest income........................          .3                  .5                 .8
Income tax expense.....................         3.8                 3.5                3.5
Net income.............................         6.2                 5.7                6.5
</TABLE>

Percentage Increase (Decrease)
<TABLE>
                                                   Years Ended January 31,
                                           -------------------------------------
                                             1999-1998             1998-1997
                                           ---------------       ---------------
<S>                                            <C>                   <C>
Revenues...............................          8.0%                 19.2%
Operating income.......................         18.9                  12.7
Interest expense.......................           --                    --
Interest income........................        (26.2)                (27.7)
Income tax expense.....................         16.6                  18.9
Net income.............................         16.6                   4.5
</TABLE>
<PAGE>

 Fiscal Year Ended January 31, 1999 Compared to Fiscal Year Ended
 January 31, 1998


Except for the historical information contained herein, the matters discussed in
this Form 10-K are forward-looking  statements within the meaning of Section 21E
of the  Securities  Exchange  Act of 1934,  as  amended,  and Section 27A of the
Securities Act of 1933, as amended,  that involve risks and  uncertainties.  The
actual  results  that  the  Company  achieves  may  differ  materially  from any
forward-looking  projections due to such risks and uncertainties.  Factors which
could cause a material  difference in results  include,  but are not limited to,
the following:  regional and national economic  conditions;  changes in interest
rates;  changes in government  spending  policies  and/or  decisions  concerning
specific  programs;  individual  business  decisions of  customers  and business
partners;   developments  in  technology;   new  and  expanding  product  lines;
competition for employee  resources;  competitive factors and pricing pressures;
the Year 2000 compliance of the Company's  customers and business partners;  the
Company's  ability to achieve the objectives of its business plans;  and changes
in government  laws or  regulations.  Words such as  "believes,"  "anticipates,"
"expects," "future," "intends," and similar expressions are intended to identify
forward-looking  statements but are not the exclusive means of identifying  such
statements.

The  Company  is  involved  in two  distinct  business  areas:  development  and
manufacture  of wireless  communications  products and  services;  and providing
information technology and staffing services, including engineering,  technical,
and airport management services to government and commercial entities.

Fiscal  Year  1999  revenues totaled  $92.0 million,  up 8% from the prior year.
Increased year-to-year revenue is primarily due to:

     o   a 15%  increase  in  sales  of the  Company's  wireless  communications
         products, which primarily include various test and measurement, revenue
         assurance, and emergency roadside callbox systems;
     o   a  4%  increase  in  information   technology  and  staffing  services,
         consisting of a 17% increase in information  technology  services and a
         22% increase in commercial staffing services,  offset by a reduction in
         airport  management  staffing  services  due to the  completion  of the
         Company's contract at Reagan Washington National Airport, which expired
         on  September  30, 1998.  This contract  contributed  $6.0  million  in
         revenue in the past fiscal year.

Operating  income for Fiscal Year 1999  increased to $8.9  million,  up 19% from
$7.5  million  last  year  (after  the  effect of a $.7  million  non-recurring,
non-cash charge for the write-off of the remaining  intangible assets associated
with  the  Company's  information  technology  and  staffing  services  software
development  operation in Fiscal Year 1998). Before this non-recurring charge in
Fiscal  Year 1998,  operating  income was up 9% compared to the same period last
year. Increased operating income is primarily due to increased sales of wireless
communications  systems and the increase in the information  technology staffing
services business noted above.


Wireless Communications Products

Wireless  communications  products  revenues  increased 15% to $34.0 million for
Fiscal  Year 1999 from  $29.5  million  for the  comparable  period  last  year.
Wireless communications products revenues comprised approximately 37.0% of total
Company  revenues  during  Fiscal Year 1999,  up from 34.7% in the prior  fiscal
year.  This  increase  is due to  increased  sales  of the  Company's  test  and
measurement,  revenue  assurance,  and emergency callbox systems and the initial
introduction and market trials of  CHARGESOURCE(TM),  a universal power adapter.
The  rapid  growth  of  cellular  and  PCS  markets,  proliferation  of  digital
communication technologies,  and the expanding number of telephone carriers have
created greater demand for the Company's products.  During Fiscal Year 1999, the
Company's  product  introductions  included   BaseLINE(TM),   allowing  wireless
carriers to track the quality of their  networks as well as the quality of their
competitors'   systems.   The  Company's  emergency  callbox  systems  also  had
significant  growth in Fiscal  Year 1999,  which,  management  believes,  should
continue in Fiscal Year 2000 with the recently  announced  callbox  contracts in
the Los  Angeles  and San  Francisco  markets.  Late in the  year,  the  Company
commenced market trials of its universal power adapter, CHARGESOURCE(TM),  which
is designed to charge all of the devices needed by a business traveler.

Operating  income  from  wireless  communications  products  increased  to  $7.1
million,  up 6% year to year and  comprised  approximately  80% of the Company's
total  operating  income for Fiscal  Year 1999.  Summary  operating  results for
Comarco  Wireless  Technologies,  Inc.,  the Company's  wireless  communications
products subsidiary, are as follows:

<TABLE>

                                       January 31,              January 31,
                                    -------------------------------------------
                                          1999                     1998
                                    -------------------------------------------
   <S>                              <C>                      <C>                
   Product sales.................   $    34,004,000          $   29,524,000
   Cost of products sold.........        14,802,000              11,455,000
                                    ------------------       ----------------

   Gross margin..................        19,202,000              18,069,000
   Percentage....................             56.5%                   61.2%
    

   Indirect costs*...............        12,054,000              11,336,000
                                    ==================       ================

   Operating income..............   $     7,148,000          $     6,733,000
                                    ==================       =================
</TABLE>


*Indirect costs include selling, general and administrative expenses, as well as
research and development expenses.

 The decreased gross margin  percentage is due to greater sales of the Company's
 emergency  callbox  products  and market  trial  sales of the  universal  power
 adapter  product,  which have lower gross margins than the test and measurement
 and revenue assurance product families.

 Indirect  costs  increased $.7 million or 6% year to year.  Selling and general
 and  administrative  expenses  totaled $8.5 million in Fiscal Year 1999,  up 9%
 from the  comparable  period last year.  Research and  development  expense and
 sustaining engineering and product support expenses totaled $3.6 million during
 Fiscal Year 1999, up slightly from the prior fiscal year.  The Company plans to
 continue  to  invest  heavily  in  new  product  development.  There  can be no
 assurance that the Company will be successful in generating future revenue from
 such development efforts.

 Operating income  (revenues less direct costs,  indirect costs and depreciation
 and amortization)  for wireless  communications  products  increased 6% to $7.1
 million  in  Fiscal  Year  1999 from $6.7  million  in the prior  fiscal  year.
 Operating  income as a  percentage  of revenues was 21.0% for Fiscal Year 1999,
 compared to 22.8% for the comparable prior period. The year-to-year decrease in
 operating  income  percentage  is  primarily  due to lower  margin  callbox and
 universal power adapter product lines, as discussed above.

 The Company is  continuing  its  software  product  development  program in its
 wireless  communications  products  business.  In accordance  with Statement of
 Financial  Accounting  Standards No. 86,  Accounting  for the Costs of Computer
 Software to be Sold,  Leased,  or Otherwise  Marketed,  the Company's  wireless
 communications  products  business  capitalized  and amortized $2.9 million and
 $1.9 million,  respectively,  during Fiscal Year 1999.  The Company's  wireless
 communications  products  business  capitalized  and amortized $2.5 million and
 $1.4 million,  respectively, in Fiscal Year 1998. These amounts are in addition
 to the research and development expense discussed above.

 The Company's orders for wireless communications products totaled $33.5 million
 for Fiscal Year 1999,  compared  with $27.6  million  during  Fiscal Year 1998.
 Unfilled  orders at January  31,  1999  totaled  $17.2  million,  of which $6.0
 million is associated with the long-term maintenance contracts and $2.7 million
 is associated with  post-contract  customer support  obligations which has been
 recorded as deferred  revenue.  The Company  expects  that the  majority of the
 remaining  unfilled orders of $8.5 million will result in revenue during Fiscal
 Year 2000.

 In October 1997, the Accounting  Standards  Executive Committee of the American
 Institute of Certified  Public  Accountants  issued Statement of Position (SOP)
 97-2 entitled  Software Revenue  Recognition.  This Statement  updates SOP 91-1
 which was issued in 1991,  and it provides  guidance on when revenue  should be
 recognized and in what amounts for licensing,  selling,  leasing,  or otherwise
 marketing computer  software.  The provisions of the new Statement were applied
 prospectively  in Fiscal Year 1999. The adoption of this Statement did not have
 a  material  impact on the  financial  position  or  operating  results  of the
 Company.

 The Company has experienced  fluctuations in wireless  communications  products
 activity in each of the past five years,  with greater sales in the second half
 of its fiscal year and lesser  amounts in the first half,  although  this trend
 has been declining over the same five years. This trend may or may not continue
 as the Company broadens its wireless  communications  products  offerings.  The
 nature  of  the  wireless   communications   products  business  is  inherently
 unpredictable;  sales and profits may fluctuate  significantly  from quarter to
 quarter; and therefore,  period-to-period  comparisons of its operating results
 are not necessarily  meaningful and such  comparisons  cannot be relied upon as
 indicators of future performance.


Information Technology and Staffing Services Revenue

Revenues  provided by the information  technology and staffing services business
totaled $58.0 million in Fiscal Year 1999 compared to $55.6 million in the prior
year.  The  increased  revenue of 4%  year-to-year  is due to a 17%  increase in
information  technology  staffing  services  and a 22%  increase  in  commercial
staffing services, offset by a reduction in airport management staffing services
due to the completion of the Company's  contract at Reagan  Washington  National
Airport,  which ended on September  30, 1998.  This  contract  contributed  $6.0
million in revenue in the past fiscal  year.  The Company  decided not to pursue
the recompete of this contract since it was marginally profitable,  and it would
have been unprofitable if reawarded to the Company. Sales to the U.S. Government
as well as to  government  prime  contractors  were 34% of the  Company's  total
revenue  for the  fiscal  year  ended  January  31,  1999.  In the course of the
Company's business,  its contracts are periodically  opened for competition.  In
March 1998, the Company announced the award of a five-year  Government  contract
(three-year  base period with two one-year  options) with an estimated  value of
$75 million to continue to provide  engineering  and management  services to the
U.S. Navy at Crane, Indiana. Contract periods are generally three to five years,
including  options.  The Company plans to aggressively  compete for its existing
work and selectively pursue other high value Government procurements.  There can
be no assurance that the Company will be selected and awarded the work under any
future proposals. In addition, government agencies may terminate their contracts
in whole or in part at their convenience. Government agencies may remove funding
previously provided or may not exercise option periods.  Therefore, there can be
no assurance  that the Government  will fund the portions of existing  contracts
that are unfunded,  or that the governmental agencies will exercise any options.
The Company is experiencing a greater  percentage of its information  technology
and staffing  services  revenue from  fixed-price and fixed labor rate contracts
versus cost-reimbursable  contracts.  Fixed-price and fixed labor-rate contracts
shift more of the performance risk to the Company.  Therefore,  if the Company's
assumptions or performance do not meet  expectations,  reduced profits or losses
could be realized.  Under one multi-year  fixed price  contract,  the Company is
anticipating  a contract  modification.  The  contract  is  scheduled  to end on
September 30, 1999, and the Company cannot complete the statement of work due to
Government delays in providing required  equipment.  The Company has submitted a
request  for a  22-month  extension  and  additional  funding  of $2.7  million.
Negotiations are ongoing, and management currently expects official modification
will not occur until the second  quarter of Fiscal Year 2000,  at the  earliest.
The Company believes that it has a meritorious  position and, if necessary,  the
Company intends to seek all remedies available under Federal procurement laws.

In Fiscal Year 1998, the Company  recorded a $710,000  charge  against  earnings
from the impairment of certain assets of its information technology and staffing
services software development operation.  This charge was recorded in accordance
with  Statement of Financial  Accounting  Standards No. 121,  Accounting for the
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of.
Based upon recent marketing  initiatives which proved unsuccessful in the fourth
quarter,  the Company  determined  that the expected  future cash flows were not
sufficient to cover the remaining  unamortized  intangible assets.  Accordingly,
the  complete  impairment  of these  assets  was  recorded  in the  consolidated
statement of income.

Operating income  (revenues less direct costs,  indirect costs, and depreciation
and amortization)  for information  technology and staffing services was up 113%
year-to-year  to $1.7  million in Fiscal  Year 1999 from $0.8  million in Fiscal
Year 1998 (after giving effect to a $.7 million  non-recurring,  non-cash charge
for the  write-off  of the  remaining  intangible  assets  associated  with  the
Company's  information  technology and staffing  services  software  development
operation).  Before this  non-recurring  charge in Fiscal  Year 1998,  operating
income was up $.2 million or 13% year-to-year.


Net  interest  income (interest  income,  less interest expense) for Fiscal Year
1999  totaled  $298,000  compared to $404,000  for  the prior  fiscal year.  The
decrease  is    principally   due  to  lower   available   investable   balances
year-to-year along with lower interest rates.

The Company's  effective tax rate is 38.0% for  Fiscal Year 1999, which is level
with the 38.0% for the previous fiscal year.

The overall increase in net income  from the prior year  is primarily due to the
increase  in  sales  of  wireless  communications  products  at  slightly  lower
operating  income  margins,  with no comparative  non-recurring charge in Fiscal
Year 1999.

<PAGE>

Fiscal Year Ended January 31, 1998 Compared to Fiscal Year Ended
January 31, 1997


Fiscal  Year  1998  revenues  totaled $85.1 million, up 19% from the prior year.
Increased year-to-year revenue is primarily due to:

     o   sales of the  Company's  wireless  communications  products,  including
         various test and measurement, revenue assurance, and emergency roadside
         callbox systems;
     o   full year versus one-half  year in the prior year from the  acquisition
         of a $10 million per year commercial staffing business.

Operating  income for Fiscal  Year 1998  increased  to $7.5  million  (after the
effect of a $.7 million non-recurring,  non-cash charge for the write-off of the
remaining intangible assets associated with the Company's information technology
and staffing services software development operation),  up 13% from $6.6 million
last year. Before this non-recurring charge,  operating income was $8.2 million,
up 23%  compared  to the same period last year.  Increased  operating  income is
primarily  due to increased  sales of wireless  communications  systems as noted
above.


Wireless Communications Products

Wireless  communications  products  revenues  increased 51% to $29.5 million for
Fiscal  Year 1998 from  $19.5  million  for the  comparable  period  last  year.
Wireless communications products revenues comprised approximately 34.7% of total
Company  revenues  during  Fiscal Year 1998,  up from 27.3% in the prior  fiscal
year.  This  increase  is due to  increased  sales  of the  Company's  test  and
measurement,  revenue assurance, and emergency callbox systems. The rapid growth
of cellular and PCS markets and proliferation of numerous digital air interfaces
is driving demand for the Company's products worldwide. During Fiscal Year 1998,
the Company's product introductions  included adding other air interfaces,  such
as CDMA, GSM, PC 1800/1900,  and IS-136.  These product  introductions  fueled a
significant   increase  in   international   sales  for   Comarco   Wireless  to
approximately $8.9 million or 30% of Fiscal Year 1998 revenues.

Operating  income  from  wireless  communications  products  increased  to  $6.7
million,  up 28% year to year and comprised  approximately  90% of the Company's
total  operating  income for Fiscal  Year 1998.  Summary  operating  results for
Comarco  Wireless  Technologies,  Inc.,  the Company's  wireless  communications
products subsidiary, are as follows:

<TABLE>

                                         January 31,              January 31,
                                      -------------------------------------------
                                            1998                     1997
                                      -------------------------------------------
     <S>                              <C>                      <C>
     Product sales..................  $   29,524,000           $   19,519,000
     Cost of products sold..........      11,455,000                6,625,000
                                      ------------------       ------------------

     Gross margin...................      18,069,000               12,894,000
     Percentage ....................           61.2%                    66.1%
      
     Indirect costs*................      11,336,000                7,644,000
                                       ==================      ==================

     Operating income...............  $    6,733,000           $     5,250,000
                                      ==================       ==================
</TABLE>


*Indirect costs include selling, general and administrative expenses, as well as
research and development expenses.

 The decreased gross margin percentage is due to the increased costs incurred to
 increase the capacity of the wireless communications  products business,  which
 included  additional  staffing,  moving  to a larger  facility  in  California,
 associated  costs to support future  anticipated  higher sales levels,  and the
 addition of the emergency roadside callbox product lines which have lower gross
 margins than the test and measurement and revenue assurance product families.

 The increase in indirect costs is primarily due to the  additional  selling and
 general  administrative  costs associated with  international  expansion during
 Fiscal Year 1998. Selling and general and administrative  expenses totaled $7.7
 million  in Fiscal  Year 1998,  up 45% from the  comparable  period  last year.
 Research and development expense and sustaining engineering and product support
 expenses totaled $3.5 million during Fiscal Year 1998, compared to $2.5 million
 in the prior fiscal year.  The Company  plans to continue to invest  heavily in
 new product  development.  There can be no  assurance  that the Company will be
 successful in generating future revenue from such development efforts.

 Operating  income  increased  28% to $6.7 million in Fiscal Year 1998 from $5.2
 million in the prior fiscal year.  Operating income as a percentage of revenues
 is 22.8% for  Fiscal  Year 1998,  compared  to 26.9% for the  comparable  prior
 period.  The  year-to-year  decrease is primarily  due to the  increased  costs
 related to business  expansion  and the  addition of the lower  margin  callbox
 product line, as discussed above.

 The Company is  continuing  its  software  product  development  program in its
 wireless  communications  products  business.  In accordance  with Statement of
 Financial  Accounting  Standards No. 86,  Accounting  for the Costs of Computer
 Software to be Sold,  Leased,  or Otherwise  Marketed,  the Company's  wireless
 communications  products  business  capitalized  and amortized $2.5 million and
 $1.4 million,  respectively,  during Fiscal Year 1998.  The Company's  wireless
 communications  products  business  capitalized  and amortized $2.2 million and
 $1.0 million in Fiscal Year 1997,  respectively.  These amounts are in addition
 to the research and development expense discussed above.

 The Company's orders for wireless communications products totaled $27.6 million
 for Fiscal Year 1998,  compared  with $34.7  million  during  Fiscal Year 1997.
 Included  within  the  above  totals  are $4.1  million  and $10.0  million  of
 long-term  maintenance  service  business  associated  with the purchase of the
 Cubic  Communications and GTE callbox product lines during Fiscal Year 1998 and
 1997, respectively.  Unfilled orders at January 31, 1998 totaled $17.7 million,
 of which $9.8 million is associated  with the long-term  maintenance  contracts
 and $1.5 million is associated with post-contract  customer support obligations
 which has been recorded as deferred revenue.

 In February 1997, the Company acquired an additional  callbox product line from
 Cubic Communications, Inc. This acquisition, coupled with the prior acquisition
 of the GTE callbox product line,  establishes Comarco Wireless  Technologies as
 one  of  the  leading   companies   in  the  callbox   niche  of  the  wireless
 communications industry.

 The Company has experienced  fluctuations in wireless  communications  products
 activity in each of the past four years,  with greater sales in the second half
 of its fiscal year and lesser  amounts in the first half,  although  this trend
 has been declining over the same four years. This trend may or may not continue
 as the Company  broadens  its  product  offerings.  The nature of the  wireless
 communications products business is inherently unpredictable; sales and profits
 may  fluctuate   significantly   from  quarter  to  quarter;   and   therefore,
 period-to-period  comparisons  of its  operating  results  are not  necessarily
 meaningful and such  comparisons  cannot be relied upon as indicators of future
 performance.


 Information Technology and Staffing Services Revenue

Revenues  provided by the information  technology and staffing services business
area  increased in Fiscal Year 1998,  totaling  $55.6 million  compared to $51.9
million in the prior year. The increased  revenue of 7.1% year-to-year is due to
the acquisition of the commercial outsourced staffing company on August 1, 1996,
which  contributed  $10.2  million of revenue in Fiscal  Year 1998,  versus $5.1
million  during  Fiscal Year 1997.  Sales to the U.S.  Government  as well as to
government  prime  contractors  were 30% and 32% of the Company's  total revenue
during  the  fourth  quarter  and  the  fiscal  year  ended  January  31,  1998,
respectively.  In the  course  of the  Company's  business,  its  contracts  are
periodically  opened for competition.  In March 1998, the Company  announced the
award of a  five-year  Government  contract  (three-year  base  period  with two
one-year  options) with an estimated value of $75 million to continue to provide
engineering  and management  services to the U.S. Navy at Crane,  Indiana.  This
contract,  along with the  contract  awards  during  Fiscal Year 1997 with award
values of approximately $60 million,  were recompetition of work the Company was
already  performing.  Contract  periods  are  generally  three  to  five  years,
including  options.  In addition,  the Company began work on a long-term airport
services  contract in February  1997 for  Riverside  County,  California  and on
another contract in May 1997 for Tacoma Narrows Airport, Tacoma, Washington. The
Company's  airport  contract  at  Reagan  Washington  National  Airport  ends on
September 30, 1998.  The Company has decided not to pursue the recompete of this
contract.  This contract's annual revenues approximate $8.8 million, it has been
marginally profitable, and it would be unprofitable if reawarded to the Company.
Two other  multi-year  government  contracts are scheduled to end in Fiscal Year
1999 with annual revenues of  approximately  $3.8 million.  The Company plans to
aggressively  compete for this other work opened for  competition  to the extent
possible and selectively pursue other high value Government procurements.  There
can be no assurance that the Company will be selected and awarded the work under
any future  proposals.  In addition,  government  agencies may  terminate  their
contracts  in whole or in part at their  convenience.  Government  agencies  may
remove  funding  previously   provided  or  may  not  exercise  option  periods.
Therefore,  there can be no assurance that the Government will fund the portions
of existing contracts that are unfunded,  or that the governmental agencies will
exercise any options.

 In January 1998, the Company  recorded a $710,000 charge against  earnings from
 the  impairment of certain  assets of its  information  technology and staffing
 services software development operation. This charge was recorded in accordance
 with Statement of Financial  Accounting  Standards No. 121,  Accounting for the
 Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of.
 Based  upon  marketing  initiatives  which  proved  unsuccessful  in the fourth
 quarter,  the Company  determined  that the expected future cash flows were not
 sufficient to cover the remaining unamortized  intangible assets.  Accordingly,
 the  complete  impairment  of these  assets was  recorded  in the  consolidated
 statement of income.

 Operating income (revenues less direct costs,  indirect costs, and depreciation
 and amortization) for information  technology and staffing services is down 43%
 year-to-year  from $1.4  million in Fiscal Year 1997 to $0.8  million in Fiscal
 Year 1998.  The decrease is due to the start-up  costs of the two new long-term
 airport  services  contracts as discussed  above,  as well as a decrease in the
 profitability  of the Reagan  Washington  National  Airport  contract  due to a
 reduction in the management fee effective October 1, 1996.


 Net interest  income (interest  income,  less interest expense) for Fiscal Year
 1998 totaled  $404,000  compared  to $559,000  for the prior  fiscal year.  The
 decrease  is   principally   due  to  lower   available   investable   balances
 year-to-year along with lower interest rates.

 The Company's effective tax rate is 38.0% for Fiscal Year 1998 versus 35.0% for
 the previous  fiscal year. The increased  effective tax rate is principally due
 to no current year adjustment of the income tax valuation  allowance as well as
 lower levels of tax-exempt interest income.

 The overall  increase in net income from the prior year is primarily due to the
 significant increase in sales of wireless  communications  products at slightly
 lower  operating  income  margin;  partially  offset by the decrease in airport
 services contracts' operating income and a higher effective income tax rate.

 Liquidity and Capital Resources

 The Company signed a loan  agreement with a bank effective  September 26, 1994,
 which was last amended  effective August 21, 1998. The loan agreement  consists
 of a $10 million  revolving credit  facility,  which expires June 30, 2000. The
 revolving  credit  facility is unsecured  provided  that the Company  maintains
 certain covenants. Currently, management anticipates that cash flow will remain
 at a level which will enable the Company to avoid utilizing the credit facility
 except to support  letters of credit and  acquisition  financing,  and that the
 Company will be able to purchase  investments on a regular basis. The Company's
 cash and  investment  balances  averaged  $5 million  (includes  highly  liquid
 long-term  investments  with  maturities of 12 to 36 months)  during the fourth
 quarter  of Fiscal  Year  1999.  However,  maintaining  such cash  balances  is
 predicated on the Company  maintaining  its business base and is subject to the
 cost of financing new contracts,  acquisitions,  geographic expansion, software
 product development costs, and stock re-purchases.

 During  Fiscal  Year  1999,  the  Company's  average  days'  sales in  accounts
 receivable  have  increased,  primarily  due to  increased  sales  of  wireless
 communications  products  and  a  higher  percentage  of  fixed  price  funding
 contracts  in the  information  technology  and  staffing  business  area which
 require retainage holdbacks.

  Several  additional key factors indicating the Company's  financial  condition
include:

<TABLE>
                                                January 31,         January 31,
                                             --------------------------------------
                                                   1999                1998
                                             --------------------------------------
     <S>                                      <C>                 <C>
     Current ratio.......................               2.54                2.75
     Working capital.....................     $   21,833,000      $   20,937,000
     Book value per share................     $         7.00      $         6.46
</TABLE>
              

The Company  continued  to  demonstrate  solid  financial  strength in the above
financial factors during Fiscal Year 1999,  primarily due to increased operating
earnings from increased sales in both business  segments;  offset partially from
the $5.2 million stock re-purchases during the fiscal year.

During Fiscal Year 1999,  the Company  generated $5.7 million of cash flows from
operating  activities,  up  sharply  from $.7  million  in the prior  year.  The
increase is due to increased  earnings and better  management  of the  Company's
working capital. Cash flows from operating  activities,  along with a portion of
the Company's investments, were used to fund a number of financing and investing
activities, as discussed below.

The Company has a significant commitment for capital expenditures at January 31,
1999 for Comarco  Wireless  Technologies,  Inc.  The Company has  developed  and
intends to continue to develop  numerous  new product  line  extensions  for the
wireless  communications  industry. This software product development program is
expected to be funded from the Company's  current working  capital.  The amounts
capitalized  and amortized in the  Company's  wireless  communications  products
business in accordance with Statement of Financial  Accounting Standards No. 86,
Accounting for the Costs of Computer  Software to be Sold,  Leased, or Otherwise
Marketed,  totaled $2.9 million and $1.9 million,  respectively,  in Fiscal Year
1999.

In May 1998,  the Company  completed the purchase of  intellectual  property and
related  software  assets from  Industrial  Technology,  Inc. This  acquisition,
totaling  approximately  $1.0 million,  was funded from the Company's  available
working capital.

The Company's Board of Directors has authorized a stock  re-purchase  program of
up to 1,500,000 shares. As of January 31, 1999, the Company has re-purchased and
retired approximately  1,210,000 shares of which 281,500 shares in the amount of
$5.2 million were  re-purchased  during Fiscal Year 1999. The average price paid
per share  re-purchased  under the program was $9.33.  Subsequent to Fiscal Year
1999 and through April 30, 1999,  the Company has  re-purchased  another  40,600
shares for an aggregate amount of $.8 million.

The  Company  is  subject  to legal  proceedings  and  claims  that arise in the
ordinary  course of  business.  In the  opinion  of  management,  the  amount of
ultimate  liability with respect to these actions will not materially affect the
financial  condition  of the Company  (see Note 20 of the Notes to  Consolidated
Financial Statements).

The Company  believes  that its cash flow from  operations  and  available  bank
borrowings  will be  sufficient to satisfy the current and  anticipated  capital
requirements for operations during Fiscal Year 2000.

Year 2000

Many computer systems and software  products  currently in use by businesses and
government  organizations  are coded to accept two digits,  rather than four, to
specify the year. Such computer systems and software  products will be unable to
properly  interpret  dates  beyond the year 1999,  which  could lead to business
disruptions (the "Year 2000 Issue").  The Company's  technical  personnel are in
the  process of  assessing  the  impact of the Year 2000 Issue on the  Company's
products and services.

The  Company has  established  a  two-phase  program to  complete  its year 2000
efforts. The first phase includes planning, inventory, and assessment; the final
phase consists of correction,  testing,  deployment, and acceptance. The Company
has divided its efforts into the  categories  of internal  information  systems,
products,  non-IT systems,  business partners, and customers. The status of each
with respect to the Company's two-phase process is addressed below.


Information Systems

The Company has received letters or has completed remediation whereby all of its
accounting  and  manufacturing  software  has been  determined  to be year  2000
compliant.  The Company is  completing  its  inventory of computers and computer
peripheral equipment and has determined that a few older units are not year 2000
compliant.  These  units will be  replaced  as part of the  regular  replacement
program  this  year.  Remediation  efforts  on the  readiness  of the  Company's
internal information systems are expected to be completed by mid-1999.


Products

The Company has assessed the year 2000 compliance of its software-based products
along with the associated  components.  The following detailed actions have been
taken to date:

Test and  measurement/revenue  assurance  products - Most software programs have
been determined to be year 2000 compliant.  For those requiring  remediation,  a
detailed upgrade program has been sent to each customer, and the effort is being
coordinated through the Company's normal upgrade program.

Emergency callboxes - The technology acquired from GTE has been determined to be
substantially year 2000 compliant. Changes required are minimal. The Company has
assessed  the year  2000  reliability  of the  technology  acquired  from  Cubic
Communications  and determined that some problems exist,  and remedies are being
designed.  Implementation is being coordinated with each customer as part of its
product upgrade program.  The financial impact to the Company, if any, cannot be
determined until the product upgrade program is completely coordinated with each
member of the customer base. The Company believes that the Cubic  Communications
technology remediation will be completed by the latter part of 1999.

Other Software Products - Over the years, the Company has been associated with a
modest number of software  products.  A review of  commercial  products has been
completed for their year 2000  exposure.  The Company  concluded  that Year 2000
Issues  related to these  products  are  minimal and that  required  remediation
efforts are insignificant.

The  Company's  program  to assess and  correct  any Year 2000  Issues  with its
products is well underway,  and upgrade  programs are or will be in place during
1999 to coordinate the efforts involved.  Efforts are being coordinated  through
the Company's normal upgrade channels,  and at this time no additional resources
need to be assigned to the effort.


Non-IT Systems

Non-IT  systems  include  embedded  technology  such as  micro-controllers.  The
Company's  assessment indicated that the equipment utilized in its manufacturing
process is not date  dependent.  The Company has  assessed  the impact of non-IT
issues on its other office  equipment  (telephone  systems,  copiers,  facsimile
machines,  etc.)  and  facility  infrastructure  for  which  it is  responsible.
Responses are being received from the respective  vendors,  and the Company does
not expect any  significant  issues in this area.  The Company will  continue to
assess non-IT systems and expects substantial resolution by July 1999.

Business Partners

Business  partners  include,  but are not limited to:  suppliers,  the Company's
bank,  insurance  and benefit  providers,  and property  management  firms.  The
Company's  operations are dependent to varying degrees on the readiness of these
and other  partners.  The Company has issued  questionnaires  to or has received
correspondence from most of the currently identified business partners. To date,
the responses received indicate that many of the Company's business partners are
actively  addressing  the Year 2000 Issue.  The Company is  continuing to pursue
responses in order to complete its evaluation.  By mid-1999, the Company expects
to have identified and developed  contingency  plans for business  partners that
cannot give adequate assurances that they will be year 2000 ready.


Customers

The Company is contacting  its customers to assess the state of their  readiness
and the potential impact on the Company's operations. The Company's main concern
is principally  with U.S. and State and local government  entities.  The primary
concern is that there will be delays in contract payments to the Company,  which
would  require  a  temporary  increase  in  working  capital  funded  from  bank
borrowings.  The Company has substantial  borrowing capacity available under its
current line of credit, which extends to June 2000. The Company will continue to
evaluate  the cash flow  impact  of Year  2000  Issues  and  develop  additional
contingency financing plans, if required.

The Company will use both  internal and external  resources to ensure that it is
year 2000 ready.  The  Company  has not  deferred  any  significant  information
technology  projects as a result of the year 2000 effort.  The total cost of the
program is being funded through  operating cash flows. The total cost associated
with the year 2000 effort,  except for certain product  modifications  discussed
above, is not expected to be material to the Company's  consolidated  results of
operations and financial position.

Although  the  Company's  year 2000 efforts are intended to minimize the adverse
effects of the Year 2000 Issue on the its  business and  operations,  the actual
effects  of the  issue and the  success  or  failure  of the  Company's  efforts
described above cannot be known until the year 2000.  Therefore,  in the opinion
of management, the most reasonable likely worst case scenario is the possibility
that the Company's major business partners, other material service providers, or
customers will not  adequately  address their  respective  Year 2000 Issues in a
timely manner,  the effect of which could have a material  adverse effect on the
Company's business, results of operations, and financial condition.

The  Company  will be  developing  contingency  plans with  respect to this most
likely  worst case  scenario as  additional  information  is obtained  from both
business partners and customers. Such plans will not be finalized until mid-1999
at the earliest.


New Accounting Pronouncements

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting  Comprehensive  Income.
SFAS  No.  130   establishes   standards   for  the  reporting  and  display  of
comprehensive  income,  requiring  its  components to be reported in a financial
statement  that is  displayed  with  the  same  prominence  as  other  financial
statements.  The Company  adopted this  Standard in the first  quarter of Fiscal
Year  1999. 

In June 1997,  the  Financial  Accounting  Standards  Board issued SFAS No. 131,
Disclosures  about Segments of an Enterprise and Related  Information.  SFAS No.
131 establishes  standards for reporting  financial  information about operating
segments in annual  financial  statements  and  required  reporting  of selected
information  about  operating  segments in interim  financial  reports issued to
shareholders.  It also  establishes  standards  for  related  disclosures  about
products and services, geographic areas, and major customers. Operating segments
are  defined as  components  of an  enterprise  about which  separate  financial
information is available and evaluated regularly by the chief operating decision
makers in deciding how to allocate resources and in assessing  performance.  The
adoption of SFAS No. 131 did not modify the Company's identification of segments
and had no impact on the Company's consolidated results of operations, financial
condition or cash flows.

Item 7a.  Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk,  including  changes in interest rates and
currency  exchange  rates.  As of January 31, 1999,  the Company had no accounts
receivable  denominated  in foreign  currencies.  The Company's  standard  terms
require foreign  customers to pay for the Company's  products with U.S. dollars.
For those orders  denominated in foreign  currencies,  the Company may limit its
exposure to losses from foreign currency transactions by the purchase of forward
foreign exchange contracts. Such activity to date has been insignificant.

The  Company's  interest  rate risk is  limited  to  approximately  $526,000  of
available-for-sale  investments as of January 31, 1999.  These  investments  are
high-grade  municipal debt  securities  with  maturities  from one to five years
which are subject to interest rate fluctuations.
<PAGE>

Item 8.  Financial Statements and Supplementary Data


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                         Page

Independent Auditors' Report............................................. 28
Financial Statements:
     Consolidated Balance Sheets, January 31, 1999 and 1998.............. 29
     Consolidated Statements of Income, Years Ended
     January 31, 1999, 1998, and 1997.................................... 30
     Consolidated Statements of Cash Flows, Years Ended
     January 31, 1999, 1998, and 1997.................................... 31
     Consolidated Statements of Comprehensive Income,
     Years Ended January 31, 1999, 1998, and 1997........................ 32
     Notes to Consolidated Financial Statements,
     January 31, 1999, 1998, and 1997.................................... 33
Financial Statement Schedule
     II  Reserves, Years Ended January 31, 1999, 1998,
     and 1997............................................................ 58

All other schedules are omitted because the required  information is not present
in amounts  sufficient  to require  submission  of the  schedule  or because the
information required is included in the consolidated financial statements or the
notes thereto.





<PAGE>


                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
COMARCO, Inc.:

     We have audited the consolidated  financial statements of COMARCO, Inc. and
Subsidiaries as listed in the accompanying  index. In connection with our audits
of the  consolidated  financial  statements,  we also have audited the financial
statement  schedule  as listed in the  accompanying  index.  These  consolidated
financial statements and the financial statement schedule are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these  consolidated  financial  statements and the financial  statement schedule
based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly,  in all material  respects,  the financial  position of COMARCO,
Inc. and  Subsidiaries as of January 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  January 31,  1999,  in  conformity  with  generally  accepted  accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole,  presents  fairly,  in all material  respects,  the information set forth
therein.








                                                            KPMG LLP


McLean, Virginia
March 17, 1999



<PAGE>


                         COMARCO, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)

                                     ASSETS

<TABLE>
                                                                                         January 31,
                                                                              ---------------------------------
                                                                                   1999               1998
                                                                              -------------      --------------
<S>                                                                           <C>                <C>    
Current assets:
   Cash and cash equivalents..............................................    $      3,220       $      5,256
   Short-term investments.................................................           2,775              2,348
   Accounts receivable, net...............................................          23,151             17,815
   Inventory..............................................................           4,157              5,247
   Deferred tax asset.....................................................           2,112              1,383
   Other current assets...................................................             575                832
                                                                              -------------      --------------

     Total current assets.................................................          35,990             32,881

Long-term investments.....................................................             526              2,364
Property and equipment, net...............................................           2,424              2,240
Software development costs, net...........................................           4,185              3,131
Intangible assets, net....................................................           3,587              2,660
Other assets..............................................................             575                618
                                                                              =============      ==============
                                                                              $     47,287       $     43,894
                                                                              =============      ==============
</TABLE>
                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>

<S>                                                                           <C>                 <C>
Current liabilities:
   Accounts payable.......................................................    $      1,075        $       493
   Deferred revenue.......................................................           2,902              1,914
   Accrued liabilities....................................................          10,180              9,537
                                                                              -------------      --------------

     Total current liabilities............................................          14,157             11,944
Deferred income taxes.....................................................           1,928              1,480

Stockholders' equity:
   Common stock, $.10 par value, 33,750,000 shares authorized; shares
   outstanding of  4,456,460 in 1999 and 4,718,710 in 1998................             446                472
   Paid-in capital........................................................           2,795              3,074
   Other comprehensive income:
     Unrealized investment gains..........................................              16                 --
   Retained earnings......................................................          27,945             26,924
                                                                              -------------      --------------
     Total stockholders' equity...........................................          31,202             30,470

Commitments and contingencies (Notes  14 and 20)
                                                                              =============      ==============
                                                                              $     47,287        $    43,894
                                                                              =============      ==============
</TABLE>
     See accompanying notes to consolidated financial statements.


<PAGE>
                         COMARCO, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                (Dollars in thousands, except per share amounts)


<TABLE>

                                                                              Years Ended January 31,
                                                                -----------------------------------------------------
                                                                    1999                1998               1997
                                                                -------------       -------------      --------------
<S>                                                             <C>                 <C>                <C>              
Revenues:
   Contract revenues........................................    $    57,910         $    55,030        $    50,858
   Product sales............................................         34,054              30,109             20,556
                                                                -------------       -------------     --------------
                                                                     91,964              85,139             71,414
                                                                -------------       -------------     --------------

Direct costs:
   Contract costs...........................................         39,411              37,960             35,599
   Cost of product sales....................................         14,857              14,050              7,417
                                                                -------------       --------------     -------------

                                                                     54,268              52,010             43,016
Indirect costs..............................................         28,828              24,960             21,780
Intangible asset write-off..................................             --                 710                 --
                                                                -------------       -------------      --------------

                                                                     83,096              77,680             64,796
                                                                -------------       -------------      --------------

Operating income............................................          8,868               7,459              6,618
Interest income.............................................            298                 404                559
                                                                -------------       -------------      --------------

Income before income taxes..................................          9,166               7,863              7,177
Income tax expense..........................................          3,483               2,988              2,512
                                                                =============       =============      ==============

Net income..................................................    $     5,683         $     4,875        $     4,665
                                                                =============       =============      ==============

Earnings per common share:
   Basic:
     Net income.............................................    $      1.23         $      1.03        $       .98
                                                                =============       =============      ==============
   Diluted:
     Net income.............................................    $      1.13         $       .89        $       .86
                                                                =============       =============      ==============
</TABLE>








     See accompanying notes to consolidated financial statements.
<PAGE>


                         COMARCO, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (Dollars in thousands)
<TABLE>

                                                                               Years Ended January 31,
                                                                ------------------------------------------------------
                                                                    1999                 1998               1997
                                                                --------------       -------------      --------------
<S>                                                             <C>                  <C>                <C>               
Cash flows from operating activities:
   Net income...............................................    $     5,683          $     4,875        $     4,665
   Adjustments to reconcile net income to net cash provided
     by operating activities:
       Loss (gain) on disposal of property and equipment....             (1)                  --                 23
       Depreciation and amortization........................          3,288                3,164              2,263
       Provision for doubtful accounts receivable...........            321                  123                 62
       Intangible asset write-off...........................             --                  710                 --
       Deferred income taxes................................           (281)                 213               (509)
       Changes in operating assets and  liabilities,  net of
       effects  from the purchases of RAL, GTE & Cubic:
         Increases in investments...........................           (980)                (537)              (785)
         Increase in accounts receivable....................         (5,657)              (6,862)            (2,308)
         Decrease (increase) in inventory...................          1,090               (1,644)              (470)
         Decrease (increase) in other current assets........            257                    7               (432)
         Decrease (increase) in other assets................             43                 (311)               (36)
         Increase (decrease) in accounts payable............            582                  276               (330)
         Increase (decrease) in deferred revenue............            988                 (764)             1,243
         Increase in accrued liabilities....................            643                1,408              1,693
                                                                --------------       -------------      --------------
   Net cash provided by operating activities................          5,976                  658              5,079

Cash flows from investing activities:
   Purchases of investments.................................             --               (1,204)            (1,572)
   Proceeds from sales of investments.......................          2,407                  712              2,172
   Purchases of property and equipment......................         (1,339)              (1,630)              (872)
   Proceeds from sales of property and equipment............              4                   14                 13
   Software development costs...............................         (2,936)              (2,506)            (2,210)
   Cost of acquisition of ITI technology....................         (1,000)                  --                 --
   Cost of acquisition of Cubic, net of cash acquired.......             --               (1,717)                --
   Cost of acquisition of RAL, net of cash acquired.........           (181)                (400)            (1,198)
   Cost of acquisition of GTE callbox, net of cash acquired.             --                   --             (1,076)
                                                                --------------       -------------      --------------
   Net cash used in investing activities....................         (3,045)              (6,731)            (4,743)
Cash flows from financing activities:

   Proceeds from issuance of stock, including tax benefit...            227                  453              1,052
   Purchase of common stock.................................         (5,194)              (1,835)              (478)
                                                                --------------       -------------      --------------
   Net cash provided (used) by financing activities.........         (4,967)              (1,382)               574
                                                                --------------       -------------      --------------

Net increase (decrease) in cash and cash equivalents........         (2,036)              (7,455)               910

Cash and cash equivalents, beginning of year................          5,256               12,711             11,801
                                                                ==============       =============      ==============

Cash and cash equivalents, end of year......................    $     3,220          $     5,256        $    12,711
                                                                ==============       =============      ==============
</TABLE>
       See accompanying notes to consolidated financial statements.

<PAGE>
                         COMARCO, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                             (Dollars in thousands)

<TABLE>


                                                                              Years Ended January 31,
                                                                -----------------------------------------------------
                                                                    1999                1998               1997
                                                                -------------       -------------      --------------
<S>                                                             <C>                 <C>                <C> 
Net income..................................................    $     5,683         $     4,875        $     4,665
Other comprehensive income:
   Unrealized holding gains on investments, net of tax......             16                  --                 --
                                                                =============       =============      ==============
Comprehensive income........................................    $     5,699         $     4,875        $     4,665
                                                                =============       =============      ==============
</TABLE>


     See accompanying notes to consolidated financial statements.
<PAGE>

                         COMARCO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       JANUARY 31, 1999 AND 1998 AND 1997


1.   Significant Accounting Policies

     a.  The  Company--COMARCO,  Inc.  and  its  subsidiaries'  (the  "Company")
traditional  business  area  consists of providing a broad range of  information
technology  and staffing  services to agencies of the United States  Government,
government prime contractors, and local governments,  primarily in the fields of
information  technologies;   intelligent   instrumentation  and  automated  test
systems;  ordnance and weapon system  engineering  services;  airport management
services; and manufacturing training. The Company, operating in a newer business
area  through one of its  subsidiaries,  Comarco  Wireless  Technologies,  Inc.,
designs and develops products for the wireless communications industry. Sales to
the United States Government and government prime contractors were 34%, 32%, and
39% of  revenues  for  the  years  ended  January  31,  1999,  1998,  and  1997,
respectively.  Sales to the  Metropolitan  Washington  Airports  Authority for a
contract at Reagan Washington National Airport were 7%, 10%, and 12% of revenues
for the years  ended  January  31,  1999,  1998,  and 1997,  respectively.  This
contract ended on September 30, 1998. In August 1996, a newly formed  subsidiary
of COMARCO, Comarco Staffing, Inc. (formerly known as CoSource Solutions, Inc.),
acquired the assets of RAL  Consulting  and Staffing  Services,  Inc. In October
1996,  Comarco Wireless  Technologies,  Inc.  acquired the callbox assets of GTE
Cellular Communications Corporation.  The purchase prices for these transactions
could be  increased  in future  periods  based upon the  achievement  of certain
performance  objectives or completing specified sales transactions.  In February
1997, Comarco Wireless  Technologies,  Inc. acquired the callbox assets of Cubic
Communications,  Inc. In May 1998, Comarco Wireless Technologies,  Inc. acquired
certain  intellectual   property  and  related  software  assets  of  Industrial
Technology,  Inc.  ("ITI").  These  acquisitions  were  accounted  for using the
purchase  method.  The  difference  between  the  estimated  fair  values of the
acquired  net  tangible  and  identifiable  intangible  assets  and the  assumed
liabilities  has been recorded to goodwill for the RAL purchase.  The difference
between the estimated fair values of the acquired net tangible and  identifiable
intangible  assets and the  assumed  liabilities  has been  recorded to negative
goodwill for the GTE purchase.  The difference between  identified  tangible and
intangible assets and assumed liabilities was recorded as goodwill for the Cubic
purchase. The results of acquired operations have been included in the Company's
consolidated  results of operations since the respective  acquisition dates. The
acquisitions did not have a significant pro-forma impact on operations.

     b.  Principles  of  Consolidation--The  accompanying  financial  statements
include  the  accounts  of  the  Company  and  its  subsidiaries.  All  material
intercompany  balances,   transactions  and  profits  have  been  eliminated  in
consolidation.

     c. Use of Estimates--The  preparation of financial statements in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

     d.  Revenues--Substantially  all of the  Company's  contract  revenues  are
earned   under    long-term    agreements    and   are   recorded    using   the
percentage-of-completion  method.  Contract  revenue  is  recorded  as costs are
incurred, and profit is recognized on each contract based on the percentage that
the  incurred  costs bear to  estimated  total  costs.  The fees  under  certain
government  contracts may be increased or decreased in  accordance  with cost or
performance   incentive  provisions  that  measure  actual  performance  against
established  targets or other  criteria.  Such incentive fee awards or penalties
are  included  in contract  revenues  at the time the amounts can be  reasonably
determined. Costs to complete are reviewed periodically and revised as required.
Provisions  are made for the full amount of anticipated  losses,  if any, on all
contracts in the period in which they are first determinable.

     Revenues from product sales are primarily  recorded as products are shipped
or when customers have accepted the products,  depending on the contract  terms.
The estimated sales value of post contract customer support which is included as
part of an initial  warranty  period is deferred and amortized over the warranty
period.  Revenues from extended warranty  agreements are recognized ratably over
the term of the agreement.


     e. Cash and Cash  Equivalents--For  purposes of the consolidated  financial
statements,  the  Company  considers  all highly  liquid debt  instruments  with
original  maturities  of  three  months  or less to be  cash  equivalents.  Cash
equivalents  of $3.1  million  and $5.1  million at January  31,  1999 and 1998,
respectively, consist primarily of money market funds, which are stated at cost,
which approximates fair value.

     f.  Investments--Investments  at January  31,  1999  consist of  high-grade
municipal debt and equity securities. The Company classifies its debt and equity
securities  in  one  of  three  categories:  trading,   available-for-sale,   or
held-to-maturity.  Trading  securities are bought and held  principally  for the
purpose of selling them in the near term.  Held-to-maturity securities are those
securities  in which the Company has the ability and intent to hold the security
until maturity.  All securities not included in trading or held-to-maturity  are
classified as available-for-sale.

     Trading  and  available-for-sale  securities  are  recorded  at fair value.
Held-to-maturity  securities  are recorded at amortized  cost,  adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on trading securities are included in earnings.  Unrealized holding gains
and losses, net of the related tax effect, on available-for-sale  securities are
excluded  from  earnings  and are  reported  as a  separate  component  of other
comprehensive income until realized.  Realized gains and losses from the sale of
available-for-sale securities are determined on a specific identification basis.

     A decline in the market value of any available-for-sale or held-to-maturity
security  below  cost that is deemed to be other  than  temporary  results  in a
reduction  in  carrying  amount to fair  value.  The  impairment  is  charged to
earnings  and a new cost basis for the  security is  established.  Premiums  and
discounts   are   amortized   and   accreted   over  the  life  of  the  related
held-to-maturity or available-for-sale  security as an adjustment to yield using
the effective interest method.  Dividend and interest income are recognized when
earned.

     During  Fiscal  Year  1999,  the  Company  reclassified  its  portfolio  of
held-to-maturity  securities to available-for-sale  securities,  as a portion of
these  investments were needed to fund the unusually high level of Company stock
re-purchases during the year.

     g.  Inventory--Inventory  is stated at the lower of cost or market. Cost is
determined using standard cost, which  approximates  actual costs on a first-in,
first-out (FIFO) method.  Inventory consists primarily of electronic components,
and the Company regularly  assesses the need to adjust inventory  valuations for
obsolescence due to rapid technological  changes in the wireless  communications
products industry.

     h.  Property and  Equipment--Property  and equipment are stated at cost and
are depreciated using the straight-line  method. Office furnishings and fixtures
are  depreciated  over useful lives of five to seven years,  and  equipment  and
software are depreciated over useful lives of three to five years.

     i.  Software  Development  Costs--Capitalization  of  internally  developed
software  begins  upon  the   determination   by  the  Company  of  a  product's
technological feasibility, generally upon completion of a detail program design.
Capitalized  software  development  costs are amortized  over related sales on a
per-unit basis based upon  estimated  total sales,  with a minimum  amortization
based on a straight-line method over a two to five year useful life.

     j. Intangible Assets--Intangible assets are being amortized over periods of
five to thirty years. Costs in excess of net assets acquired are being amortized
over periods of ten to forty  years.  All such  amortization  is computed on the
straight-line basis.

     k. Taxes on Income--Deferred  tax assets and liabilities are recognized for
the future tax  consequences  attributable to differences  between the financial
statement  carrying  amounts  of  existing  assets  and  liabilities  and  their
respective  tax bases.  Deferred tax assets and  liabilities  are measured using
enacted  tax rates  expected  to apply to  taxable  income in the years in which
those temporary  differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that  includes  the  enactment  date.  Future tax  benefits
recognized  as deferred  tax assets  would be reduced by a  valuation  allowance
where it is more likely than not that the benefits may not be realized.

     l. Per Share  Information--During  the year ended  January  31,  1998,  the
Company adopted  Statement of Financial  Accounting  Standards No. 128, Earnings
per Share,  and  computes  basic and  diluted  net income per share based on the
weighted  average  number of shares of common stock and  potential  common stock
outstanding  during  the  period.   Potential  common  stock,  for  purposes  of
determining  diluted earnings per share,  includes the effects of dilutive stock
options and convertible securities. The effect of such potential common stock is
computed  using  the  treasury  stock  method  or the  if-converted  method,  as
applicable.  Comparative  earnings  per share data have been  restated for prior
periods.  Consolidated  net  income of the  Company  used in  computing  diluted
earnings per share  purposes is diluted as a result of stock  options  issued by
the   Company's   subsidiaries   which  enable  their   holders  to  obtain  the
subsidiaries' common stock.

     m. Stock Option Plans--Prior to February 1, 1996, the Company accounted for
its  stock  option  plans  in  accordance  with  the  provisions  of  Accounting
Principles  Board  ("APB")  Opinion  No.  25,  Accounting  for  Stock  Issued to
Employees, and related  interpretations.  As such, compensation expense would be
recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise price. On February 1, 1996, the Company adopted SFAS
No. 123,  Accounting for  Stock-Based  Compensation,  which permits  entities to
recognize as expense over the vesting  period the fair value of all  stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma  earnings per share  disclosures  for employee stock option
grants  made in the year  ended  January  31,  1996 and  future  years as if the
fair-value-based  method  defined in SFAS No. 123 had been applied.  The Company
has  elected to  continue  to apply the  provisions  of APB  Opinion  No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.

     n. Fair Value of Financial  Instruments--The  estimated  fair values of the
Company's  financial  instruments  have been determined  using available  market
information.  The  estimates are not  necessarily  indicative of the amounts the
Company could realize in a current market exchange.  The use of different market
assumptions and/or estimation  methodologies may have an effect on the estimated
fair  value  amounts.  The  fair  value of  current  financial  assets,  current
liabilities,  and  other  assets  are  estimated  to be equal to their  carrying
amounts.

     o.  Comprehensive  Income--As of February 1, 1998, the Company adopted SFAS
No. 130, Reporting  Comprehensive Income. SFAS No. 130 establishes standards for
reporting and presentation of comprehensive  income and its components in a full
set of financial statements. Comprehensive income consists of net income and net
unrealized  gains on  securities,  net of income tax,  and is  presented  in the
consolidated  statements  of  comprehensive  income.  SFAS No. 130 requires only
additional  disclosures in the consolidated  financial  statements;  it does not
affect the Company's  financial position or results of operations.  Prior years'
consolidated  financial  statements  have been  reclassified to conform with the
requirements of SFAS No. 130.

     p.  Reclassifications--Certain  reclassifications  of 1998 and 1997 amounts
have been made to conform to the 1999 presentation.

2.   Investments

Securities  classified  as available for sale are as follows at January 31, 1999
and 1998:
<TABLE>

                                           Gross            Gross
                                           Unrealized       Unrealized            Aggregate
            Security         Amortized     Holding          Holding               Fair
Year        Type             Cost          Gains            Losses                Value
----        --------         ----------    -----------      -----------           ---------
                                            (Dollars in thousands)
<S>         <C>               <C>             <C>               <C>                  <C>
1999        Debt              $512            $14               --                   $526
1999        Equity             102             14               --                    116
1998        Equity             127             --               --                    127
</TABLE>


Securities classified as held-to-maturity are as follows at January 31, 1998:
<TABLE>
                                           Gross            Gross
                                           Unrealized       Unrealized            Aggregate
            Security         Amortized     Holding          Holding               Fair
Year        Type             Cost          Gains            Losses                Value
----        --------         ---------     -----------      -----------           ----------
                                            (Dollars in thousands)
<S>         <C>              <C>             <C>            <C>                   <C>
1998        Debt             $2,905          $14            $ 22                  $2,897
</TABLE>

Maturities of debt securities classified as available for sale are as follows at
January 31, 1999:
<TABLE>

                                                                              Aggregate
          Security                         Amortized                          Fair
          Type                             Cost                               Value
          ---------                        ----------                         ----------
                                                      (Dollars in thousands)
          <S>                             <C>                                <C>         
          Tax-exempt obligations:
              One through five years      $   512                            $   526
</TABLE>

Proceeds  from the sales of  available-for-sale  securities  in the years  ended
January 31, 1999 and 1998 were $2.4 million and $135,000, respectively. No gross
realized gains or losses were recorded on sales of available-for-sale securities
in the years ended January 31, 1999 and 1998.

Short-term  investments at January 31, 1999 and 1998 included restricted amounts
of $2.7 million and $1.7 million,  respectively,  related to balances maintained
in a  non-qualified  deferred  compensation  plan  for  Company  executives  and
directors.

The amount of net unrealized holding gains on trading securities recorded in the
years ended January 31, 1999 and 1998 were $281,000 and $92,000, respectively.



3.   Accounts Receivable

Accounts receivable consist of the following:
<TABLE>

                                                                                 January 31,
                                                                         ----------------------------
                                                                            1999             1998
                                                                         -----------      -----------

                                                                           (Dollars in thousands)
         <S>                                                             <C>              <C>
         U.S. Government
            Billed...................................................    $  5,075         $  3,277
            Unbilled.................................................       3,862            3,081
         Commercial..................................................      14,377           11,498
         Other ......................................................         181              290
                                                                         -----------      -----------
                                                                           23,495           18,146
         Less:  Allowances for doubtful accounts.....................        (344)            (331)
                                                                         ===========      ===========
                                                                         $ 23,151         $ 17,815
                                                                         ===========      ===========
</TABLE>

Included in unbilled  accounts  receivable are retainages due upon completion of
contracts of approximately  $1.3 million and $750,000 as of January 31, 1999 and
1998, respectively.  Of total accounts receivable at January 31, 1999, there are
approximately  $827,000 of unbilled  receivables which, based upon the Company's
experience, may not be collected within the next fiscal year.


4.   Inventory

Inventory consists of the following:
<TABLE>

                                                                                 January 31,
                                                                         ----------------------------
                                                                            1999             1998
                                                                         -----------      -----------

                                                                           (Dollars in thousands)
         <S>                                                             <C>              <C>
         Raw materials...............................................    $   3,819        $   4,493

         Work-in-process.............................................          196              573
         Finished goods..............................................          142              181
                                                                         -----------      -----------
                                                                         $   4,157        $   5,247
                                                                         ===========      ===========

</TABLE>

5.   Property and Equipment

Property and equipment consist of the following:
<TABLE>

                                                                                 January 31,
                                                                         ----------------------------
                                                                            1999             1998
                                                                         -----------      -----------
                                                                           (Dollars in thousands)
         <S>                                                             <C>              <C>      
         Office furnishings and fixtures.............................    $   1,613        $   1,518
         Equipment...................................................        5,128            4,117
         Software....................................................          390              296
                                                                         -----------      -----------
                                                                             7,131            5,931
         Less: Accumulated depreciation and amortization.............       (4,707)          (3,691)
                                                                         ===========      ===========
                                                                         $   2,424        $   2,240
                                                                         ===========      ===========
</TABLE>


6.   Software Development Costs

Software development costs consist of the following:
<TABLE>


                                                                                 January 31,
                                                                         ----------------------------
                                                                            1999             1998
                                                                         -----------      -----------

                                                                           (Dollars in thousands)
         <S>                                                             <C>              <C>
         Software development costs..................................    $   8,042        $   5,106
         Less: Accumulated amortization..............................       (3,857)          (1,975)
                                                                         ===========      ===========
                                                                         $   4,185        $   3,131
                                                                         ===========      ===========
</TABLE>

Capitalization  of software  development  costs for the years ended  January 31,
1999,  1998,  and 1997  amounted  to  $2,936,000,  $2,506,000,  and  $2,210,000,
respectively.  Amortization  of software  development  costs for the years ended
January 31,  1999,  1998,  and 1997  amounted  to  $1,882,000,  $1,809,000,  and
$1,177,000, respectively.
<PAGE>

 
7.   Intangible Assets

Intangible assets consist of the following:
<TABLE>

                                                                                    January 31,
                                                                            ----------------------------
                                                                               1999             1998
                                                                            -----------      -----------

                                                                               (Dollars in thousands)
         <S>                                                                <C>               <C> 
         Costs in excess of net assets acquired.........................    $    2,440        $   2,440
         Other intangible assets, based on allocated purchase price.....         2,033              852
                                                                            -----------      -----------
                                                                                 4,473            3,292
         Accumulated amortization.......................................          (886)            (632)
                                                                            ===========      ===========
                                                                            $    3,587        $   2,660
                                                                            ===========      ===========
</TABLE>

Amortization  of intangible  assets for the years ended January 31, 1999,  1998,
and 1997 amounted to $254,000, $451,000, and $447,000, respectively.


8.   Bank Line of Credit

As a part  of a loan  agreement  with a  bank,  the  Company  has a $10  million
revolving  credit  facility,  which expires June 30, 2000. The revolving  credit
facility is unsecured provided that the Company complies with certain covenants.
Outstanding  loans under this agreement bear interest at no less than the bank's
prime rate or the London  Interbank  Offered Rate (LIBOR) plus 150 basis points,
at the  Company's  option.  The  interest  rates  can be  increased  by the bank
dependent upon the Company  maintaining  certain  financial  ratios.  The bank's
prime rate was 8.25% at January 31,  1999.  There were no  borrowings  under the
line of credit at January 31, 1999 or 1998.  The loan  agreement  also  includes
certain restrictive covenants.


9.   Accrued Liabilities

Accrued liabilities consist of the following:
<TABLE>
                                                                                 January 31,
                                                                         ----------------------------
                                                                            1999             1998
                                                                         -----------      -----------

                                                                           (Dollars in thousands)
         <S>                                                             <C>              <C>
         Accrued payroll and related expenses........................    $   7,585        $   6,398
            
         Other.......................................................        2,595            3,139
                                                                         ===========      ===========
                                                                         $  10,180        $   9,537
                                                                         ===========      ===========
</TABLE>

10.      Stockholders' Equity

Changes in the  components of  stockholders'  equity for the years ended January
31, 1997, 1998, and 1999 were as follows:
<TABLE>
                                                                             Accumulated
                                                Common                          Other
                                                 Stock         Paid-in      Comprehensive    Retained
                                               Par Value       Capital      Income, Net      Earnings         Total
                                             --------------  ------------  --------------  -------------  --------------
                                                                 (Dollars in thousands)
<S>                                          <C>             <C>           <C>             <C>            <C>        
Balance at January 31, 1996,
      4,707,709 shares...................           471           3,883             --         17,384          21,738
   Net income............................            --              --             --          4,665           4,665
   Exercise of stock options, 100,350
     shares..............................            10             326             --             --             336
   Tax benefit from exercise of stock
     options.............................            --             716             --             --             716
   Purchase and retirement of common
     stock 30,100 shares.................            (3)           (475)            --             --            (478)
                                             --------------  ------------   -------------  -------------  --------------
Balance at January 31, 1997,
      4,777,959 shares...................           478           4,450             --         22,049          26,977
   Net income............................            --              --             --          4,875           4,875
   Exercise of stock options, 43,900
     shares..............................             4             214             --             --             218
   Tax benefit from exercise of stock
    options..............................            --             235             --             --             235
   Purchase and retirement of common
     stock, 103,149 shares...............           (10)         (1,825)            --             --          (1,835)
                                             --------------  ------------   -------------  -------------  --------------
Balance at January 31, 1998,
      4,718,710 shares...................           472           3,074             --         26,924          30,470
   Net income............................            --              --             --          5,683           5,683
   Exercise of stock options, 19,250
     shares..............................             2              85             --             --              87
   Tax benefit from exercise of stock
    options..............................            --             140             --             --             140
   Purchase and retirement of common
     stock, 281,500 shares...............           (28)           (504)            --         (4,662)         (5,194)
   Recognition of unrealized holding gain
     on available for sale securities....            --              --     $       16             --              16
                                             ==============  ============   =============  =============  ==============
Balance at January 31, 1999,
      4,456,460 shares...................    $      446      $    2,795     $       16     $   27,945     $    31,202
                                             ==============  ============   =============  =============  ==============

</TABLE>

11.  Income Taxes

Income taxes consist of the following amounts:
<TABLE>

                                                                              Years Ended January 31,
                                                                -----------------------------------------------------
                                                                    1999               1998                1997
                                                                -------------       -------------      --------------
                                                                               (Dollars in thousands)
   <S>                                                          <C>                 <C>                <C>
   Federal income tax:
     Current...............................................     $   3,076           $   2,146          $   2,358
     Deferred..............................................          (236)                170               (421)
   State income taxes:
     Current...............................................           700                 629                663
     Deferred..............................................           (57)                 43                (88)
                                                                =============       =============      ==============
                                                                $   3,483           $   2,988          $   2,512
                                                                =============       =============      ==============
</TABLE>


Deferred  income taxes reflect the impact of temporary  differences  between the
amount of assets and liabilities  recognized for financial  statement  reporting
purposes and such amounts  recognized  for tax filing  purposes.  The  principal
items making up the deferred tax  provision in the years ended January 31, 1999,
1998  and  1997  were  differing   depreciation  methods,  the  amortization  of
intangibles, accrued vacation, software development costs, and prepaid expenses.

The differences  between the effective income tax rate and the statutory federal
income tax rates for the years ended  January 31,  1999,  1998,  and 1997 are as
follows:

<TABLE>

                                                                    Years Ended January 31,
                                              ---------------------------------------------------------------------
                                                      1999                    1998                    1997
                                              ---------------------   ---------------------   ---------------------
                                                          Percent                 Percent                 Percent
                                                          Pretax                  Pretax                  Pretax
                                               Amount      Income       Amount     Income      Amount      Income
                                              ---------   ---------   ---------   ---------   ---------   ---------

                                                                     (Dollars in thousands)
<S>                                           <C>         <C>         <C>         <C>         <C>  
Computed "expected" tax on income before
   extraordinary items and income taxes...    $ 3,208       35.0%     $ 2,752       35.0%     $ 2,512       35.0%
Surtax exemption..........................        (92)      (1.0)         (79)      (1.0)         (72)      (1.0)
State tax, net of federal benefit.........        424        4.6          444        5.6          380        5.3
Change in valuation allowance.............         --        --            --        --          (530)      (7.4)
 Other, net................................       (57)       (.6)        (129)      (1.6)         222        3.1
                                              =========   =========   =========   =========   =========   =========
Taxes on income...........................    $ 3,483       38.0%     $ 2,988       38.0%     $ 2,512       35.0%
                                              =========   =========   =========   =========   =========   =========
</TABLE>


The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and deferred tax  liabilities at January 31, 1999 and
1998 are presented below:

<TABLE>
                                                                                  January 31,
                                                                --------------------------------------------
                                                                     1999                  1998
                                                                ---------------       ---------------
                                                                             (Dollars in thousands)
   <S>                                                               <C>                 <S>
   Deferred tax assets:
      Accounts receivable....................................        $       385         $         289
      Property and equipment, principally due to differing
       depreciation methods..................................                138                   133
      Employee benefits, principally due to accrual for
       financial reporting purposes..........................              1,745                 1,296
      Other..................................................                 61                    38
                                                                     -------------         -------------
      Total gross deferred tax assets........................              2,329                 1,756
      Less valuation allowance...............................                 --                    --
                                                                     -------------         -------------
      Net deferred tax assets................................        $     2,329           $     1,756
                                                                     -------------         -------------

    Deferred tax liabilities:
      Prepaid expenses.......................................        $        96           $       258
      Long-term investments..................................                 12                    --
      Property and equipment, principally due to differing                                  
       depreciation methods..................................                 56                    42
      Software development costs.............................              1,716                 1,284
      Other..................................................                265                   269
                                                                     -------------         -------------
      Total gross deferred tax liabilities...................        $     2,145           $     1,853
                                                                     =============         =============
       Net deferred tax asset (liability)....................        $       184           $       (97)
                                                                     =============         =============
</TABLE>

There was no valuation allowance for deferred tax assets as of February 1, 1998,
and no change in the  valuation  allowance  for the year ended January 31, 1999.
The Company believes that deferred tax assets will be recoverable through normal
operations.

12. Stock Options

The Company has two employee stock option plans and a director stock option plan
under which  officers,  key employees,  and directors may be granted  options to
purchase shares of common stock of the Company at not less than 100% of the fair
market value at the date of grant,  unless the optionee is a 10%  shareholder of
the  Company,  in which  case the  price  must not be less than 110% of the fair
market value.  The options are  exercisable  in  installments  determined by the
compensation  committee of the Company's  Board of Directors,  however no option
may be  exercised  prior to one year  following  the  grant of the  option.  The
options expire as determined by the  committee,  but no later than ten years and
one week after the date of grant (five years for 10% shareholders). Transactions
and other information  relating to these plans for the three years ended January
31, 1999 are summarized below:

<TABLE>
                                                                   Outstanding Options
                                                      ----------------------------------------------

                                                      Number of Shares          Weighted-Average
                                                                                 Exercise Price
                                                      ------------------   -----------------------------
<S>                                                   <C>                           <C>
Balance, January 31, 1996.........................         550,750                  $  4.78
   Options granted................................         115,000                  $ 14.93
   Options canceled or expired....................         (13,500)                 $ 10.90
   Options exercised..............................        (100,350)                 $  3.34
                                                      ---------------

Balance, January 31, 1997.........................         551,900                  $  7.01
   Options granted................................         169,000                  $ 19.95
   Options canceled or expired....................         (25,125)                 $ 11.62
   Options exercised..............................         (43,900)                 $  4.97
                                                      ---------------

Balance, January 31, 1998.........................         651,875                  $ 10.32
    Options granted................................         64,000                  $ 21.00
   Options canceled or expired....................          (8,500)                 $ 22.39
   Options exercised..............................         (19,250)                 $  4.48
                                                      ===============
Balance, January 31, 1999.........................         688,125                  $ 11.33
                                                      ===============
</TABLE>
The following table summarizes  information  about stock options  outstanding at
January 31, 1999:
<TABLE>

                                      Options Outstanding                               Options Exercisable
                   -----------------------------------------------------------  -------------------------------------
                          Number           Weighted-Avg.                               Number
      Range of          Outstanding          Remaining           Weighted-Avg.       Exercisable        Weighted-Avg.
   Exercise Prices      at 1/31/99        Contractual Life      Exercise Price       at 1/31/99        Exercise Price
--------------------------------------   -------------------   ------------------  ----------------   ------------------
  <S>                 <C>                    <C>                   <C>             <C>                     <C>          
  $1.88 to 2.00           127,500            2.0 years              $1.94               127,500            $1.94
   4.56 to 6.25           148,375            4.2                     5.33               148,375             5.33
   8.63 to 11.50           93,500            6.1                     9.09                68,750             9.10
  14.50 to 17.50          186,750            7.6                    15.98                70,500            15.63
  20.37 to 23.31          132,000            9.1                    22.16                17,000            23.25
                      ----------------                                             ----------------
  $1.88 to 23.31          688,125            5.9                   $11.33               432,125            $7.31
                      ================                                             ================
</TABLE>

Stock  options  exercisable  at January 31, 1999,  1998,  and 1997 were 432,125,
360,875, and 330,925  respectively.  Shares available under the plans for future
grants at January 31, 1999, 1998, and 1997 were 237,855,  293,355,  and 437,230,
respectively.

One of the Company's  subsidiaries,  Comarco Wireless Technologies,  Inc. (CWT),
also has a stock  option plan.  Figures for this plan  reflect a 10-for-1  stock
split declared during the year ended January 31, 1998. Under this plan, officers
and key employees of CWT may be granted options to purchase up to 600,000 shares
of common  stock of CWT at not less than  100% of the fair  market  value at the
date of grant. As of January 31, 1999, all 3,000,000  outstanding  shares of CWT
common stock are owned by the  Company.  The fair market value of the shares and
the exercise dates of the options are determined by the  Compensation  Committee
of the Company's Board of Directors,  however,  no option may be exercised prior
to one year following the grant of the option.  The options expire as determined
by the  Committee,  but not later  than ten years and one week after the date of
grant. In the fiscal year ended January 31, 1997, 28,000 options were granted at
an exercise price of $13.22.  In the fiscal year ended January 31, 1998,  11,000
options  were granted at an exercise  price of $17.62.  In the fiscal year ended
January 31, 1999, no options were granted.  Stock options exercisable at January
31, 1999, 1998 and 1997 were 361,750, 257,000, and 155,000, respectively. Shares
available  under the plan for future  grants at January 31, 1999,  1998 and 1997
were 181,000, 181,000, and 192,000, respectively.

The following table summarizes  information about CWT stock options  outstanding
at January 31, 1999:
<TABLE>

                                    Options Outstanding                                Options Exercisable
                 -----------------------------------------------------------  --------------------------------------
                     Number           Weighted-Avg.                                Number
    Range of       Outstanding          Remaining           Weighted-Avg.        Exercisable       Weighted-Avg.
 Exercise Prices   at 1/31/99        Contractual Life      Exercise Price        at 1/31/99        Exercise Price
---------------------------------   -------------------   ------------------   ----------------  -------------------
<S>              <C>                <C>                   <C>                  <C>               <C>
 $2.53 to 4.30      320,000            5.7 years                $2.97              300,000            $2.88
 11.97 to 13.22      88,000            6.9                      12.37               59,000            12.27
    17.62            11,000            8.1                      17.62                2,750            17.62
                 ----------------   -------------------   ------------------   ----------------  -------------------
$2.53 to 17.62      419,000            6.0                      $5.33              361,750            $4.53
                 ================   ===================   ==================   ================  ===================
</TABLE>

The per share weighted-average fair value of employee and director stock options
granted  during the years ended  January  31,  1999,  1998,  and 1997 was $8.89,
$8.93,  and $7.73,  respectively,  on the date of grant using the Black  Scholes
option-pricing model with the following weighted-average assumptions:

<TABLE>

                                                  Years ended January 31,
                                               -------------------------------
                                                 1999       1998       1997
                                               ----------  --------   --------
           <S>                                   <C>         <C>        <C>
           Expected dividend yield                0.0%        0.0%       0.0%
           Expected volatility                   32.5%       34.2%      45.1%
           Risk-free interest rate                5.5%        6.1%       5.8%
           Expected life                          6           6          6
                                                  years       years      years

</TABLE>

The per share  weighted-average  fair value of CWT stock options  granted during
the years ended January 31, 1998 and 1997 was $7.35, and $5.74, respectively, on
the  date of  grant  using  the  Black  Scholes  option-pricing  model  with the
following weighted-average assumptions:

<TABLE>

                                                      Years ended January 31,
                                                    ----------------------------
                                                       1998             1997
                                                    -----------      -----------
              <S>                                     <C>              <C>
              Expected dividend yield                  0.0%             0.0%
              Expected volatility                     35.6%            40.2%
              Risk-free interest rate                  6.2%             5.4%
              Expected life                            5 years          5 years
</TABLE>

The  Company  applies  APB  Opinion  No.  25 in  accounting  for its  Plan  and,
accordingly,  no compensation  cost has been recognized for its stock options in
the financial statements.  Had the Company determined compensation cost based on
the fair value at the grant date for its stock  options  under SFAS No. 123, the
Company's  net income and  earnings per share would have been reduced to the pro
forma amounts indicated below:

<TABLE>

                                                                          Years ended January 31,
                                                                    ------------------------------------
                                                                      1999         1998         1997
                                                                    ----------   ----------   ----------

                                                                     (Dollars in thousands, except per
                                                                              share amounts)
         <S>                                                        <C>          <C>          <C>
         Net income: As reported........................            $   5,683    $   4,875    $   4,665
                     Pro forma..........................                5,150        4,481        4,414
            
          Earnings per common share - basic:
                     As reported........................            $    1.23    $    1.03    $     .98
                     Pro forma..........................                 1.12          .94          .93
            
          Earnings per common share - diluted:
                     As reported........................            $    1.13    $     .89    $     .86
                     Pro forma..........................                 1.05          .86          .85
</TABLE>

Pro forma net income and earnings per share  reflect only options  granted since
February 1, 1995.  Therefore,  the full impact of calculating  compensation cost
for stock  options  under  SFAS No.  123 is not  reflected  in the pro forma net
income and earnings per share amounts presented above because  compensation cost
is reflected  over the options'  vesting  period of four years and  compensation
cost for options granted prior to February 1, 1995 is not considered.


13. Earnings per Share

The following tables present  reconciliations of the numerators and denominators
of the basic and diluted earnings per share  computations for net income. In the
tables below,  "Income"  represents  the numerator (in  thousands)  and "Shares"
represent the denominator (in thousands):

<TABLE>
                                   Year ended January 31, 1999
                                ----------------------------------
                                                          $ Per
                                  Income      Shares      Share
                                ----------- ----------- ----------
<S>                             <C>         <C>         <C> 
Basic Earnings Per Share:
   Net income.................  $   5,683     4,608     $  1.23

Effect of subsidiary options         (267)       --

Effect of dilutive securities:
   Stock options..............         --       204    
                                ----------- ----------- ----------
Diluted Earnings per Share:
   Net income.................  $   5,416     4,812     $  1.13
                                =========== =========== ==========


                                   Year ended January 31, 1998
                                ----------------------------------
                                                          $ Per
                                  Income      Shares      Share
                                ----------- ----------- ----------
<S>                             <C>          <C>        <C>
Basic Earnings Per Share:
   Net income.................  $   4,875      4,744    $   1.03

Effect of subsidiary options         (372)        --

Effect of dilutive securities:
   Stock options..............         --        332
                                -----------  ---------- ----------

Diluted Earnings per Share:
   Net income.................  $   4,503      5,076    $     .89
                                ===========  ========== ==========
</TABLE>

<TABLE>
                                   Year ended January 31, 1997
                                ----------------------------------
                                                          $ Per
                                  Income      Shares      Share
                                ----------- ----------- ----------
<S>                             <C>          <C>         <C>
Basic Earnings Per Share:
   Net income................   $   4,665      4,766     $     .98

Effect of subsidiary options         (267)        --

Effect of dilutive securities:
   Stock options.............          --        350
                                -----------  ----------  ---------

Diluted Earnings per Share:
   Net income................   $   4,398      5,116     $      .86
                                =========== ===========  ==========

</TABLE>

14.  Lease Commitments

Rental  commitments under  noncancelable  operating  leases,  principally on the
Company's office space, equipment and automobiles were $2,831,000 at January 31,
1999, payable as follows:  $1,255,000,  $817,000, $665,000, $56,000, and $38,000
in the years ended January 31, 2000, 2001,  2002,  2003, and 2004, respectively.
Certain of the rental  commitments  are subject to increases based on the change
in the Consumer  Price  Index.  Rental  expense for the years ended  January 31,
1999, 1998, and 1997 was $1,776,000, $1,593,000, and $1,183,000, respectively.


15.  Employee Benefit Plans

The  Company  has a Savings  and  Retirement  Plan which  provides  benefits  to
eligible employees. Under the Plan, as amended effective July 1, 1997, employees
who have been with the  Company  in excess of three  months  and are at least 18
years of age may  participate  by  contributing  between 1% and 15% of earnings.
Employees at one Company  location  are  permitted  to  contribute  up to 20% of
earnings.  Company  contributions  match  employee  contributions  at  levels as
specified  in the Plan  document.  In  addition,  the Company may  contribute  a
portion of its net  profits as  determined  by the Board of  Directors.  Company
contributions, which consist of matching contributions, with respect to the Plan
for the  years  ended  January  31,  1999,  1998,  and 1997  were  approximately
$812,000, $623,000, and $542,000, respectively.


16.  Supplemental Disclosures of Cash Flow Information

<TABLE>
                                                              Years Ended January 31,
                                                -----------------------------------------------------
                                                    1999               1998                1997
                                                -------------       -------------      --------------

<S>                                                <C>                 <C>                <C> 
   Interest.................................       $   --              $   --             $   --
   Income taxes.............................       $3,459              $2,656             $2,051
</TABLE>

In August 1996,  the Company  acquired the assets of RAL Consulting and Staffing
Services, Inc. for $1,198,000. In connection with this acquisition,  the Company
acquired  tangible assets with a fair value of $777,000 and assumed  liabilities
of $31,000.  Additional  amounts of $400,000 and  $181,000  were paid in October
1997 and 1998,  respectively,  based upon the achievement of certain performance
objectives.

In October 1996, the Company acquired the assets of the callbox operation of GTE
Cellular   Communications   Corp.  for  $1,076,000.   In  connection  with  this
acquisition,  the  Company  acquired  tangible  assets  with  a  fair  value  of
$1,983,000, and assumed liabilities of $614,000.

In February  1997, the Company  acquired the assets of the callbox  operation of
Cubic Communications, Inc., for approximately $1,717,000.

In May 1998,  the Company  acquired  certain  intellectual  property and related
software assets of Industrial Technology, Inc. for approximately $1,000,000.


17. Research and Development Costs

The Company incurred research and development costs (includes  Company-sponsored
software development costs prior to determination of technological  feasibility)
of approximately $.8 million, $1.7 million, and $2.5 million, in the years ended
January  31,  1999,   1998,   and  1997,   respectively,   related  to  wireless
communications  products and  development  of software  tools.  These costs were
expensed as incurred.


18.  Business Segment Information

The Company's operations have been classified into two business areas:  wireless
communications  products and information  technology and staffing services.  The
wireless communications products area develops,  produces, and markets a variety
of products  and  services  used in the wireless  communications  industry.  The
information  technology and staffing  services area provides services to Federal
and local government and commercial customers pursuant to established contracts.
Corporate  and other  consists  primarily  of cash and cash  equivalents,  fixed
assets, and other assets.

Summarized financial  information by business segment for Fiscal Year 1999 is as
follows:

<TABLE>
                                             
                            Wireless        Information 
                         Communications    Technology and      Corporate and
                            Products      Staffing Services        Other               Total
                         -----------------------------------------------------------------------
                                                     (Dollars in thousands)
<S>                      <C>               <C>                    <C>              <C>
Revenues                 $   34,004        $     57,960               --           $     91,964
Operating income              7,148               1,729           $   (9)                 8,868
Identifiable assets          22,392              16,404            8,491                 47,287
Depreciation and                                                                  
   amortization               2,868                 363               57                  3,288
Capital expenditures          4,944                 484               28                  5,456

</TABLE>

Summarized financial  information by business segment for Fiscal Year 1998 is as
follows:
<TABLE>
                                            
                            Wireless         Information 
                         Communications     Technology and     Corporate and
                            Products      Staffing Services        Other               Total
                         -----------------------------------------------------------------------
                                                     (Dollars in thousands)
<S>                      <C>               <C>                <C>                <C>
Revenues                 $     29,524      $     55,615             --           $     85,139
Intangible asset                                                                   
   Write-off                       --               710             --                    710
Operating income                6,733               795       $    (69)                 7,459
Identifiable assets            18,884            12,808         12,202                 43,894
Depreciation and                                                       
   amortization                 1,988             1,112             64                  3,164
Capital expenditures            5,496               711             46                  6,253

</TABLE>
Summarized financial  information by business segment for Fiscal Year 1997 is as
follows:
<TABLE>

                                      
                            Wireless         Information 
                         Communications    Technology and     Corporate and
                            Products       Staffing Services      Other               Total
                         -----------------------------------------------------------------------
                                                     (Dollars in thousands)
<S>                      <C>               <C>                <C>                <C>  
Revenues                 $     19,519      $     51,895                ---       $     71,414
Operating income                5,250             1,396       $        (28)             6,618
Identifiable assets            11,610             8,964             18,636             39,210
Depreciation and                                                                                 
   amortization                 1,398               811                 54              2,263
Capital expenditures            3,972             1,377                  7              5,356
</TABLE>


International  sales  totaled  $5.6  million and $8.9 million in the years ended
January 31, 1999 and 1998,  respectively.  The majority of these sales have been
made to Europe,  Asia-Pacific  and Latin America,  and are sales of the wireless
communications products segment.


19.  Intangible Asset Write-off

In January 1998, the Company  recorded a $710,000  charge against  earnings from
the  impairment of certain  assets of its  information  technology  and staffing
services software development operation.  This charge was recorded in accordance
with  Statement of Financial  Accounting  Standards No. 121,  Accounting for the
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of.
Based  upon  marketing  initiatives  which  proved  unsuccessful,   the  Company
determined  that the expected future cash flows were not sufficient to cover the
remaining unamortized intangible assets. Accordingly, the complete impairment of
these assets was recorded in the  consolidated  statement of income for the year
ended January 31, 1998.


20.  Commitments and Contingencies

The  Company  is  subject  to legal  proceedings  and  claims  that arise in the
ordinary course of its business.  In the opinion of management and the Company's
legal  counsel,  the amount of ultimate  liability with respect to these actions
will not materially affect the financial condition of the Company.

Costs under  cost-reimbursable  contracts  are subject to audit by the  customer
upon contract completion.  Therefore,  all contract costs,  including direct and
indirect  costs,   are  potentially   subject  to  adjustment   prior  to  final
reimbursement. Audits have been completed through January 31, 1996.

The  Company  also  has a  multi-year  fixed  price  contract  for  which  it is
anticipating  a contract  modification.  The  contract  is  scheduled  to end on
September 30, 1999, and the Company cannot complete the statement of work due to
Government delays in providing required  equipment.  The Company has submitted a
request  for a  22-month  extension  and  additional  funding  of $2.7  million.
Negotiations are ongoing, and management currently expects modification will not
occur until the second quarter of Fiscal Year 2000, at the earliest. The Company
believes  that it has a  meritorious  position  and, if  necessary,  the Company
intends to seek all remedies available under Federal procurement laws.

In addition, the Company's Fiscal Years 1997 and 1998 federal income tax returns
are being reviewed by the Internal Revenue Service.

Management believes that sufficient reserves are available for its most probable
assessment of the potential outcomes of the above open matters.


21.  Quarterly Financial Data (Unaudited)

Unaudited summarized financial data by quarter for Fiscal Years 1999 and 1998 is
as follows (in thousands, except per share data):

<TABLE>
Fiscal Year 1999                                                                Quarter Ended
                                                         ------------------------------------------------------------

                                                           April 30        July 31       October 31      January 31
                                                         --------------  -------------  -------------  --------------
<S>                                                      <C>             <C>            <C>            <C>          
Revenues.............................................    $     21,751    $     22,011   $    24,201    $    24,001
Operating income.....................................          1,237           1,971          2,501          3,159
Net income...........................................            840           1,281          1,576          1,986


                                                         --------------  -------------  -------------  --------------
Basic earnings per common share......................    $       .18     $       .27    $       .34    $       .44
                                                         --------------  -------------  -------------  --------------


                                                         --------------  -------------  -------------  --------------
Diluted earnings per common share....................    $       .17     $       .25    $       .31    $       .40
                                                         ==============  =============  =============  ==============

Fiscal Year 1998                                                                Quarter Ended
                                                         ------------------------------------------------------------
                                                           April 30        July 31       October 31     January 31
                                                         --------------  -------------  -------------  --------------

Revenues.............................................    $    20,097     $    21,015    $    21,975    $    22,052
Operating income.....................................          1,653           2,001          2,247          1,558
Net income...........................................          1,109           1,315          1,443          1,008

                                                         --------------  -------------  -------------  -------------- 
Basic earnings per common share......................    $       .23     $       .28    $       .31    $       .21
                                                         ==============  =============  =============  ==============

                                                         --------------  -------------  -------------  --------------
Diluted earnings per common share....................    $       .21     $       .24    $       .26    $       .18
                                                         ==============  =============  =============  ==============

</TABLE>


ITEM 9. Changes in and  Disagreements  with  Accountants  on Accounting and
        Financial Disclosure
None.



                                    PART III


ITEM 10.  Directors and Executive Officers of the Registrant

Information  concerning  Directors  and  Executive  Officers  of the  Company is
incorporated  herein by reference from the Company's  definitive proxy statement
for the 1999 annual meeting of  shareholders,  which the Company expects to file
with the SEC by May 30, 1999.


ITEM 11.  Executive Compensation

Information  regarding executive  compensation is incorporated by reference from
the  Company's  definitive  proxy  statement  for the  1999  annual  meeting  of
shareholders, which the Company expects to file with the SEC by May 30, 1999.


ITEM 12.  Security Ownership of Certain Beneficial Owners and Management

The information  regarding  Security Ownership is incorporated by reference from
the section entitled "Ownership of Securities" in the Company's definitive proxy
statement for the 1999 annual meeting of shareholders, which the Company expects
to file with the SEC by May 30, 1999.


ITEM 13.  Certain Relationships and Related Transactions

The information concerning certain relationships and related transactions of the
Registrant is  incorporated  by reference from the section  entitled  "Executive
Compensation"  in the Company's  definitive  proxy statement for the 1999 annual
meeting of  shareholders,  which the Company expects to file with the SEC by May
30, 1999.


                                     PART IV


ITEM 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)  1.  Financial Statements (See Item 8)

     2.  Financial Statement Schedule:

         The following additional information for the fiscal years ended January
         31, 1999, 1998, and 1997 is submitted herewith:

         II Reserves

         All other schedules are omitted because the required information is not
         present in amounts  sufficient to require submission of the schedule or
         because  the  information  required  is  included  in the  consolidated
         financial statements or the notes thereto.


     3.  Exhibits

         3.1      Articles of  Incorporation.  The Articles of Incorporation are
                  incorporated  herein by reference from the Company's report on
                  Form 8 filed with the  Securities  and Exchange  Commission on
                  November 16, 1988.

         3.2      By-Laws.  The By-Laws are  incorporated  by reference from the
                  Company's  report on Form 10-Q for the quarter ended  July 31,
                  1986.


     10. Material Contracts

         10.1     1982 Stock Option Plan. The restated 1982 Stock Option Plan is
                  incorporated  herein  by  reference  from  Exhibit  C  to  the
                  Company's definitive Proxy Materials filed with the Securities
                  and Exchange Commission on June 25, 1986.

         10.2     Director Stock Option Plan dated July 1, 1987 is  incorporated
                  by reference  from  the Company's  report on Form 10-K for the
                  year ended January 31, 1988.

         10.3     Contract  dated  January 22, 1991  between the Company and the
                  County of Los Angeles for the  operation  and  maintenance  of
                  County-owned  general  aviation  airports is  incorporated  by
                  reference from the Company's  report on Form 10-K for the year
                  ended January 31, 1991.

         10.4     Agreement  dated April 16, 1991 between the Company and Don M.
                  Bailey,  President  and  Chief  Executive  Officer,  regarding
                  employment  termination in the event of a change in control of
                  the Company is  incorporated  by reference  from the Company's
                  report on Form 10-K for the year ended January 31, 1992.

         10.5     Agreement  dated  December  14,  1989  between the Company and
                  ManTech Engineering Corporation to establish the Interop Joint
                  Venture is incorporated by reference from the Company's report
                  on Form 10-K for the year ended January 31, 1992.

         10.6     Agreement dated January 4, 1993 between the Company,  DynCorp,
                  and Electronic Warfare Associates to establish the Tesco Joint
                  Venture is incorporated by reference from the Company's report
                  on Form 10-K for the year ended January 31, 1993.

         10.7     Business Loan Agreement  dated  September 26, 1994 between the
                  Company and  NationsBank  of  Virginia,  N.A.  to  establish a
                  $5,000,000  Guidance Line of Credit and an  $8,000,000  Master
                  Line of Credit is incorporated by reference from the Company's
                  report on Form 10-Q for the quarter ended October 30, 1994.

         10.8     Guidance Line of Credit Note for  $5,000,000  dated  September
                  26, 1994 between the Company and NationsBank of Virginia, N.A.
                  is incorporated by reference from the Company's report on Form
                  10-Q for the quarter ended October 30, 1994.

         10.9     Master Line of Credit for $8,000,000  dated September 26, 1994
                  between the  Company  and  NationsBank  of  Virginia,  N.A. is
                  incorporated  by reference  from the Company's  report on Form
                  10-Q for the quarter ended October 30, 1994.

         10.10    Nonqualified  Employee Stock Option Plan for Comarco  Wireless
                  Technologies,  Inc.  dated  August  1994  is  incorporated  by
                  reference  from  the  Company's  report  on Form  10-Q for the
                  quarter ended October 30, 1994.

         10.11    Primary Stock Purchase  Agreement among COMARCO,  Inc. and the
                  prior  shareholders  of LCTI,  Inc.,  dated  August 9, 1994 is
                  incorporated  by reference  from the Company's  report on Form
                  10-Q for the quarter ended October 30, 1994.

         10.12    Second Stock Purchase  Agreement  among COMARCO,  Inc. and the
                  prior  shareholders  of LCTI,  Inc.,  dated  August 9, 1994 is
                  incorporated  by reference  from the Company's  report on Form
                  10-Q for the quarter ended October 30, 1994.

         10.13    1995 Employee Stock Option Plan is  incorporated  by reference
                  from  the  Company's   report  on  Form  S-8  filed  with  the
                  Securities and Exchange Commission on October 5, 1995.

         10.14    First  Amendment to Loan  Agreement  dated  September 26, 1995
                  between the  Company  and  NationsBank  of  Virginia,  N.A. is
                  incorporated  by reference  from the Company's  report on Form
                  10-Q for the quarter ended October 29, 1995.

         10.15    Amended and Restated  Master Line of Credit Note dated October
                  31, 1995 between the Company and NationsBank of Virginia, N.A.
                  is incorporated by reference from the Company's report on Form
                  10-Q for the quarter ended October 29, 1995.

         10.16    Amended  and  Restated  Guidance  Line of  Credit  Note  dated
                  October 31,  1995  between  the  Company  and  NationsBank  of
                  Virginia, N.A. is incorporated by reference from the Company's
                  report on Form 10-Q for the quarter ended October 29, 1995.

         10.17    Second  Amendment  to Loan  Agreement  dated  August 30,  1996
                  between the  Company  and  NationsBank  of  Virginia,  N.A. is
                  incorporated  by reference  from the Company's  report on Form
                  10-Q for the quarter ended July 31, 1996.

         10.18    Second  Amended and Restated  Master Line of Credit Note dated
                  August  30,  1996  between  the  Company  and  NationsBank  of
                  Virginia, N.A. is incorporated by reference from the Company's
                  report on Form 10-Q for the quarter ended July 31, 1996.

         10.19    Second Amended and Restated Guidance Line of Credit Note dated
                  August  30,  1996  between  the  Company  and  NationsBank  of
                  Virginia, N.A. is incorporated by reference from the Company's
                  report on Form 10-Q for the quarter ended July 31, 1996.

         10.20    Asset  Purchase  Agreement  among  COMARCO,   Inc.,   CoSource
                  Solutions,  Inc. (now known as Comarco Staffing, Inc.), R.A.L.
                  Consulting  and  Staffing   Services,   Inc.,  and  Robert  A.
                  Lovingood  dated July 23, 1996 is  incorporated  by  reference
                  from the  Company's  report on Form 10-Q for the quarter ended
                  July 31, 1996.

         10.21    Employment   Agreement   between   COMARCO,   Inc.,   CoSource
                  Solutions,  Inc. (now known as Comarco  Staffing,  Inc.),  and
                  Robert A.  Lovingood  dated July 23, 1996 is  incorporated  by
                  reference  from  the  Company's  report  on Form  10-Q for the
                  quarter ended July 31, 1996.

         10.22    Noncompetition and Confidentiality  Agreement between COMARCO,
                  Inc.,  CoSource   Solutions,   Inc.,  (now  known  as  Comarco
                  Staffing, Inc.) and Robert A. Lovingood dated July 23, 1996 is
                  incorporated  by reference  from the Company's  report on Form
                  10-Q for the quarter ended July 31, 1996.

         10.23    Third  Amendment  to Loan  Agreement  dated  August  15,  1997
                  between the  Company  and  NationsBank  of  Virginia,  N.A. is
                  incorporated  by reference  from the Company's  report on Form
                  10-Q for the quarter ended July 31, 1997.

         10.24    Third  Amended and  Restated  Master Line of Credit Note dated
                  August  15,  1997  between  the  Company  and  NationsBank  of
                  Virginia, N.A. is incorporated by reference from the Company's
                  report on Form 10-Q for the quarter ended July 31, 1997.

         10.25    Third Amended and Restated  Guidance Line of Credit Note dated
                  August  15,  1997  between  the  Company  and  NationsBank  of
                  Virginia, N.A. is incorporated by reference from the Company's
                  report on Form 10-Q for the quarter ended July 31, 1997.

         10.26    Fourth  Amendment  to Loan  Agreement  dated  August 21,  1998
                  between the  Company  and  NationsBank  of  Virginia,  N.A. is
                  incorporated  by reference  from the Company's  report on Form
                  10-Q for the quarter ended July 31, 1998.

         10.27    Fourth  Amended and Restated  Master Line of Credit Note dated
                  August  21,  1998  between  the  Company  and  NationsBank  of
                  Virginia, N.A. is incorporated by reference from the Company's
                  report on Form 10-Q for the quarter ended July 31, 1998.

         11.      Computation  of  Number of  Shares  of  Common  Stock  used in
                  the Computation of Earnings Per Share.

         21.1     Subsidiaries of the Company. The following are the significant
                  subsidiaries of the Company:
                  Decisions and  Designs, Inc. (DDI) incorporated in the Common-
                     wealth of Virginia.
                  International  Business  Services, Inc. (IBS) incorporated  in
                     the District of Columbia.
                  Comarco Wireless Technologies, Inc. (CWT) incorporated in  the
                     State of Delaware.
                  LCTI, Inc. incorporated in the State of Maryland.
                  Manufacturing  Technolog   Training Center, Inc. (MTTC) incor-
                     porated in the State of Delaware.
                  Comarco Wireless  International,  Inc.  (formerly known as
                     Comarco  Wireless Europe,  Inc.)  incorporated in the State
                     of Delaware.
                  Comarco Staffing, Inc. (formerly  known as CoSource Solutions,
                     Inc.), incorporated in the State of California.
                 Comarco Systems, Inc., incorporated in the State of California.
                 Comarco Services, Inc. incorporated in the State of California.

         23.1     Consent of Independent Auditors.

         99.2     Undertakings of Registrant.

     (b)  Reports on Form 8-K

         None.


<PAGE>

                         COMARCO, INC. AND SUBSIDIARIES
                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on April 22, 1999.

                                                        COMARCO, INC.

                                                     /s/ DON M. BAILEY
                                               _____________________________
                                                        Don M. Bailey
                                              President, Chief Executive Officer
                                                  and Chairman of the Board

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  by the
Registrant and in the capacities and on the dates so indicated.



       Signature                         Title                         Date
       ---------                        -------                        ----

                         President, Chief Executive Officer
                              and Chairman of the Board
                                (Principal Executive
      /s/ DON M. BAILEY                 Officer)                  April 22, 1999

   -----------------------
       Don M. Bailey

                                    Vice President
                                          and
                             Treasurer (Principal Financial
    /s/ THOMAS P. BAIRD          Accounting Officer)              April 22, 1999

--------------------------
    Thomas P. Baird




    /s/ WILBUR L. CREECH               Director                   April 22, 1999

--------------------------
    Wilbur L. Creech




   /s/ THOMAS A. FRANZA                 Director                  April 22, 1999

--------------------------
    Thomas A. Franza




  /s/ GERALD D. GRIFFIN                 Director                  April 22, 1999

------------------------
    Gerald D. Griffin

<PAGE>
                         COMARCO, INC. AND SUBSIDIARIES
                                   SIGNATURES


       Signature                         Title                         Date
       ---------                         -----                         ----



   /s/ WESLEY L. MCDONALD              Director                   April 22, 1999
  ------------------------

     Wesley L. McDonald




  /s/ PAUL G. YOVOVICH                 Director                   April 22, 1999
 --------------------------
     Paul G. Yovovich





<PAGE>


                         COMARCO, INC. AND SUBSIDIARIES

                             SCHEDULE II - RESERVES

                       Three Years Ended January 31, 1999

                             (Dollars in thousands)

<TABLE>

                                                                                             Other
                                            Balance at      Charged to                      Changes
                                            Beginning        Cost and                         Add           Balance at End
                                             of Year         Expense       Deductions      (Deduct)            of Year
                                           ------------    ------------   ------------    ------------   ------------------
<S>                                        <C>             <C>            <C>             <C>
Year ended January 31, 1999:
   Allowance for doubtful accounts and
     provision for unbilled receivables
     (deducted from accounts
     receivable).......................    $      331      $      321     $   308(1)      $       --     $      344

Year ended January 31, 1998:
   Allowance for doubtful accounts and
     provision for unbilled receivables
     (deducted from accounts
     receivable).......................    $      215      $      123     $     7(1)      $       --     $      331

Year ended January 31, 1997:
   Allowance for doubtful accounts and
     provision for unbilled receivables
     (deducted from accounts
     receivable).......................    $      256      $       62     $   103(1)      $       --     $      215
   Income tax valuation allowance......           530              --         530(1)              --             --


----------------------------------
</TABLE>


(1) Write off of uncollectible receivables and reduction in income tax valuation
allowance.