##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended January 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 0-5449
 
 COMARCO, INC.
 (Exact name of registrant as specified in its charter)
 California
    
    95-2088894(State or Other Jurisdiction
    
    (I.R.S. Employerof Incorporation or Organization)
    
    Identification No.)25541 Commercentre Drive, Lake Forest, CA
    
    92630(Address of Principal Executive Offices)
    
    (Zip Code)
 
 Registrants telephone number, including area code:
(949) 599-7400
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on which RegisteredCommon Stock, $0.10 par value
    
    NASDAQ Stock Market
 Securities registered pursuant to Section 12(g) of the Act:
None
 
 o þ
 o þ
 þ o
 þ
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



COMARCO, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 31, 2009
 TABLE OF CONTENTS
 PagePART I
    
    
    1ITEM 1. BUSINESS
    
    
    1ITEM 1A. RISK FACTORS
    
    
    7ITEM 1B. UNRESOLVED STAFF COMMENTS
    
    
    13ITEM 2. PROPERTIES
    
    
    13ITEM 3. LEGAL PROCEEDINGS
    
    
    13ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    14PART II
    
    
    15ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    15ITEM 6. SELECTED FINANCIAL DATA
    
    
    15ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
    
    
    16ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    26ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    27ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
    
    
    49ITEM 9A. CONTROLS AND PROCEDURES
    
    
    49ITEM 9B. OTHER INFORMATION
    
    
    50PART III
    
    
    51ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
    
    
    51ITEM 11. EXECUTIVE COMPENSATION
    
    
    51ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
    
    
    51ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    
    
    51ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    51PART IV
    
    
    52ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    52EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2EX-99.1




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##### Table of Contents



PART I
 FORWARD-LOOKING STATEMENTS
    
 ITEM 1. BUSINESS
 General
 ® ® ®
 ®
   1




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##### Table of Contents



Discontinued Operations
 Call Box
   Wireless Test Solutions
    Our Business
  Products
 ® ®
 2




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##### Table of Contents



Marketing, Sales, and Distribution
  
    
    Retail;
    
    OEM-branded accessories, and
    
    OEM in-the-box.
 Retail
    OEM-branded accessories
    3




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OEM in-the-box
  Competition
 ® ®
  
    
    Differentiate our offerings through innovation and development of new or enhanced
products;
    
    Successfully meet stringent design specifications in a timely manner;
    
    Manufacture and deliver on time, cost effective products in volume; and
    
    Price our products competitively.
 Key Customers
  ®
 International Operations
  Research and Development
  4




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
    
    We collaborate closely with our customers and partners to design and manufacture new
products or modify existing products to specifications required by our customers;
    
    We design and manufacture enhancements and improvements to our existing products in
response to our customers requests or feedback; and
    
    We independently design and build new products in anticipation of the development of
a variety of mobile electronic devices.
 Manufacturing and Suppliers
   Patents and Intellectual Property
 ® ® ®
    5




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Industry Practices Impacting Working Capital
    Employees
   6




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##### Table of Contents



ITEM 1A. RISK FACTORS
 We have a history of losses, and we cannot be certain that we will achieve or sustain
profitability; we may need additional capital in the future to fund our businesses, which we may
not be able to obtain on acceptable terms.
 ®
  We will have to reduce our costs for our ChargeSource® products and achieve higher sales volumes
for our products to become profitable, and if we fail to achieve cost reductions and higher sales
volumes for our products, we may not achieve or sustain profitability and our results of operations
and prospects would be adversely impacted.
   
    
    Successful development and release for manufacture of certain AC and AC/DC
standalone power adapter products designed to address the requirements of our retail
and OEM channels;
    
    Securing additional OEM partners; and
    
    Market and customer acceptance of our new products expected to be available by the
end of the second fiscal quarter of 2010.
 ®
 If we fail to accurately forecast customer demand, we may have excess or insufficient product
inventory, which may increase our operating costs and harm our business.
  7




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Our business and operational results are subject to the seasonal demand fluctuations of the
consumer product and retail industries, as well as general economic and retail uncertainty.
   Our customers may cancel their orders, change production quantities or delay production, any of
which would reduce our sales and adversely affect our operating results.
  
    
    Changes in the specific products or quantities our customers order; and
    
    Long lead times and advance financial commitments for components required to
complete anticipated customer orders.
  Failure to adjust our operations in response to changing market conditions or failure to accurately
estimate demand for our products could adversely affect our operating results.
 ®
 8




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##### Table of Contents



The products we make are complex and have short life cycles. If we are unable to rapidly and
successfully develop and introduce new products, some of our products may become obsolete and our
operating results could suffer.
  
    
    Properly identify customer needs and technological trends;
    
    Timely develop new technologies and applications;
    
    Price our products and services competitively;
    
    Timely manufacture and deliver our products in sufficient volume, and
    
    Differentiate our products from those of our competitors.
  The consumer electronics industry is highly competitive, and our profitability will be adversely
affected if we are not able to compete effectively.
  The average selling prices of our products will likely decrease over their sales cycles, especially
upon the introduction of new products, which may negatively affect our revenue and operating
results.
  9




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A significant portion of our revenue is derived from a limited number of customers and is dependent
upon our relationships with them and upon their performance. Any loss of, reduction, cancellation,
or delay in purchases by these customers would negatively impact our revenue, business, prospects,
and operating results.
 ®
  We may experience quality or safety defects in our products that could cause us to institute
product recalls, require us to provide replacement products and harm our reputation.
  Economic, political, and other risks associated with our international sales and operations could
adversely affect our results of operations.
 ®
 Disruptions in our relationships with our suppliers or in our suppliers operations could result in
shortages of necessary components and adversely affect our operations.
  10




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®
  Third parties may claim that we are infringing their intellectual property, and we could suffer
significant litigation, settlement or licensing costs and expenses or be prevented from selling
certain products.
   Third parties may infringe our intellectual property rights, and we may be required to spend
significant resources enforcing these rights or otherwise suffer competitive injury.
   If we suffer the loss of our corporate offices or the loss of one of our contract manufacturers
facilities due to catastrophe, our operations would be adversely affected.
  11




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®
 We depend upon the services of key personnel, and may not be able to attract and retain additional
key personnel.
  Our quarterly operating results are subject to significant fluctuations and, if our operating
results decline or are worse than expected, our stock price could fall.
  
    
    The size and timing of customer orders and shipments;
    
    The degree and rate of growth in the markets in which we compete and the
accompanying demand for our products;
    
    Limitations in our ability to forecast our manufacturing needs;
    
    Our ability to introduce, and the timing of our introductions of, new or enhanced
products;
    
    Product failures and recalls, product quality control problems and associated
in-field service support costs;
    
    Warranty expenses;
    
    Availability and cost of components, and
    
    Changes in average sales prices.
  Our stock price has been and will likely remain highly volatile.
  
    
    Our quarterly operating results;
    
    Changes in the consumer electronics industries;
    
    Changes in the economic outlook of the particular markets in which we sell our
products and services;
 12




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
    
    The gain or loss of significant customers;
    
    Reductions in demand or expectations of future demand by our customers;
    
    Changes in stock market analyst recommendations regarding us, our competitors, or
our customers;
    
    The timing and announcements of technological innovations or new products by our
competitors or by us, and
    
    Other events affecting other companies that investors deem comparable to us.
  The trading volume of our common stock often has been limited and may depress the price for our
common stock.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
 iGo, Inc. (formerly Mobility Electronics, Inc.) (iGo) vs. Comarco Wireless Technologies,
Inc., Case No. 5:07cv00084, U.S. District Court for the Eastern District of Texas.
  13




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SwissQual AG (SwissQual) vs. Comarco Wireless Technologies, Inc., Case No. cv-07-07819,
Central District of California.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  For
    
    Against
    
    Abstentions6,197,485
    
    8,827
    
    2,973
 14




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##### Table of Contents



PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
 Market Information
 ®
 High
    
    LowYear ended January 31, 2009:First Quarter
    
    $
    5.45
    
    
    $
    3.20Second Quarter
    
    
    4.42
    
    
    
    2.93Third Quarter
    
    
    3.49
    
    
    
    1.13Fourth Quarter
    
    
    1.49
    
    
    
    0.80Year ended January 31, 2008:First Quarter
    
    $
    9.15
    
    
    $
    6.51Second Quarter
    
    
    6.90
    
    
    
    5.75Third Quarter
    
    
    6.43
    
    
    
    5.32Fourth Quarter
    
    
    6.01
    
    
    
    4.91
 Holders
  Dividends
  
 ITEM 6. SELECTED FINANCIAL DATA
  15




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
 ® ®
 ®
 Industry and Company Trends and Uncertainties
 ® ® ® ® ® ®
 ®
  
    
    On March 16, 2009, we entered into an exclusive Retail Strategic Product Development
and Supply Agreement (the Targus Agreement) with Targus Group International, Inc., a
Delaware corporation (Targus). We expect to begin shipments to Targus under this
Targus Agreement during the second quarter of fiscal 2010. The product offerings for
Targus include the following:
 16




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
    
    A programmable AC adapter that connects easily to a standard
wall plug and includes a DC cable that supports charging two devices
simultaneously. It will be packaged with up to 10 SmartTips®.
    
    A programmable AC adapter that includes both input and output
cables (AC or AC/DC) and will be packaged with up to 10 SmartTips®.
 
    
    In late January 2008, we began volume production of a small form factor 90-watt
AC/DC standalone power adapter designed to the stringent specifications of Lenovo, a
leading notebook computer OEM. This innovative product is currently being marketed and
sold as an OEM-branded aftermarket accessory.
    
    During the first quarter of fiscal 2008, we entered into a non-exclusive
distribution arrangement with Kensington, thereby terminating our exclusive
distribution agreement. Under the exclusive Targus Agreement, we will no longer be able
to sell to Kensington upon commencing shipments to Targus.
    
    Revenue for fiscal 2009 increased significantly to $13.5 million compared to
$5.4 million for fiscal 2008. The increase is attributable to the launch of the 90-watt
product for Lenovo.
    
    The current level of sales is insufficient to fully absorb our operating expenses.
Our ability to drive increased sales is dependent upon, among others, the following
factors:
 
    
    Successful development and release for manufacture of certain
AC and AC/DC standalone power adapter products designed to address the
requirements of our retail and OEM accessories channels;
    
    Securing additional OEM partners; and
    
    Market and customer acceptance of our new products expected to
be available by the end of the second quarter of 2010.
 
    
    Our ChargeSource® products are based on proprietary patented construction technology
that enables the production of slim and light power sources for many rechargeable
mobile devices from standard wall outlets, as well as power outlets in airplanes, cars,
and other modes of transportation.
    
    We are currently in negotiations with our third party contract manufacturers in an
effort to reduce our unit costs for our products. Reducing our product costs is
important to our efforts to improve our margins.
    
    We are focused on preserving our cash balances by monitoring expenses, identifying
costs savings, and investing only in those development programs and products that we
believe will most likely contribute to our profitability.
 Critical Accounting Policies
  Revenue Recognition
  17




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Stock-based Compensation
  Accounts Receivable
   Valuation of Inventory
  Income Taxes
  18




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Valuation of Long-Lived Assets
  Results of OperationsContinuing Operations
  Consolidated
 Years Ended January 31,2009
    
    
    2008(In thousands)
    
    
    
    
    
    
    2009 over% of
    
    
    
    
    
    
    % of
    
    
    2008Revenue
    
    
    
    
    
    
    Revenue
    
    
    % ChangeRevenue
    
    $
    13,521
    
    
    
    100
    %
    
    $
    5,434
    
    
    
    100
    %
    
    
    149
    %Operating loss
    
    $
    (13,187
    )
    
    
    
    
    
    $
    (11,715
    )Loss from continuing operations
    
    $
    (9,699
    )
    
    
    
    
    
    $
    (10,166
    )Years Ended January 31,

    
    2009 over2009
    
    
    2008

    
    2008(In thousands)


    
    % ChangeRevenue:North America
    
    $
    473
    




    
    $
    3,012
    




    
    
    (84
    %)Europe
    
    
    2,050
    




    
    
    2,127
    




    
    
    (4
    %)Asia  Pacific
    
    
    10,998
    




    
    
    295
    




    
    
    3,628
    %$
    13,521
    




    
    $
    5,434
    




    
    
    149
    %
 19




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##### Table of Contents



Years Ended January 31,
    
    
    2009 over2009
    
    
    2008
    
    
    2008(In thousands)
    
    
    % ChangeRevenue:Lenovo
    
    $
    11,033
    
    
    $
    226
    
    
    
    4,782
    %Trust
    
    
    1,211
    
    
    
    
    
    
    
    Kensington
    
    
    981
    
    
    
    4,660
    
    
    
    (79
    %)Tumi
    
    
    293
    
    
    
    280
    
    
    
    5
    %Battery Biz
    
    
    
    
    
    
    259
    
    
    
    (100
    %)Other
    
    
    3
    
    
    
    9
    
    
    
    (67
    %)$
    13,521
    
    
    $
    5,434
    
    
    
    149
    %
 Revenue
   Cost of Revenue and Gross Margin
 Years Ended January 31,2009
    
    2008(In thousands)
    
    
    
    
    
    2009 over% of
    
    
    
    
    
    % of
    
    2008Total
    
    
    
    
    
    Total
    
    % ChangeCost of Revenue:Product costs
    
    $
    12,119
    
    
    
    80
    %
    
    $
    4,334
    
    
    
    57
    %
    
    
    180
    %Under-absorption of fixed supply
chain overhead
    
    
    1,241
    
    
    
    8
    %
    
    
    2,403
    
    
    
    32
    %
    
    
    (48
    %)Inventory reserve and scrap
charges
    
    
    1,507
    
    
    
    10
    %
    
    
    530
    
    
    
    7
    %
    
    
    184
    %Freight, expedite, and other
charges
    
    
    222
    
    
    
    2
    %
    
    
    335
    
    
    
    4
    %
    
    
    (34
    %)$
    15,089
    
    
    
    100
    %
    
    $
    7,602
    
    
    
    100
    %
    
    
    98
    %
 2009 overYears Ended January 31,
    
    
    2008 ppt2009
    
    
    2008
    
    
    ChangeCombined gross loss
    
    
    
    

    (12%)
    
    

    
    
    
    
    
    (40%)
    
    

    
    
    
    28
  20




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Operating Costs and Expenses
 Years Ended January 31,2009
    
    
    2008(In thousands)
    
    
    
    
    
    
    2009 over% of
    
    
    
    
    
    
    % of
    
    
    2008Revenue
    
    
    
    
    
    
    Revenue
    
    
    % ChangeOperating expenses:Selling, general, and administrative
expenses, excluding corporate
overhead
    
    $
    2,988
    
    
    
    22
    %
    
    $
    2,408
    
    
    
    44
    %
    
    
    24
    %Allocated corporate overhead
    
    
    5,788
    
    
    
    43
    %
    
    
    4,497
    
    
    
    83
    %
    
    
    29
    %Engineering and support expenses
    
    
    2,843
    
    
    
    21
    %
    
    
    2,642
    
    
    
    49
    %
    
    
    8
    %$
    11,619
    
    
    
    86
    %
    
    $
    9,547
    
    
    
    176
    %
    
    
    22
    %
     Other Income, net
  Income Tax Benefit
  21




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Business Outlook
   ® ®
  Discontinued Operations, net of income taxes
 Income
from Discontinued Operations  Call Box
(in thousands except change)
 Years Ended January 31,
    
    
    Year over Year2009
    
    
    2008
    
    
    % ChangeRevenues
    
    $
    3,680
    
    
    $
    11,109
    
    
    
    (67
    %)Income from discontinued operations:Gain on sale, net of income taxes of $192
    
    $
    298
    
    
    $
    
    
    
    
    100
    %Income from discontinued operations,
before taxes
    
    
    1,148
    
    
    
    3,559
    
    
    
    (68
    %)Income tax expense
    
    
    (450
    )
    
    
    (1,394
    )
    
    
    (68
    %)Total income from discontinued operations
    
    $
    996
    
    
    $
    2,165
    
    
    
    (54
    %)
 22




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##### Table of Contents



®
 Income from Discontinued Operations  Wireless Test Solutions
(in thousands except change)
 Years Ended January 31,
    
    
    Year over Year2009
    
    
    2008
    
    
    % ChangeRevenues
    
    $
    13,628
    
    
    $
    6,657
    
    
    
    105
    %Income (loss) from discontinued operations:Gain on sale, net of income taxes of $2,309
    
    $
    3,582
    
    
    $
    
    
    
    
    100
    %Income (loss) from discontinued operations,
before taxes
    
    
    1,079
    
    
    
    (3,260
    )
    
    
    133
    %Income tax (expense) benefit
    
    
    (423
    )
    
    
    1,277
    
    
    
    (133
    %)Total income (loss) from discontinued operations
    
    $
    4,238
    
    
    $
    (1,983
    )
    
    
    314
    %
  Liquidity and Capital Resources
  Years Ended January 31,2009
    
    2008(In thousands)Cash provided by (used in):Operating activities
    
    $
    (2,984
    )
    
    $
    (3,404
    )Investing activities
    
    
    117
    
    
    
    1,728Financing activities
    
    
    
    
    
    
    (7,673
    )
 Operating Activities
   23




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Cash Flows from Investing Activities
 ®
 ®
 Cash Flows from Financing Activities; Credit Facility
        
    
    In the event that any of our significant customers are unable to perform due to
their inability to take delivery of the ordered products and/or pay for such products
in a timely manner, we would be required to establish alternative distribution
channels. Such significant change would negatively impact our revenue, operating
results, and cash flows.
    
    Should the contract manufacturer of our ChargeSource® products become unable to
manufacture our products at the level currently anticipated, our operating results and
cash flows would be negatively impacted.
 24




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Contractual Obligations
  Payments due by PeriodLess than
    
    
    1 to 3
    
    
    3 to 51 year
    
    
    years
    
    
    years
    
    
    More than 5 years
    
    
    TotalOperating lease obligations
    
    $
    430
    
    
    $
    607
    
    
    $
    
    
    
    $
    
    
    
    $
    1,037Less: sublease income
    
    
    (184
    )
    
    
    (291
    )
    
    
    
    
    
    
    
    
    
    
    (475
    )Purchase obligations
    
    
    5,251
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,251$
    5,497
    
    
    $
    316
    
    
    $
    
    
    
    $
    
    
    
    $
    5,813
    Recent Accounting Pronouncements
  25




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Currency Risk
  Interest Rate Sensitivity
    26




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 COMARCO, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    28Financial Statements:Consolidated Balance Sheets, January 31, 2009 and 2008
    
    
    29Consolidated Statements of Operations, Years Ended January 31, 2009 and 2008
    
    
    30Consolidated Statements of Stockholders Equity, Years Ended January 31, 2009 and 2008
    
    
    31Consolidated Statements of Cash Flows, Years Ended January 31, 2009 and 2008
    
    
    32Notes to Consolidated Financial Statements
    
    
    33Schedule II  Valuation and Qualifying Accounts, Years Ended January 31, 2009 and 2008
    
    
    56
  27




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Report of Independent Registered Public Accounting Firm
 
     /s/ BDO Seidman, LLP
 
 28




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COMARCO, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except share data)
 January 31,2009
    
    
    2008ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    14,144
    
    
    $
    17,011Short-term investments
    
    
    
    
    
    
    336Accounts receivable, net of reserves of $14 and $0
    
    
    4,145
    
    
    
    1,746Inventory, net of reserves of $1,488 and $19
    
    
    1,232
    
    
    
    439Other current assets
    
    
    691
    
    
    
    682Current assets of discontinued operations
    
    
    
    
    
    
    7,061Total current assets
    
    
    20,212
    
    
    
    27,275Property and equipment, net
    
    
    1,279
    
    
    
    2,225Restricted cash
    
    
    77
    
    
    
    250Non-current assets of discontinued operations
    
    
    
    
    
    
    2,831Total assets
    
    $
    21,568
    
    
    $
    32,581LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    1,501
    
    
    $
    651Deferred revenue
    
    
    77
    
    
    
    43Deferred compensation
    
    
    
    
    
    
    336Accrued liabilities
    
    
    3,092
    
    
    
    3,783Current liabilities of discontinued operations
    
    
    
    
    
    
    4,739Total current liabilities
    
    
    4,670
    
    
    
    9,552Tax liability: FIN 48
    
    
    86
    
    
    
    86Deferred rent
    
    
    182
    
    
    
    573Deferred revenue, net of current portion
    
    
    9
    
    
    
    3Non-current liabilities of discontinued operations
    
    
    
    
    
    
    1,552Total liabilities
    
    
    4,947
    
    
    
    11,766Commitments, Contingencies, and Subsequent EventsStockholders Equity:Preferred stock, no par value, 10,000,000 shares
authorized; no shares issued or outstanding at January
31, 2009 and 2008, respectively
    
    
    
    
    
    
    Common stock, $0.10 par value, 50,625,000 shares
authorized; 7,326,671 shares issued and outstanding at
January 31, 2009 and 2008, respectively
    
    
    733
    
    
    
    733Additional paid-in capital
    
    
    14,705
    
    
    
    14,434Retained earnings
    
    
    1,183
    
    
    
    5,648Total stockholders equity
    
    
    16,621
    
    
    
    20,815Total liabilities and stockholders equity
    
    $
    21,568
    
    
    $
    32,581
  29




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 Years Ended January 31,2009
    
    
    2008Revenue
    
    $
    13,521
    
    
    $
    5,434Cost of revenue
    
    
    15,089
    
    
    
    7,602Gross loss
    
    
    (1,568
    )
    
    
    (2,168
    )Selling, general, and administrative expenses
    
    
    8,776
    
    
    
    6,905Engineering and support expenses
    
    
    2,843
    
    
    
    2,64211,619
    
    
    
    9,547Operating loss
    
    
    (13,187
    )
    
    
    (11,715
    )Other income, net
    
    
    113
    
    
    
    842Loss from continuing operations before income taxes
    
    
    (13,074
    )
    
    
    (10,873
    )Income tax benefit
    
    
    3,375
    
    
    
    707Net loss from continuing operations
    
    
    (9,699
    )
    
    
    (10,166
    )Income from discontinued operations, net of income taxes
    
    
    5,234
    
    
    
    182Net loss
    
    $
    (4,465
    )
    
    $
    (9,984
    )Basic and diluted income (loss) per share:Net loss from continuing operations
    
    $
    (1.32
    )
    
    $
    (1.38
    )Net income from discontinued operations
    
    
    0.71
    
    
    
    0.02$
    (0.61
    )
    
    $
    (1.36
    )Weighted average common shares outstanding:Basic
    
    
    7,327
    
    
    
    7,338Diluted
    
    
    7,327
    
    
    
    7,338Common shares outstanding
    
    
    7,327
    
    
    
    7,327
  30




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 (In thousands, except share data)
 AdditionalCommon
    
    
    Paid-in
    
    
    RetainedStock
    
    
    Capital
    
    
    Earnings
    
    
    TotalBalance at January 31, 2007,
7,371,637 shares
    
    $
    737
    
    
    $
    14,163
    
    
    $
    23,089
    
    
    $
    37,989Net loss
    
    
    
    
    
    
    
    
    
    
    (9,984
    )
    
    
    (9,984
    )Exercise of stock options,
12,671 shares (2,671 represent
net exercises of 16,125
options)
    
    
    1
    
    
    
    83
    
    
    
    
    
    
    
    84Special cash dividend, $1 per
share of common stock
outstanding
    
    
    
    
    
    
    
    
    
    
    (7,371
    )
    
    
    (7,371
    )Purchase and retirement of
common stock, 57,637 shares
    
    
    (5
    )
    
    
    (381
    )
    
    
    
    
    
    
    (386
    )Stock based compensation expense
    
    
    
    
    
    
    569
    
    
    
    
    
    
    
    569Cumulative effect of accounting
change: adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    (86
    )
    
    
    (86
    )Balance at January 31, 2008,
7,326,671 shares
    
    
    733
    
    
    
    14,434
    
    
    
    5,648
    
    
    
    20,815Net loss
    
    
    
    
    
    
    
    
    
    
    (4,465
    )
    
    
    (4,465
    )Stock based compensation expense
    
    
    
    
    
    
    271
    
    
    
    
    
    
    
    271Balance at January 31, 2009,
7,326,671 shares
    
    $
    733
    
    
    $
    14,705
    
    
    $
    1,183
    
    
    $
    16,621
  31




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 Years Ended January 31,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net loss from continuing operations
    
    $
    (9,699
    )
    
    $
    (10,166
    )Adjustments to reconcile net loss from continuing operations to
net cash used in operating activities:Depreciation and amortization
    
    
    978
    
    
    
    920Loss (gain) on sale/retirement of property and equipment
    
    
    24
    
    
    
    (6
    )Stock based compensation expense
    
    
    240
    
    
    
    527Deferred income taxes
    
    
    
    
    
    
    (59
    )Provision for doubtful accounts receivable
    
    
    14
    
    
    
    Provision for obsolete inventory
    
    
    1,469
    
    
    
    10Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,413
    )
    
    
    1,872Inventory
    
    
    (2,262
    )
    
    
    (371
    )Other assets
    
    
    (9
    )
    
    
    (337
    )Accounts payable
    
    
    850
    
    
    
    155Deferred revenue
    
    
    43
    
    
    
    (67
    )Deferred rent
    
    
    (391
    )
    
    
    (194
    )Accrued liabilities
    
    
    (691
    )
    
    
    829Net cash used in continuing operating activities
    
    
    (11,847
    )
    
    
    (6,887
    )Net cash provided by discontinued operating activities
    
    
    8,863
    
    
    
    3,483Net cash used in operating activities
    
    
    (2,984
    )
    
    
    (3,404
    )CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sales of property and equipment
    
    
    40
    
    
    
    Purchases of property and equipment
    
    
    (492
    )
    
    
    (752
    )Decrease in restricted cash
    
    
    173
    
    
    
    250Net cash used in continuing investing activities
    
    
    (279
    )
    
    
    (502
    )Net cash provided by discontinued investing activities
    
    
    396
    
    
    
    2,230Net cash provided by investing activities
    
    
    117
    
    
    
    1,728CASH FLOWS FROM FINANCING ACTIVITIES:Net proceeds from issuance of common stock
    
    
    
    
    
    
    84Dividends paid
    
    
    
    
    
    
    (7,371
    )Purchase and retirement of common stock
    
    
    
    
    
    
    (386
    )Net cash used in financing activities
    
    
    
    
    
    
    (7,673
    )Net decrease in cash and cash equivalents
    
    
    (2,867
    )
    
    
    (9,349
    )Cash and cash equivalents, beginning of year
    
    
    17,011
    
    
    
    26,360Cash and cash equivalents, end of year
    
    $
    14,144
    
    
    $
    17,011Supplemental disclosures of cash flow information:Cash paid for interest
    
    $
    
    
    
    $
    7Cash paid for income taxes, net of refunds
    
    $
    19
    
    
    $
    532
  32




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization
 ® ®
 2. Summary of Significant Accounting Policies
 Principles of Consolidation
  Future operations, Liquidity and Capital Resources
 ® ® ®
  Use of Estimates
   33




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Revenue Recognition
  Cash and Cash Equivalents
  Short-Term Investments
   Inventory
  Property and Equipment
  Research and Development Costs
  Long-Lived Assets
  34




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Income Taxes
      Warranty Costs
 ®
 35




---



##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Minority Interest
  Concentrations of Credit Risk
  Earnings (Loss) Per Common Share
  Stock-Based Compensation
    36




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Years EndedJanuary 31,2009
    
    
    2008Total compensation expense relating to SFAS 123R
    
    $
    271,000
    
    
    $
    569,000Less: amounts reflected in discontinued operations
    
    
    (31,000
    )
    
    
    (42,000
    )Compensation expense relating to SFAS 123R from continuing operations
    
    
    240,000
    
    
    
    527,000Impact on basic and diluted earnings per share
    
    $
    (0.03
    )
    
    $
    (0.07
    )
   Years EndedJanuary 31,2009
    
    2008Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    49.0
    %
    
    
    40.1
    %Weighted average risk-free interest rate
    
    
    3.0
    %
    
    
    4.8
    %Expected life (in years)
    
    
    6.2
    
    
    
    5.8Expected forfeitures
    
    
    10.6
    %
    
    
    10.6
    %
 Fair Value of Financial Instruments
  3. Recent Accounting Pronouncements
   37




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  4. Adoption of New Accounting Pronouncement
     5. Discontinued Operations
 Call Box
   38




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Years Ended January 31,2009
    
    
    2008Revenues
    
    $
    3,680
    
    
    $
    11,109Income from discontinued operations:Gain on sale, net of taxes of $192
    
    $
    298
    
    
    $
    Income from discontinued operations, before taxes
    
    
    1,148
    
    
    
    3,559Income tax expense
    
    
    (450
    )
    
    
    (1,394
    )Total income from discontinued operations
    
    $
    996
    
    
    $
    2,165
 ®
 Wireless Test Solutions
    Years Ended January 31,2009
    
    
    2008Revenues
    
    $
    13,628
    
    
    $
    6,657Income (loss) from discontinued operations:Gain on sale, net of taxes of $2,309
    
    $
    3,582
    
    
    $
    Income (loss) from discontinued operations, before taxes
    
    
    1,079
    
    
    
    (3,260
    )Income tax (expense) benefit
    
    
    (423
    )
    
    
    1,277Total income (loss) from discontinued operations
    
    $
    4,238
    
    
    $
    (1,983
    )
 6. Customer and Supplier Concentrations
  39




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Years Ended January 31,2009
    
    
    2008Total revenue
    
    $
    13,521
    
    
    
    100
    %
    
    $
    5,434
    
    
    
    100
    %Customer concentration:Kensington Technology Group
    
    $
    981
    
    
    
    7
    %
    
    $
    4,660
    
    
    
    86
    %Lenovo Information Products Co., Ltd.
    
    
    11,033
    
    
    
    82
    %
    
    
    226
    
    
    
    4
    %$
    12,014
    
    
    
    89
    %
    
    $
    4,886
    
    
    
    90
    %
  Years Ended January 31,2009
    
    
    2008Revenue:North America
    
    
    473
    
    
    
    3,012Europe
    
    
    2,050
    
    
    
    2,127Asia  Pacific
    
    
    10,998
    
    
    
    295$
    13,521
    
    
    $
    5,434
  January 31,2009
    
    
    2008Total gross accounts receivable
    
    $
    4,159
    
    
    
    100
    %
    
    $
    1,746
    
    
    
    100
    %Customer concentration:Kensington Technology Group
    
    
    
    
    
    
    
    
    
    
    1,209
    
    
    
    69
    %Lenovo Information Products Co., Ltd.
    
    $
    3,366
    
    
    
    81
    %
    
    $
    173
    
    
    
    10
    %Shengyih Electronics
    
    
    
    
    
    
    
    
    
    
    270
    
    
    
    15
    %Trust International BV
    
    
    606
    
    
    
    15
    %
    
    
    
    
    
    
    $
    3,972
    
    
    
    96
    %
    
    $
    1,652
    
    
    
    95
    %
  Years Ended January 31,2009
    
    
    2008Total product costs
    
    $
    12,119
    
    
    
    100
    %
    
    $
    4,334
    
    
    
    100
    %Supplier concentration:Flextronics Electronics
    
    $
    10,516
    
    
    
    87
    %
    
    $
    809
    
    
    
    19
    %FoxLink International, Inc
    
    
    1,280
    
    
    
    11
    %
    
    
    2,169
    
    
    
    50
    %Shengyih Electronics
    
    
    
    
    
    
    
    
    
    
    516
    
    
    
    12
    %$
    11,796
    
    
    
    98
    %
    
    $
    3,494
    
    
    
    81
    %
   40




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 7. Accounts Receivable
  January 31,2009
    
    
    2008Trade accounts receivable
    
    $
    4,159
    
    
    $
    1,746Less: Allowances for doubtful accounts
    
    
    (14
    )
    
    
    $
    4,145
    
    
    $
    1,746
 8. Inventory
  January 31,2009
    
    
    2008Raw materials
    
    $
    290
    
    
    $
    387Finished goods
    
    
    942
    
    
    
    52$
    1,232
    
    
    $
    439
  9. Property and Equipment
  January 31,2009
    
    
    2008Office furnishings and fixtures
    
    $
    1,309
    
    
    $
    1,958Equipment
    
    
    4,838
    
    
    
    4,544Purchased software
    
    
    139
    
    
    
    1396,286
    
    
    
    6,641Less: Accumulated depreciation and amortization
    
    
    (5,007
    )
    
    
    (4,416
    )$
    1,279
    
    
    $
    2,225
     41




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10. Accrued Liabilities
  January 31,2009
    
    
    2008Accrued payroll and related expenses
    
    $
    417
    
    
    $
    943Uninvoiced materials and services received
    
    
    510
    
    
    
    1,173Accrued legal and professional fees
    
    
    526
    
    
    
    509Amounts payable to Ascom
    
    
    903
    
    
    
    Current portion of deferred rent
    
    
    109
    
    
    
    193Accrued travel expenses
    
    
    21
    
    
    
    86Amounts payable to contract manufacturer
    
    
    290
    
    
    
    707Other
    
    
    316
    
    
    
    172$
    3,092
    
    
    $
    3,783
  11. Warranty Arrangements
  January 31,2009
    
    
    2008Beginning balance
    
    $
    46
    
    
    $
    112Accruals for warranties issued during the period
    
    
    146
    
    
    
    55Utilization
    
    
    (106
    )
    
    
    (121
    )$
    86
    
    
    $
    46
 12. Income Taxes
  Years Ended January 31,2009
    
    
    2008Federal:Current
    
    $
    
    
    
    $
    (550
    )Deferred
    
    
    
    
    
    
    (53
    )State:Current
    
    
    
    
    
    
    19Deferred
    
    
    
    
    
    
    (6
    )Foreign:Current
    
    
    
    
    
    
    $
    
    
    
    $
    (590
    )
 42




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Years Ended January 31,2009
    
    
    2008Percent
    
    
    
    
    
    
    PercentAmount
    
    
    Pretax Income
    
    
    Amount
    
    
    Pretax IncomeLoss from continuing operations
before income taxes and
discontinued operations
    
    $
    (13,074
    )
    
    
    100
    %
    
    $
    (10,873
    )
    
    
    100
    %Computed expected income tax
benefit on loss from continuing
operations before income taxes
    
    $
    (4,445
    )
    
    
    (34.0
    %)
    
    $
    (3,697
    )
    
    
    (34.0
    %)State tax, net of federal benefit
    
    
    (562
    )
    
    
    (4.3
    )
    
    
    (468
    )
    
    
    (4.3
    )Research and MIC credits
    
    
    (376
    )
    
    
    (2.9
    )
    
    
    (104
    )
    
    
    (1.0
    )Change in valuation allowance
    
    
    1,107
    
    
    
    8.5
    
    
    
    3,389
    
    
    
    31.2Permanent differences
    
    
    89
    
    
    
    0.7
    
    
    
    101
    
    
    
    1.0Return to provision adjustments
    
    
    
    
    
    
    
    
    
    
    93
    
    
    
    0.9Eliminate deferred tax liability
    
    
    
    
    
    
    
    
    
    
    (59
    )
    
    
    (0.6
    )Additional tax gain on sale of WTS
    
    
    685
    
    
    
    5.2
    
    
    
    
    
    
    
    Other, net
    
    
    127
    
    
    
    1.0
    
    
    
    38
    
    
    
    0.3Income tax benefit
    
    $
    (3,375
    )
    
    
    (25.8
    %)
    
    $
    (707
    )
    
    
    (6.5
    %)
  January 31,2009
    
    
    2008Tax benefit from continuing operations
    
    $
    (3,375
    )
    
    $
    (707
    )Tax expense from discontinued operations
    
    
    3,375
    
    
    
    117$
    
    
    
    $
    (590
    )
  January 31,2009
    
    
    2008Deferred tax assets:Accounts receivable
    
    $
    8
    
    
    $
    19Inventory
    
    
    630
    
    
    
    464Property and equipment, principally due to differing
depreciation methods
    
    
    290
    
    
    
    231Employee benefits, principally due to accrual for financial
reporting purposes
    
    
    130
    
    
    
    531Accrued liabilities for financial reporting purposes
    
    
    167
    
    
    
    259Net research and manufacturer investment credit carryforwards
    
    
    1,946
    
    
    
    1,583Net operating losses
    
    
    4,719
    
    
    
    2,695AMT credit carryforwards
    
    
    295
    
    
    
    295Deferred rent
    
    
    56
    
    
    
    63FAS 123R deferred compensation
    
    
    534
    
    
    
    430Deferred revenue
    
    
    34
    
    
    
    853Other
    
    
    15
    
    
    
    294Total gross deferred tax assets
    
    
    8,824
    
    
    
    7,717Less: valuation allowance
    
    
    (8,824
    )
    
    
    (7,717
    )Net deferred tax assets
    
    $
    
    
    
    $
    
 43




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    UnrecognizedTax BenefitsBalance at February 1, 2008
    
    $
    592Additions based on tax positions related to the current year
    
    
    Reductions due to lapses of statute of limitations
    
    
    Reductions for tax positions of prior years
    
    
    Balance at January 31, 2009
    
    $
    592
  13. Stock Compensation
    44




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Outstanding OptionsWeighted-
    
    
    AggregateNumber of
    
    
    Average
    
    
    Intrinsic ValueShares
    
    
    Exercise Price
    
    
    (In thousands)Balance, January 31, 2007
    
    
    985,770
    
    
    $
    12.18
    
    
    $
    41Options granted
    
    
    92,500
    
    
    
    6.27Options canceled or expired
    
    
    (210,145
    )
    
    
    12.51Options exercised
    
    
    (26,125
    )
    
    
    7.74Balance, January 31, 2008
    
    
    842,000
    
    
    
    11.59
    
    
    $
    Options granted
    
    
    813,500
    
    
    
    1.29Options canceled or expired
    
    
    (471,500
    )
    
    
    12.02Options exercised
    
    
    
    
    
    
    Balance, January 31, 2009
    
    
    1,184,000
    
    
    $
    4.34
    
    
    $
    
  Options Outstanding
    
    
    Options ExercisableWeighted-AverageRange of
    
    Number
    
    
    Remaining
    
    
    Weighted-Average
    
    
    Number
    
    
    Weighted-AverageExercise Prices
    
    Outstanding
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Exercise Price$     1.09 to 9.89
    
    
    1,026,000
    
    
    
    8.9
    
    
    $
    2.61
    
    
    
    179,750
    
    
    $
    7.6910.43 to 12.41
    
    
    72,000
    
    
    
    6.1
    
    
    
    10.77
    
    
    
    57,000
    
    
    
    10.8613.21 to 17.50
    
    
    30,500
    
    
    
    1.8
    
    
    
    14.77
    
    
    
    30,500
    
    
    
    14.7719.33 to 23.67
    
    
    55,500
    
    
    
    1.3
    
    
    
    22.08
    
    
    
    55,500
    
    
    
    22.081.09 to 23.67
    
    
    1,184,000
    
    
    8.2 years
    
    
    
    4.34
    
    
    
    322,750
    
    
    
    11.39
  14. Earnings (Loss) Per Share
  Years Ended January 31,2009
    
    
    2008Basic:Loss from continuing operations
    
    $
    (9,699
    )
    
    $
    (10,166
    )Weighted average shares outstanding
    
    
    7,327
    
    
    
    7,338Basic loss per share from continuing operations
    
    $
    (1.32
    )
    
    $
    (1.38
    )Income from discontinued operations
    
    $
    5,234
    
    
    $
    182Weighted average shares outstanding
    
    
    7,327
    
    
    
    7,338Basic earnings per share from discontinued operations
    
    $
    0.71
    
    
    $
    0.02Net loss
    
    $
    (4,465
    )
    
    $
    (9,984
    )Weighted average shares outstanding
    
    
    7,327
    
    
    
    7,338Basic loss per share
    
    $
    (0.61
    )
    
    $
    (1.36
    )
 45




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Years Ended January 31,2009
    
    
    2008Diluted:Loss from continuing operations
    
    $
    (9,699
    )
    
    $
    (10,166
    )Weighted average shares outstanding
    
    
    7,327
    
    
    
    7,338Diluted loss per share from continuing operations
    
    
    (1.32
    )
    
    
    (1.38
    )Income from discontinued operations
    
    $
    5,234
    
    
    $
    182Weighted average shares outstanding
    
    
    7,327
    
    
    
    7,338Diluted earnings per share from discontinued operations
    
    $
    0.71
    
    
    $
    0.02Net loss
    
    $
    (4,465
    )
    
    $
    (9,984
    )Weighted average shares outstanding
    
    
    7,327
    
    
    
    7,338Effect of dilutive securities  stock options
    
    
    
    
    
    
    Weighted average shares used in calculation of diluted loss per share
    
    
    7,327
    
    
    
    7,338Diluted loss per share
    
    $
    (0.61
    )
    
    $
    (1.36
    )
 15. Employee Benefit Plans
   16. Supplemental Disclosures of Cash Flow Information and Noncash Investing and Financing
Activities
  17. Commitments and Contingencies
  OperatingLeasesFiscal Year:2010
    
    $
    4302011
    
    
    3862012
    
    
    221Total minimum lease payments
    
    $
    1,037
  46




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Purchase Commitments with Suppliers
  Executive Severance Commitments
  Letter of Credit
  Legal Contingencies
   47




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    18. Subsequent Events
     48




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##### Table of Contents



ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  Managements Report on Internal Control over Financial Reporting
   49




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##### Table of Contents



ITEM 9B. OTHER INFORMATION
  50




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  51




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)
    1.
    Financial Statements (See Item 8)
 2.
    
    Financial Statement Schedule:
    3.
    
    ExhibitsPlan of Disposition2.1
    
    Asset Purchase Agreement by and among Comarco, Inc., Comarco Wireless
Technologies, Inc., Case Systems, Inc., and Sebastian Gutierrez, dated as of July 10,
2008. The Asset Purchase Agreement is incorporated herein by reference from
Exhibit 2.01 to the Companys report on Form 8-K filed with the Securities and Exchange
Commission on July 16, 2008.2.2
    
    Asset Purchase Agreement by and among Comarco, Inc., Comarco Wireless
Technologies, Inc., Ascom Holding AG, and Ascom Inc., dated as of September 26, 2008.
The Asset Purchase Agreement is incorporated herein by reference from Exhibit 2.1 to
the Companys report on Form 8-K filed with the Securities and Exchange Commission on
September 29, 2008.Articles of Incorporation; Bylaws3.1
    
    Articles of Incorporation. The Articles of Incorporation are incorporated
herein by reference from Exhibit 3.1 to the Companys report on Form 10-Q filed with
the Securities and Exchange Commission on December 12, 2000.3.2
    
    By-Laws. The Restated By-Laws are incorporated herein by reference from
Exhibit 3.1 to the Companys report on Form 8-K filed with the Securities and Exchange
Commission on February 24, 2009.3.3
    
    Certificate of Determination of Series A Participating Preferred Stock. The
Certificate of Determination is incorporated herein by reference from Exhibit 99.1 to
the Companys Registration Statement on Form 8-A filed with the Securities and Exchange
Commission on February 6, 2003.Material Contracts10.1
    
    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. *
 52




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##### Table of Contents



10.2
    
    1995 Employee Stock Option Plan is incorporated by reference from Exhibit 4.1
to the Companys Registration Statement on Form 
S-8 (File No. 33-63219) filed with the
Securities and Exchange Commission on October 5, 1995. *10.3
    
    2005 Equity Incentive Plan, as amended, is incorporated by reference from
Exhibit 4.3 to the Companys Registration Statement on Form S-8 filed with the
Securities and Exchange Commission on December 31, 2008. *10.4
    
    Amended and Restated Severance Agreement, dated June 11, 2007, between the
Company and Daniel R. Lutz is incorporated herein by reference from Exhibit 10.9 to the
Companys report on Form 8-K filed with the Securities and Exchange Commission on
June 15, 2007. *10.5
    
    Amended and Restated Severance Agreement, dated June 11, 2007, between the
Company and Thomas W. Lanni is incorporated herein by reference from Exhibit 10.9 to
the Companys report on Form 8-K filed with the Securities and Exchange Commission on
June 15, 2007. *10.6
    
    Amended and Restated Severance Agreement, dated June 11, 2007, between the
Company and Fredrik L. Torstensson is incorporated herein by reference from
Exhibit 10.9 to the Companys report on Form 8-K filed with the Securities and Exchange
Commission on June 15, 2007. *10.7
    
    Amended and Restated Severance Agreement, dated June 11, 2007, between the
Company and John McMunn is incorporated herein by reference from Exhibit 10.9 to the
Companys report on Form 8-K filed with the Securities and Exchange Commission on
June 15, 2007. *10.8
    
    Amended and Restated Severance Agreement, dated June 11, 2007, between the
Company and Mark Chapman is incorporated herein by reference from Exhibit 10.9 to the
Companys report on Form 8-K filed with the Securities and Exchange Commission on
June 15, 2007. *10.9
    
    Severance Compensation Agreement, dated August 28, 2007, between the Company
and Alisha Charlton is incorporated herein by reference from Exhibit 10.14 to the
Companys report on Form 10-K filed with the Securities and Exchange Commission on
April 30, 2008. *10.10
    
    Separation and Release Agreement, dated March 23, 2008, between the Company
and Thomas A. Franza is incorporated herein by reference from Exhibit 10.15 to the
Companys report on Form 10-K filed with the Securities and Exchange Commission on
April 30, 2008. *10.11
    
    Management Agreement, dated May 21, 2008, between the Company and Samuel
M. Inman III is incorporated herein by reference from Exhibit 10.16 to the Companys
report on Form 8-K filed with the Securities and Exchange Commission on May 23, 2008. *10.12
    
    Management Agreement, dated May 21, 2008, between the Company and Winston
Hickman is incorporated herein by reference from Exhibit 10.17 to the Companys report
on Form 8-K filed with the Securities and Exchange Commission on May 23, 2008. *10.13
    
    Escrow Agreement, dated January 6, 2009, by and among Comarco, Inc., Comarco
Wireless Technologies, Inc., Ascom Holding AG, Ascom Inc., and U.S. Bank National
Association is incorporated herein by reference from Exhibit 99.1 to the Companys
report on Form 8-K filed with the Securities and Exchange Commission on January 12,
2009.10.14
    
    Loan and Security Agreement, dated as of February 12, 2009, by and among
Comarco, Inc., Comarco Wireless Technologies, Inc., and Silicon Valley Bank is
incorporated herein by reference from Exhibit 10.1 to the Companys report on Form 8-K
filed with the Securities and Exchange Commission on February 18, 2009.10.15
    
    Strategic Product Development and Supply Agreement, dated as of March 16,
2009, by and among Comarco, Inc. and Targus Group International, Inc. is incorporated
herein by reference from Exhibit 10.1 to the Companys report on Form 8-K filed with the Securities and
Exchange Commission on March 20, 2009. **
 53




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##### Table of Contents



Other Exhibits21.1
    
    Subsidiaries of the Company23.1
    
    Consent of Independent Registered Public Accounting Firm  BDO Seidman LLP31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of
Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of
Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer Pursuant to Section 906 of
Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer Pursuant to Section 906 of
Sarbanes-Oxley Act of 200299.1
    
    Supplement to Registrants Registration Statements on Form S-8
 
 *
    
    Management contract or executive compensation plan or arrangement.**
    
    Confidential Treatment has been requested with respect to certain provisions of this
agreement.
Omitted portions have been filed separately with the SEC. 54




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
SIGNATURES
  COMARCO, INC./s/ SAMUEL M. INMAN, IIISamuel M. Inman, IIIPresident and Chief Executive Officer  Signature
    
    Title
    
    Date/s/ SAMUEL M. INMAN, III
Samuel M. Inman, III
    
    President and Chief Executive Officer(Principal Executive Officer), Director
    
    May 1, 2009/s/ WINSTON E. HICKMAN
Winston E. Hickman
    
    Chief Financial Officer (Principal
Financial and Accounting Officer)
    
    May 1, 2009/s/ ROBERT J. MAJTELES
Robert J. Majteles
    
    Chairman of the Board,
Director
    
    May 1, 2009/s/ RICHARD T. LEBUHN
Richard T. LeBuhn
    
    Director
    
    May 1, 2009/s/ GERALD D. GRIFFIN
Gerald D. Griffin
    
    Director
    
    May 1, 2009/s/ JEFFREY R. HULTMAN
Jeffrey R. Hultman
    
    Director
    
    May 1, 2009Robert W. Sundius, Jr.
    
    Director
 55




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
 
 SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS
 Years Ended January 31, 2009

(In thousands)
 Charged toBalance at
    
    Cost andBeginning of
    
    Expense
    
    
    
    
    
    Other Changes
    
    Balance atYear
    
    (Recovery)
    
    Deductions
    
    Add (Deduct)
    
    End of YearAllowance for doubtful accounts
and provision for unbilled
receivables (deducted from
accounts receivable):Year ended January 31, 2009
    
    $
    
    
    
    $
    14
    
    
    $
    
    
    
    $
    
    
    
    $
    14Year ended January 31, 2008
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Allowance for deferred tax assets:Year ended January 31, 2009
    
    $
    7,717
    
    
    $
    
    
    
    $
    
    
    
    $
    1,107
    
    
    $
    8,824Year ended January 31, 2008
    
    $
    4,330
    
    
    $
    (59
    )
    
    $
    
    
    
    $
    3,446
    
    
    $
    7,717
 56




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##### Table of Contents



INDEX TO EXHIBITS
 Exhibit
    
    Description2.1
    
    Asset Purchase Agreement by and among Comarco, Inc., Comarco Wireless Technologies, Inc.,
Case Systems, Inc.,
and Sebastian Gutierrez, dated as of July 10, 2008. The Asset Purchase
Agreement is incorporated herein by reference from Exhibit 2.01 to the Companys report on
Form 8-K filed with the Securities and Exchange Commission on July 16, 2008.2.2
    
    Asset Purchase Agreement by and among Comarco, Inc., Comarco Wireless Technologies, Inc.,
Ascom Holding AG, and Ascom Inc., dated as of September 26, 2008. The Asset Purchase Agreement
is incorporated herein by reference from Exhibit 2.1 to the Companys report on Form 8-K filed
with the Securities and Exchange Commission on September 29, 2008.3.1
    
    Articles of Incorporation. The Articles of Incorporation are incorporated herein by reference
from Exhibit 3.1 to the Companys report on Form 10-Q filed with the Securities and Exchange
Commission on December 12, 2000.3.2
    
    By-Laws. The Restated By-Laws are incorporated herein by reference from Exhibit 3.1 to the
Companys report on Form 8-K filed with the Securities and Exchange Commission on February 24,
2009.3.3
    
    Certificate of Determination of Series A Participating Preferred Stock. The Certificate of
Determination is incorporated herein by reference from Exhibit 99.1 to the Companys
Registration Statement on Form 8-A filed with the Securities and Exchange Commission on
February 6, 2003.10.1
    
    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. *10.2
    
    1995 Employee Stock Option Plan is incorporated by reference from Exhibit 4.1 to the
Companys Registration Statement on Form S-8 (File No. 33-63219) filed with the Securities and
Exchange Commission on October 5, 1995. *10.3
    
    2005 Equity Incentive Plan, as amended, is incorporated by reference from Exhibit 4.3 to the
Companys Registration Statement on Form S-8 filed with the Securities and Exchange Commission
on December 31, 2008. *10.4
    
    Amended and Restated Severance Agreement, dated June 11, 2007, between the Company and
Daniel R. Lutz is incorporated herein by reference from Exhibit 10.9 to the Companys report
on Form 8-K filed with the Securities and Exchange Commission on June 15, 2007. *10.5
    
    Amended and Restated Severance Agreement, dated June 11, 2007, between the Company and
Thomas W. Lanni is incorporated herein by reference from Exhibit 10.9 to the Companys report
on Form 8-K filed with the Securities and Exchange Commission on June 15, 2007. *10.6
    
    Amended and Restated Severance Agreement, dated June 11, 2007, between the Company and
Fredrik L. Torstensson is incorporated herein by reference from Exhibit 10.9 to the Companys
report on Form 8-K filed with the Securities and Exchange Commission on June 15, 2007. *
 57




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##### Table of Contents



Exhibit
    
    Description10.7
    
    Amended and Restated Severance Agreement, dated June 11, 2007, between the Company and John
McMunn is incorporated herein by reference from Exhibit 10.9 to the Companys report on
Form 8-K filed with the Securities and Exchange Commission on June 15, 2007. *10.8
    
    Amended and Restated Severance Agreement, dated June 11, 2007, between the Company and Mark
Chapman is incorporated herein by reference from Exhibit 10.9 to the Companys report on
Form 8-K filed with the Securities and Exchange Commission on June 15, 2007. *10.9
    
    Severance Compensation Agreement, dated August 28, 2007, between the Company and Alisha
Charlton is incorporated herein by reference from Exhibit 10.14 to the Companys report on
Form 10-K filed with the Securities and Exchange Commission on April 30, 2008. *10.10
    
    Separation and Release Agreement, dated March 23, 2008, between the Company and Thomas A.
Franza is incorporated herein by reference from Exhibit 10.15 to the Companys report on
Form 10-K filed with the Securities and Exchange Commission on April 30, 2008. *10.11
    
    Management Agreement, dated May 21, 2008, between the Company and Samuel M. Inman III is
incorporated herein by reference from Exhibit 10.16 to the Companys report on Form 8-K filed
with the Securities and Exchange Commission on May 23, 2008. *10.12
    
    Management Agreement, dated May 21, 2008, between the Company and Winston Hickman is
incorporated herein by reference from Exhibit 10.17 to the Companys report on Form 8-K filed
with the Securities and Exchange Commission on May 23, 2008. *10.13
    
    Escrow Agreement, dated January 6, 2009, by and among Comarco, Inc., Comarco Wireless
Technologies, Inc., Ascom Holding AG, Ascom Inc., and U.S. Bank National Association is
incorporated herein by reference from Exhibit 99.1 to the Companys report on Form 8-K filed
with the Securities and Exchange Commission on January 12, 2009.10.14
    
    Loan and Security Agreement, dated as of February 12, 2009, by and among Comarco, Inc.,
Comarco Wireless Technologies, Inc., and Silicon Valley Bank is incorporated herein by
reference from Exhibit 10.1 to the Companys report on Form 8-K filed with the Securities and
Exchange Commission on February 18, 2009.10.15
    
    Strategic Product Development and Supply Agreement, dated as of March 16, 2009, by and among
Comarco, Inc. and Targus Group International, Inc. is incorporated herein by reference from
Exhibit 10.1 to the Companys report on Form 8-K filed with the Securities and Exchange
Commission on March 20, 2009. **21.1
    
    Subsidiaries of the Company23.1
    
    Consent of Independent Registered Public Accounting Firm  BDO Seidman LLP31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 200299.1
    
    Supplement to Registrants Registration Statements on Form S-8
 
 *
    
    Management contract or executive compensation plan or arrangement.**
    
    Confidential Treatment has been requested with respect to certain provisions of this
agreement.
Omitted portions have been filed separately with the SEC. 58