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, 2000 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.)

                 2 Cromwell
             Irvine, California                          92618
   (Address of principal executive office)             (Zip Code)

                                 (949) 599-7400
                 (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 March 31, 2000 - 4,373,712
                                     shares.
                                              Aggregate market value of
              Class                        shares held by non-affiliates

          Common Stock.................................      $43,331,380

     The total  number of shares  held by  non-affiliates  on March 31, 2000 was
1,269,598.  This number was  multiplied  by $34.13 per share (the  closing  sale
price of the  Common  Stock on March  31,  2000 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, 2000 a definitive Proxy Statement (the "2000 Proxy Statement")  relating
to its 2000 Annual Meeting of Stockholders,  which meeting involves the election
of  directors  and  certain  related  matters.   The  2000  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 2000 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 2000 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 Company's ability to achieve the objectives of its business plans, including
the disposal of its discontinued  businesses;  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 of 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. (formerly known as CoSource Solutions, 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.  In July 1999, the
Company  announced  that it was embarking on a plan to strengthen  the Company's
focus on the wireless  communications  products and services business area. This
plan,  which was  formalized  at the end of the quarter  ended October 31, 1999,
involves  selling the Company's  information  technology  and staffing  services
product lines.  Therefore,  this segment is presented as discontinued operations
and prior  periods have been  restated.  Subsequent to fiscal year end and as of
April 24,  2000,  the  Company  has closed  three out of six  currently  planned
divestiture  transactions.  The aggregate consideration received to date is $3.5
million.  The remaining  transactions  are in varying stages of completion.  The
Company  does not  expect  to  realize  a loss on the  sale of the  discontinued
segment,  however at this time,  management  cannot determine the amount of gain
that may result from the sale. At the conclusion of the divestiture process, the
Company  will  consist  of  the  parent  company,   Comarco  Wireless,  and  its
wholly-owned  subsidiary,  Comarco Wireless  International,  Inc. The Company is
operating  in  one  business  segment,   wireless  communications  products  and
services.


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  Notes  1 and  19 of the  Notes  to
Consolidated  Financial  Statements  and  Item 7,  Management's  Discussion  and
Analysis of Results of Operations and Financial Condition.

o   Continuing Operations

The Company's  continuing  operations consist of one business segment,  wireless
communications  products and services. The Company provides test and measurement
products and services for wireless telephone carriers,  systems for the wireless
transmission  of voice and data, and advanced  technology  products for portable
wireless appliances such as notebook computers, cellular telephones and personal
organizers.  During the past six years,  the  Company,  through its  subsidiary,
Comarco Wireless, has invested more of its corporate resources in expanding this
wireless   communication   business  area.  The  Company  is  accelerating  this
investment  in the  wireless  segment by  divesting  its legacy  business  area,
information technology and staffing services,  and concentrating  exclusively in
the wireless communications business area.

Summarized financial information for the Company's continuing operations for the
years ended January 31, 2000, 1999, and 1998 is as follows:
<TABLE>


                                           Years Ended January 31,
                             -----------------------------------------------------
                                 2000               1999                1998
                             -------------       -------------      --------------
                                            (Dollars in thousands)
<S>                          <C>                <C>               <C>
Revenues.................... $  39,224          $   34,004         $   29,524
Operating income............     5,419               5,956              5,943
Identifiable assets.........    36,787              32,129             31,858
</TABLE>


     o   Wireless Communications Products and Services

         The  Company's  wireless  communications  products  and services are in
         the marketplace  which today involves the convergence of wireless voice
         and  data, broadband  and  the  Internet.  Wireless   telecommunication
         networks use a  variety of radio  frequencies  to  transmit  voice  and
         data.  Wireles  telecommunication   networks  include   two-way   radio
         applications,  such  as  trunking radio;  multiple access  technologies
         such as cellular,  PCS and iDEN  networks; and  messaging applications,
         such as paging services. Although  cellular, PCS and iDEN represent the
         largest segment of the wireless communications industry, other wireless
         technologies  are expected  to grow significantly.  These  technologies
         all  require radio  frequency  engineering  expertise  for  design  and
         optimization.  The  Company's  wireless  communications   products  and
         services  business,  sold  through  its subsidiary,  Comarco  Wireless,
         is presently  comprised  of five product families:  wireless  test  and
         measurement;  benchmarking   and   engineering  information   services;
         wireless revenue assurance  information; wireless vertical applications
         and terminals; and mobile power products.

o        The  wireless  test and  measurement  marketplace  is covered by the LT
         product family used to monitor network performance, the X-series family
         used to solve complex engineering problems, and the BaseLINE(TM) family
         used to collect quality of service information.  These products provide
         a method for monitoring, analyzing, and benchmarking the performance of
         wireless  system  networks.  These products  currently or in the future
         will address all major cellular technologies including CDMA, TDMA, GSM,
         iDEN and data.

o        The  Company  has also  developed  and  deployed a large  scale  mobile
         testing  network and is now  providing  this service  nationally.  This
         testing is aimed at the collection and analysis of information  related
         to the quality of service as experienced by wireless phone users, which
         is critical to wireless service providers,  infrastructure  vendors and
         other wireless industry participants.

o        The wireless revenue  assurance  information  marketplace is covered by
         RAP(TM) Central which automates data collection, analysis, and delivery
         of revenue assurance  information for wireless service providers.  This
         system improves  revenue  capture by assisting  carriers in billing for
         every minute of use.

o        The wireless vertical applications and terminals 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  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 approximate-
         ly 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  Communications,  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 acquired  product lines establishes the Company as a major
         vendor  to  this  niche  of  the  wireless  vertical  applications  and
         terminals products marketplace.

o        The mobile power  products  marketplace  was addressed  during the year
         with the Company's  introduction  of a 35-watt  universal power adapter
         for cellular phones,  laptop computers,  personal  assistants and other
         portable  devices.  Development  continues on a 70-watt universal power
         adapter  which  will  meet  the  power  needs  of the  Pentium  III and
         equivalent chipsets currently available in high-end portable computers.
         The 70-watt unit,  with just a change in the Company's  patented  tips,
         will  be able to  charge  virtually  all  cellular  telephones,  laptop
         computers, personal assistants and other portable devices.

The Company expects a rapid  proliferation of portable and stationary  computing
and  communications  systems  and  appliances  that are  connected  by  wireless
communication networks to the public internet, private intranets,  private local
area  networks,  servers  and other  terminal  devices.  The  Company  currently
provides the  above-stated  products and  services  for these  markets,  and the
Company is developing  strategies and plans to provide  additional  products and
services to end-users and network operators.  Based on its current strategy, the
Company forecasts that a growing percentage of its revenues and profit will come
from services in the future.

Continuing   operations'  Fiscal  Year  2000  revenues  totaled  $39.2  million,
representing an increase of 15% over the prior fiscal year. Operating income for
Fiscal Year 2000  totaled $5.4  million  compared  with $6.0 million a year ago.
Reduced year-to-year operating income was affected by a major product transition
to the new  X-series  wireless  test  and  measurement  platform  and  increased
engineering  expenditures  to build  engineering  and operations  infrastructure
needed to support expected growth in the Company's wireless test and measurement
products and services and next generation ChargeSource(TM) power adapter product
line. The first of the X-series  product family shipped in March 2000 (CDMA) and
will eventually support all multiple access technologies: CDMA, IS-136, GSM, and
iDEN.  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 2000 totaled $3.9 million, down from $5.6
million in the prior  fiscal  year.  International  revenues in Fiscal Year 1998
totaled $8.9 million.  Year-to-year decreased  international revenues are due to
lower activity in Asia due to the general economic conditions and lower activity
in Europe.  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 staffed in
Singapore, England, and Mexico.


PRODUCT DEVELOPMENT

The  Company  continues  its  product   development   program  in  its  wireless
communications  business. The Company's core technologies are currently in three
areas:  wireless  network design  (antenna  systems,  RF  propagation,  coverage
analysis, base station radio, network dynamics, optimization, switch operations,
billing systems);  wireless appliances  interfaces (cellular  telephones,  fixed
cellular terminals, personal digital assistants, laptop computers); and wireless
product design technologies  (digital signal processing,  RF scanning receivers,
CDMA,  IS-136,  GSM,  iDEN,  power  conversion).  Because  a  common  thread  of
technology runs through all of its 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
developing 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 wireless  test and  measurement  and
RAP(TM) Central  products  including  CDMA, GSM, PC 1800/1900,  IS-136 and iDEN;
further  expansion  of the  Company's  LT line  and the  BaseLINE(TM)  range  of
products which  represent  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  second-generation  power
adapter  for  laptop  computers,  cellular  telephones  and other  mobile  power
products.  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 sales of the first
version of this product in late Fiscal Year 1999,  with a more powerful  70-watt
version currently under development.  Potential customers are replacement market
buyers and original equipment  manufacturers.  The Company's initial product was
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.  The  Company  recently  received  preliminary  approval  of the power
adapter  from  UL  and is  proceeding  aggressively  toward  a  70-watt  product
introduction  within a few months.  Introduction of this next generation product
expands the available market coverage to include  essentially all IBM,  Toshiba,
Compaq,  Dell, Apple and other popular portable computers as well as all leading
cell phones, Palm and handheld computers, and portable printers. There can be no
assurance that the higher power adapter 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  2000  and  Fiscal  Year  1999,   the  Company's   wireless
communications business capitalized  approximately $3.6 million and $2.9 million
of  software  product  development  costs,  respectively,   in  accordance  with
Statement of Financial  Accounting Standards ("SFAS") No. 86, Accounting for the
Costs of Computer  Software to be Sold,  Leased, or Otherwise  Marketed.  Of the
amounts capitalized, $1.9 million, $1.9 million, and $1.4 million, respectively,
were  amortized in Fiscal Years 2000,  1999 and 1998  against  product  sales in
accordance with SFAS 86.

In addition,  during Fiscal Years 2000,  1999,  and 1998,  Comarco  Wireless had
expenditures of $0.6 million, $0.8 million and $1.2 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 and 2000
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.

Although  the  Company  performs  extensive  testing  of its  software  prior to
releasing its products, such products may contain undetected errors or bugs when
first released.  These may not be discovered  until the product has been used by
customers in different  application  environments.  Failure to discover  product
deficiencies  or  bugs  could  delay  product   introductions,   require  design
modifications to previously  shipped products,  and negatively impact shipments,
any of  which  could  result  in a  material  adverse  effect  on the  Company's
business.


BACKLOG

The Company's orders for wireless  communications  products and services totaled
$43.3 million for Fiscal Year 2000,  compared with $33.5 million for Fiscal Year
1999.   Unfilled  orders  at  Comarco  Wireless  as  of  January  31,  2000  are
approximately  $21.2 million,  compared to $17.2 million as of January 31, 1999.
The current year balance includes $2.8 million of product and service orders for
the wireless test and measurement,  revenue  assurance  information,  and mobile
power product lines, and $2.8 million of deferred revenue for basic and extended
warranty  commitments.  Since the rollout of the  Company's  large-scale  mobile
testing  network,  two national  wireless  providers  have  contracted  with the
Company  for  quality  of  service  information  services.  The  Company  is  in
discussions with several  additional  potential  customers and expects continued
growth for its wireless test and measurement services.  Management believes that
substantially  all of the products and services backlog amount (of $5.6 million)
will  result in  revenue  during  Fiscal  Year  2001.  In  general,  most of the
Company's product orders are filled within months from receipt of the order. The
remaining  unfilled orders of $15.6 million are related to the wireless vertical
applications  and terminals  product line. This backlog balance consists of $0.9
million  of new  product  orders  and $14.7  million  of  long-term  maintenance
agreements.  The Company is well into the process of negotiating  new multi-year
agreements for the maintenance  and operation of the California  installed base.
The first two contracts,  worth  approximately $11 million,  were negotiated and
are part of the year-end  backlog in Fiscal Year 2000.  Additionally,  since the
end of Fiscal  Year 2000,  the Company  has signed an upgrade  contract  and new
maintenance  and  operation  agreements  with  Orange  County,  California  that
together are valued at  approximately  $2.9 million.  In this wireless  vertical
applications and terminals area, the Company also continues to invest heavily in
a number of large opportunities such as the Pennsylvania Turnpike Authority, and
the states of Texas, Louisiana, Florida, Georgia, Nevada, Utah and Colorado.

Two customers  each  accounted  for 12% of total  revenues,  and one  additional
customer  accounted  for 10% of  revenues  in  Fiscal  Year  2000.  Two of these
customers'  revenues  were  higher in Fiscal  Year  2000 due to  one-time  major
upgrade contracts for the Los Angeles County and the San Francisco Bay areas. No
one  customer  accounted  for more than 10% of revenues in Fiscal Years 1999 and
1998.


SEASONALITY/FLUCTUATION IN QUARTERLY RESULTS

Comarco  Wireless  has  experienced,  in each of the past six 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 its
fiscal year,  although  this trend has been  declining  over the same six 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.   Historically,   the  Company  has  often  recognized  a
substantial  portion of its  revenues  in the last  month of any given  quarter.
Because the Company's operating expenses are based on anticipated revenue levels
and because a high percentage of the Company's  expenses are relatively fixed, a
small  variation  in the  timing of the  recognition  of  revenues  could  cause
significant variations in operating results from quarter to quarter.  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
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 target marketplace for ChargeSource(TM), its patented universal AC
power   adapter  and   recharger,   includes:   direct  to  original   equipment
manufacturers;  distribution to retail and corporate customers;  and E-commerce,
direct to customers.  Distribution to retail and corporate  customers is handled
through an  agreement  with  Targus  International  using  traditional  purchase
orders.  To reach the business  traveler,  the Company  recently  began a direct
marketing campaign through its website, ChargeSource.com, and print ads.

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  has  received  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  removes a  potential  barrier to 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.   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, 2000, Comarco Wireless employed approximately 190 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.

The Company's  success depends to a significant  extent upon the contribution of
its  executive  officers and other key  employees.  No executive  officer or key
employees have employment agreements.  Recognizing this reality, the Company has
instituted a non-qualified stock option plan for key Comarco Wireless employees,
whereby they will directly  participate in the success of Comarco  Wireless (see
Note 13 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 niches of the wireless communications  marketplace:
wireless test and measurement products and services;  wireless revenue assurance
information products and services; wireless vertical applications and terminals;
and mobile  power  products.  The  business is  competitive  and there are other
companies, many of which are larger and have greater financial resources,  which
provide  or  could  provide  the same  type of  products.  Competitors  include:
wireless test and measurement  products and services  (Ericsson,  Allen Telecom,
Ascom, Agilent, Tektronix, LCC International,  WFI, Decide.Com, Metapath Systems
International);  wireless revenue assurance  information  products and services,
(Metapath  Systems  International,  PWC,  Andersen  Consulting,  TTC);  wireless
vertical applications and terminals,  (Alcatel,  Siemens,  Telefonica de Espana,
Gaitronics);  and mobile  power  products  (Motorola,  Ericsson,  Nokia,  Aztec,
Delta). 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  domestic  and  international  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.  While the Company  believes that the  price/performance
characteristics  of its products and services are competitive,  reduction in the
price of the Company's products or services without  corresponding  decreases in
manufacturing  costs and  operating  costs  would  negatively  affect  operating
margins,  which could in turn have a material  adverse  effect on the  Company's
business.  The Company also derives a  significant  portion of its revenues from
sales of product upgrades to its installed base.  Increased  competition for the
Company's  products  that results in lower  product  sales could also  adversely
impact the Company's  upgrade  sales.  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.


STOCK MARKET FLUCTUATION

In recent  years,  the stock  market in general  and the  market for  technology
stocks in particular,  including the Company's  common stock,  have  experienced
extreme price  fluctuations.  The market price of the Company's common stock may
be significantly affected by various factors such as quarterly variations in the
Company's operating results,  changes in revenue growth rates for the Company as
a whole or for  specific  geographic  areas or  products,  changes  in  earnings
estimates,  the announcements of new products,  product enhancements or services
by  the  Company  or  its  competitors,  speculation  in the  press  or  analyst
community,  and  general  market  conditions  or market  conditions  specific to
particular  industries.  There can be no assurance  that the market price of the
Company's  common  stock will not  experience  significant  fluctuations  in the
future.


o   Discontinued Operations

In  July  1999,  the  Company  announced  that  it was  embarking  on a plan  to
strengthen  the  Company's  focus on the  wireless  communications  products and
services  business  segment.  This plan,  which was formalized at the end of the
quarter  ended  October 31, 1999,  involves  selling the  Company's  information
technology  and staffing  services  product  lines.  Therefore,  this segment is
reflected as discontinued operations and prior periods have been restated. 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

As of April 24, 2000, the Company has closed three out of six currently  planned
divestiture  transactions.  The aggregate consideration received to date is $3.5
million.  The remaining  transactions  are in varying stages of completion.  The
Company  does not  expect  to  realize  a loss on the  sale of the  discontinued
segment,  however at this time,  management  cannot determine the amount of gain
that may result from the sale.

During Fiscal Year 2000,  discontinued  operations'  revenues were $51.7 million
with a net  after  tax loss of  $433,000.  The net  after tax loss is due to the
recording of a final  pre-tax  $1.3  million  loss to terminate  two fixed price
contracts with a single government agency and an additional pre-tax loss of $1.4
million  related to a change in  management's  estimate to complete a multi-year
fixed price contract after completion of protracted  negotiations  with the U.S.
Air Force over the Company's request for equitable  adjustment.  The negotiation
resulted  in  additional  funding  of  $5.1  million  and  a  30-month  contract
extension. This modified contract now ends in March 2002.


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
          information 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 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;  Tacoma Narrows
Airport,  Tacoma,   Washington;   and  Altoona-Blair  County  Airport,  Altoona,
Pennsylvania.


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.
The Company  also has an office in Corona,  California.  This  business has been
sold subsequent to the year ended January 31, 2000.


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.  This business has been sold subsequent to the year ended January 31,
2000.


BACKLOG

The Company's backlog from information  technology and staffing services revenue
believed  to be firm as of January  31,  2000 was $31  million,  compared to $47
million as of January 31,  1999.  The source of backlog is  primarily  contracts
with the U.S. and local governments. Government contracts normally have 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  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 83% of the firm backlog will be realized in Fiscal
Year 2001.


GOVERNMENT CONTRACTS

A  significant  portion of the Company's  total  revenues  from  continuing  and
discontinued  operations  (approximately  37% in Fiscal Year 2000, 34% in Fiscal
Year 1999,  and 32% in Fiscal Year 1998) was  derived  from  contracts  with the
United States  Government,  principally  agencies of the  Department of Defense.
Significant  portions of the  Company's  Fiscal Year 2000  revenues were derived
from contracts with the U.S. military services:  Department of Defense, 8%; U.S.
Army, 9%; U.S. Navy, 15%; and U.S. Air Force,  5%. 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.  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 revenues
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, 2000, the Company employed approximately 740 full-time employees,
of which 550 were  part of the  information  technology  and  staffing  services
business  area.  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,  2000,   aggregating
approximately  140,000 square feet,  are located in the cities of Irvine,  Santa
Ana,  Camarillo,  Victorville,  Corona 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 2006. The facilities in Irvine,  California;  London,  England;  and
Singapore relate to the continuing operations of the Company. 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 2000 was approximately  $1.5 million.  The aggregate annual property
rent in the year ending  January 31, 2001 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 21
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>
     2000
        First Quarter..........................   $ 24.75        $ 20.00
        Second Quarter.........................     23.25          19.00
        Third Quarter..........................     20.50          18.13
        Fourth Quarter.........................     26.38          17.00
     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
</TABLE>

The Company had approximately 490 shareholders of record on March 31, 2000.

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,
                                              ------------------------------------------------------------------------------
                                                  2000            1999            1998           1997              1996
                                              --------------  -------------   -------------   ------------    --------------
<S>                                           <C>             <C>            <C>              <C>             <C>
Revenues:

   Product sales..........................    $     33,499    $     28,849    $      25,586   $   18,433      $      14,352
   Services...............................           5,725           5,155            3,938        1,086                 --
                                              ------------    ------------    -------------   ----------      -------------
                                                    39,224          34,004           29,524       19,519             14,352
                                              ------------    ------------    -------------   ----------      --------------
Cost of sales:

   Product sales..........................          16,983          11,569            8,704        5,877              5,679
   Services...............................           3,811           3,473            2,751          748                 --
                                              ------------    ------------    -------------   ----------      -------------
                                                    20,794          15,042           11,455        6,625              5,679
                                              ------------    ------------    -------------   ----------      -------------

Gross profit..............................          18,430          18,962           18,069       12,894              8,673


Selling, general and administrative costs.           9,203           9,526            8,534        6,076              4,075
Engineering and support costs...............         3,808           3,480            3,592        2,536              2,037
                                              ------------    -------------   -------------   ----------      -------------

Operating income............................         5,419           5,956            5,943        4,282              2,561

Interest income, net......................             274             298              404          559                497

Minority interest in earnings.............             (46)             --               --           --                 --
                                              -------------   -------------   -------------   ----------      -------------

Income before income taxes ...............           5,647           6,254            6,347        4,841              3,058

Income tax expense .......................           2,061           2,283            2,317        1,622              1,046
                                              ------------    -------------   -------------   ----------      -------------

Net income from continuing operations.....           3,586           3,971            4,030        3,219              2,012

Net income (loss) from discontinued
      operations..........................            (433)          1,712              845        1,446              1,873
                                              -------------   -------------   -------------   ----------      -------------
Net income ...............................    $      3,153    $      5,683    $       4,875   $    4,665      $       3,885
                                              =============   =============   =============   ==========      =============
Earnings per share -
     continuing operations:
         Basic............................    $        .82    $        .86    $         .85   $      .68      $         .44
                                              =============   =============   =============   ==========      =============
         Diluted..........................    $        .74    $        .77    $         .72   $      .58      $         .38
                                              =============   =============   =============   ==========      =============
Earnings (loss) per share -

     discontinued operations:
         Basic............................    $       (.10)   $       .37     $         .18   $      .30      $         .40
                                              =============   =============   =============   ==========      =============
         Diluted..........................    $       (.10)   $       .36     $         .17   $      .28      $         .37
                                              =============   =============   =============   ==========      =============
Earnings per share:

         Basic...........................     $        .72    $      1.23     $        1.03   $      .98      $         .84
                                              ============    =============   =============   ==========      =============
         Diluted..........................    $        .64    $      1.13     $         .89   $      .86      $         .75
                                              ============    =============   =============   ==========      =============

Dividends declared per share..............           None            None             None          None              None

</TABLE>

                             SELECTED FINANCIAL DATA
                                 (In thousands)
<TABLE>

                                                                            January 31,
                                              ------------------------------------------------------------------------
                                                  2000           1999           1998          1997           1996
                                              --------------  ------------  -------------  ------------  -------------
<S>                                           <C>             <C>           <C>            <C>           <C>
Working capital ..........................    $    23,457     $    24,833   $    23,763    $    22,565   $    16,049
Total assets..............................         46,148          43,001        40,494         36,754        29,989
Borrowings under bank line of credit......             --              --            --             --            --
Long-term debt, including current
 maturities...............................             --              --            --             --            --
Stockholders' equity .....................         31,754          31,202        30,470         26,977        21,738
</TABLE>

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

Results of Continuing Operations

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

<TABLE>
                                                                 Years Ended January 31,
                                     ----------------------------------------------------------------
                                           2000                   1999                    1998
                                     ---------------       -----------------       -----------------
                                                         (Dollars in thousands)

    <S>                              <C>                    <C>                      <C>
    Revenues...................      $        39,224        $        34,004          $        29,524

    Cost of sales..............               20,794                 15,042                   11,455
                                     ---------------        ---------------          ---------------

    Gross   profit.............               18,430                18,962                    18,069

    Percentage ................                  47%                    56%                      61%

    Indirect costs* ...........               13,011                 13,006                   12,126
                                      --------------        ---------------          ---------------

    Operating income...........       $        5,419        $         5,956          $         5,943
                                      ==============         ==============           ==============

    Net  income from continuing
      operations...............       $        3,586        $         3,971          $         4,030
                                      ==============        ===============          ===============
</TABLE>

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

<PAGE>

Percentage of Revenues
<TABLE>

                                                 Years Ended January 31,
                                   -----------------------------------------------------
                                       2000                1999               1998
                                   -------------       -------------      --------------
<S>                                   <C>                 <C>                <C>
Revenues.........................     100.0%              100.0%             100.0%
Operating income.................      13.8                17.5               20.1
Interest expense.................        --                  --                 --
Interest income..................        .7                  .9                1.4
Income tax expense...............       5.3                 6.7                7.8
Net income.......................       8.0                16.7               16.5

</TABLE>

Percentage Increase (Decrease)
<TABLE>

                                            Years Ended January 31,
                                      -------------------------------------
                                        2000-1999             1999-1998
                                      ---------------       ---------------
<S>                                       <C>                   <C>
Revenues...........................        15.4%                 15.2%
Operating income...................        (9.0)                   .2
Interest expense...................          --                    --
Interest income....................        (8.1)                (26.2)
Income tax expense.................        (9.7)                 (1.5)
Net income.........................       (44.5)                 16.6

</TABLE>

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 Company's ability to achieve the objectives of its business plans, including
the disposal of its discontinued  businesses;  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.

In  July  1999,  the  Company  announced  that  it was  embarking  on a plan  to
strengthen  the  Company's  focus on the  wireless  communications  products and
services  business  area.  This  plan,  which was  formalized  at the end of the
quarter  ended  October 31, 1999,  involves  selling the  Company's  information
technology  and staffing  services  product  lines.  Therefore,  this segment is
presented as discontinued operations and prior periods have been restated. As of
April 24,  2000,  the  Company  has closed  three out of six  currently  planned
divestiture  transactions.  The aggregate consideration received to date is $3.5
million.  The remaining  transactions  are in varying stages of completion.  The
Company  does not  expect  to  realize  a loss on the  sale of the  discontinued
segment,  however at this time,  management  cannot determine the amount of gain
that may result from the sale. At the conclusion of the divestiture process, the
Company  will  consist  of  the  parent  company,   Comarco  Wireless,  and  its
wholly-owned  subsidiary,  Comarco Wireless  International,  Inc. The Company is
operating in one business segment, wireless communication products and services.


Results of Continuing Operations

Fiscal Year Ended January 31, 2000 Compared to Fiscal Year Ended
January 31, 1999

Fiscal Year 2000 revenues from continuing  operations totaled $39.2 million,  up
15% from the prior year. Increased  year-to-year revenue is primarily due to the
Company's   completion  of  a  number  of  wireless  terminals  callbox  upgrade
contracts,  shipments of the Company's first generation  universal power adapter
and  recharger,   the  initial  rollout  of  the  Company's  wireless  test  and
measurement  mobile  testing  services  during the fourth quarter of Fiscal Year
2000,  along  with a  reduction  in the sale of  wireless  test and  measurement
products  to major  cellular  carriers,  chiefly  in the  fourth  quarter.  This
reduction in the sales of wireless  test and  measurement  products was due to a
major product transition to the new X-series test and measurement platform.  The
first of the X-series  family was released in March 2000. The X-50 platform will
support all multiple  access  technologies:  CDMA,  IS-136,  GSM, and iDEN.  The
Company expects the level of sales activity for its wireless terminals callboxes
will return to historical  levels in Fiscal Year 2001,  while services  revenues
will  increase  significantly  with the full  rollout of its  wireless  test and
measurement mobile testing services.

The Company expects a rapid  proliferation of portable and stationary  computing
and  communication  systems  and  appliances  that  are  connected  by  wireless
communication networks to the public internet,  private intranet,  private local
area  networks,  servers,  and other  terminal  devices.  The  Company  provides
products  and  services  for  these  markets  and  with  its  core  technologies
consisting  of  wireless  network  design,  wireless  appliance  interfaces  and
wireless design technologies,  plans to provide additional products and services
to end-users and network operators.  Based on this current strategy, the Company
forecasts  that a growing  percentage  of its revenues and profit will come from
services in the future.

Gross profit from  continuing  operations  decreased to $18.4  million in Fiscal
Year 2000 compared with $19.0 million in the prior year. Gross profit percentage
of revenue was 47% in Fiscal Year 2000 compared with 56% in the prior year.  The
decreased gross profit dollars and percentage  between years is due to the lower
margins  the  Company  realized on its  increased  sales of  wireless  terminals
callboxes for the upgrade  contracts for Los Angeles  County,  the San Francisco
Bay and the  Sacramento  areas  of  California;  sales of its  first  generation
universal  power adapters and  rechargers;  and lower sales of its higher margin
wireless test and measurement products.

Indirect  costs were $13.0 million in Fiscal Years 2000 and 1999.  During Fiscal
Year  2000,  the  Company  increased   sustaining   engineering,   research  and
development and support  expenditures by $0.3 million to $3.8 million to support
expected growth in its wireless test and measurement products and services along
with the product development of the second generation of the wireless accessory,
a portable power adapter and recharger,  ChargeSource(TM).  The Company  expects
this trend to  continue  as the Company  executes  its  current  plan to develop
additional  products  and  services  for the  marketplace  which  is  converging
wireless  voice and data,  broadband and the  internet.  Selling and general and
administrative  costs declined $0.3 million to $9.2 million,  primarily due to a
reduction  in  international  selling  expenses  in  response to softness in the
international marketplace due to the well publicized effects of the economic and
currency problems experienced by a number of international markets over the past
eighteen   months.   The  Company  expects   revenues  and   contribution   from
international markets to gradually increase.

Operating income from continuing operations decreased to $5.4 million, from $6.0
million in the prior year.  Operating income as a percentage of revenues was 14%
for Fiscal  Year 2000,  compared to 18% for the  comparable  prior  period.  The
year-to-year  decrease in operating income  percentage is primarily due to lower
gross profit contribution from the increased sales of wireless terminals callbox
and wireless  accessory  universal  power adapter  product  lines,  as discussed
above.

The  Company is  continuing  its  software  product  development  program in its
continuing operation'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,  the
Company's wireless  communications  products business  capitalized and amortized
$3.6  million and $1.9  million,  respectively,  during  Fiscal  Year 2000.  The
Company's wireless  communications  products business  capitalized and amortized
$2.9 million and $1.9 million,  respectively, in Fiscal Year 1999. These amounts
are in addition to the engineering, research and development and support expense
discussed above.

The Company's orders for wireless  communications  products and services totaled
$43.3 million for Fiscal Year 2000,  compared with $33.5 million for Fiscal Year
1999.   Unfilled  orders  at  Comarco  Wireless  as  of  January  31,  2000  are
approximately  $21.2 million,  compared to $17.2 million as of January 31, 1999.
The current year balance includes $2.8 million of product and service orders for
the wireless test and measurement,  revenue  assurance  information,  and mobile
power product lines, and $2.8 million of deferred revenue for basic and extended
warranty  commitments.  Since the rollout of the  Company's  large-scale  mobile
testing  network,  two national  wireless  providers  have  contracted  with the
Company  for  quality  of  service  information  services.  The  Company  is  in
discussions with several  additional  potential  customers and expects continued
growth for its wireless test and measurement services.  Management believes that
substantially  all of the products and services backlog amount (of $5.6 million)
will  result in  revenue  during  Fiscal  Year  2001.  In  general,  most of the
Company's product orders are filled within months from receipt of the order. The
remaining  unfilled orders of $15.6 million are related to the wireless vertical
applications  and terminals  product line. This backlog balance consists of $0.9
million  of new  product  orders  and $14.7  million  of  long-term  maintenance
agreements.  The Company is well into the process of negotiating  new multi-year
agreements for the maintenance  and operation of the California  installed base.
The first two contracts,  worth  approximately $11 million,  were negotiated and
are part of the year-end  backlog in Fiscal Year 2000.  Additionally,  since the
end of Fiscal  Year 2000,  the Company  has signed an upgrade  contract  and new
maintenance  and  operation  agreements  with  Orange  County,  California  that
together are valued at  approximately  $2.9 million.  In this wireless  vertical
applications  and terminals  area, the Company  continues to invest heavily in a
number of large opportunities such as the Pennsylvania  Turnpike Authority,  and
the states of Texas, Louisiana, Florida, Georgia, Nevada, Utah and Colorado.

Comarco  Wireless  has  experienced,  in each of the past six 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 six 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.   Historically,   the  Company  has  often  recognized  a
substantial  portion of its  revenues  in the last  month of any given  quarter.
Because the Company's operating expenses are based on anticipated revenue levels
and because a high percentage of the Company's  expenses are relatively fixed, a
small  variation  in the  timing of the  recognition  of  revenues  could  cause
significant variations in operating results from quarter to quarter.  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.

Net interest income  (interest  income,  less interest  expense) for Fiscal Year
2000  totaled  $274,000  compared to $298,000  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 continuing operations' effective tax rate is 36.5% for Fiscal Year
2000, which is level with the 36.5% for the previous fiscal year.

The overall decrease in continuing operations' net income from the prior year is
primarily due to lower gross profit contribution dollars as noted above.


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


Continuing  operations'  revenues increased 15% to $34.0 million for Fiscal Year
1999 from $29.5 million for the comparable period of the prior fiscal year. This
increase  is  due  to  increased  sales  of  the  Company's  wireless  test  and
measurement,  wireless revenue  assurance  information,  and wireless  terminals
callbox   systems   and  the   initial   introduction   and  market   trials  of
ChargeSource(TM), a wireless accessory 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 wireless terminals callbox systems also had
significant  growth in Fiscal Year 1999. Late in the year, the Company commenced
market  trials  of its  universal  power  adapter,  ChargeSource(TM),  which  is
designed to charge all portable  electronic  devices commonly used by a business
traveler.

Gross profit  percentage  of continuing  operations'  revenues was 56% in Fiscal
Year 1999 compared with 61% in the prior fiscal year. The decreased gross margin
percentage is due to greater sales of the Company's  wireless  terminals callbox
systems and market trial sales of the wireless accessory universal power adapter
product,  which have lower gross margins than the wireless test and  measurement
and revenue assurance information product families.

Indirect costs  increased  $0.9 million or 7% year to year.  Selling and general
and  administrative  expenses  totaled $9.5 million in Fiscal Year 1999,  up 12%
from the  comparable  period last year.  Research  and  development  expense and
sustaining  engineering and product support expenses totaled $3.5 million during
Fiscal Year 1999 compared with $3.6 million in the prior fiscal year.

Operating income for continuing operations was $6.0 million for Fiscal Year 1999
compared  with $5.9  million in the prior  fiscal  year.  Operating  income as a
percentage  of revenues  was 18% for Fiscal  Year 1999,  compared to 20% for the
comparable  prior  period.   The  year-to-year   decrease  in  operating  income
percentage  is  primarily  due to  lower  gross  profit  contribution  from  the
increased sales of wireless terminals callbox and wireless  accessory  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.

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.


Results of Discontinued Operations

In  July  1999,  the  Company  announced  that  it was  embarking  on a plan  to
strengthen  the  Company's  focus on the  wireless  communications  products and
services  business  area.  This  plan,  which was  formalized  at the end of the
quarter  ended  October 31, 1999,  involves  selling the  Company's  information
technology  and staffing  services  product  lines.  Therefore,  this segment is
presented as  discontinued  operations  and prior  periods  have been  restated.
Subsequent  to fiscal year end and as of April 24, 2000,  the Company has closed
three out of six  currently  planned  divestiture  transactions.  The  aggregate
consideration  received to date is $3.5 million. The remaining  transactions are
in varying stages of  completion.  The Company does not expect to realize a loss
on the sale of the discontinued segment, however at this time, management cannot
determine the amount of gain that may result from the sale.

Revenues provided by the discontinued operations totaled $51.7 million in Fiscal
Year 2000 compared to $58.0 million in Fiscal Year 1999. The decreased  revenues
are  due to the  completion  of the  Company's  contract  at  Reagan  Washington
National  Airport  which  ended  on  September  30,  1998,  a 10%  reduction  in
commercial staffing services revenue,  partially offset by increased information
technology  staffing services revenues.  Sales to the U.S. Government as well as
to government  prime  contractors  were 37% of the Company's total revenues from
continuing  and  discontinued  operations  for the fiscal year ended January 31,
2000.  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.  The operating  loss  (revenues  less direct costs,  indirect
costs, and depreciation and amortization)  for discontinued  operations was $0.6
million in Fiscal Year 2000  compared with  operating  income of $2.4 million in
the prior fiscal year.  The current  operating loss is due to the recording of a
final  pre-tax $1.3 million loss to terminate two fixed price  contracts  with a
single government agency and an additional  pre-tax loss of $1.4 million related
to the change in  management's  estimate  to complete a  multi-year  fixed price
contract  after  completion of protracted  negotiations  with the U.S. Air Force
over the Company's request for equitable adjustment. The negotiation resulted in
additional  funding of $5.1  million  and a  30-month  contract  extension.  The
modified contract now ends in March 2002. The $1.4 million provision is based on
the Company's assumptions and future performance expectations over the remaining
26-month contract  performance period of the contract as of January 31, 2000. If
the Company's  assumptions or performance do not meet  expectations,  additional
loss  provisions  would be required.  Discontinued  net loss was $0.4 million in
Fiscal Year 2000 compared with net income of $1.7 million a year ago.

Revenues  provided by  discontinued  operations  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
year ended January 31, 1999. 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 revenues from
continuing  and  discontinued  operations  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.

In Fiscal Year 1998, the Company  recorded a $710,000  charge against  operating
income 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  restated
discontinued operations results.

Operating income  (revenues less direct costs,  indirect costs, and depreciation
and amortization)  for the discontinued  segment was $2.4 million in Fiscal Year
1999 compared to $1.2 million in Fiscal Year 1998 (after giving effect to a $0.7
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).  Net income from discontinued
operations  was $1.7 million in Fiscal Year 1999 compared to $0.8 million a year
earlier.


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
Company  expects to renew the loan agreement under similar terms and conditions.
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 $3.9 million (excludes  investments in the
Company's  deferred  compensation plan for executives) during the fourth quarter
of Fiscal Year 2000.  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.  In July 1999, the Company announced
that it was  embarking  on a plan  to  strengthen  the  Company's  focus  on the
wireless  communications  products and services  business area. This plan, which
was  formalized  at the end of the  quarter  ended  October 31,  1999,  involves
selling the  Company's  information  technology  and staffing  services  product
lines.  Therefore,  this segment is presented as discontinued operations and the
consolidated  balance  sheet  reflects  net  assets  available  for sale of $9.4
million as of January 31,  2000.  Subsequent  to fiscal year end and as of April
24,  2000,  the  Company  has  closed  three  out  of  six  planned  divestiture
transactions.  The aggregate consideration received to date is $3.5 million. The
remaining transactions are in varying stages of completion.


During  Fiscal  Year  2000,  the  Company's  average  days'  sales  in  accounts
receivable for continuing  operations  have been reduced from 93 days at the end
of Fiscal Year 1999 to 58 days as of January 31, 2000.  The  reduction is due to
improved cash collection procedures and lower international sales activity whose
receivables on average, take longer to collect.

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

                                        January 31,              January 31,
                                     -------------------------------------------
                                           2000                     1999
                                     -------------------------------------------
    <S>                               <C>                     <C>
    Current                                     2.99                     3.52
      ratio.........................
    Working                           $   23,457,000          $    24,833,000
      capital.....................
    Book value per                    $         7.32          $          7.00
      share.............
</TABLE>

The Company  continued  to  demonstrate  solid  financial  strength in the above
financial factors during Fiscal Year 2000.

During Fiscal Year 2000,  the Company  generated $9.2 million of cash flows from
continuing operations' operating activities, up sharply from $6.0 million in the
prior fiscal year.  The increase is due to 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,
2000 for Comarco  Wireless.  The Company has  developed  and intends to continue
developing 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 $3.6 million and $1.9 million, respectively, in Fiscal Year 2000.

The Company's Board of Directors has authorized a stock  re-purchase  program of
up to 2,000,000 shares. As of January 31, 2000, the Company has re-purchased and
retired approximately  1,456,000 shares of which 245,900 shares in the amount of
$4.8 million were  re-purchased  during Fiscal Year 2000. The average price paid
per share re-purchased under the program was $11.06.

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 21 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 2001.


New Accounting Pronouncements

In June 1998,  the Financial  Accounting  Standards  Boards issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is effective
for fiscal  years  beginning  after June 15,  2000.  This  standard  establishes
accounting and reporting  standards for derivative  instruments  and for hedging
activities  and requires  that an entity  recognize  all  derivatives  as either
assets or liabilities  in the statement of financial  position and measure those
instruments  at fair value.  The Company  does not believe  that the adoption of
this new  standard  will have a material  impact on its  financial  position  or
results of operations.


Year 2000 Issue

The Year 2000 Issue  results from a  programming  convention  in which  computer
programs  use two digits  rather  than four to define the  applicable  year (the
"Year 2000  Issue").  Software,  hardware or firmware may recognize a date using
"00" as the year 1900,  rather than the year 2000. Such an inability of computer
programs  to  recognize  a year that  begins  with "00"  could  result in system
failures,  miscalculations or errors causing  disruptions of operations or other
business  problems,  including,  among others, a temporary  inability to process
transactions, send invoices or engage in similar normal business activities.

The Company  undertook a program to address the Year 2000 Issue with  respect to
the following:  (i) the Company's information  technology and operating systems;
(ii) the Company's non-information technology systems (such as buildings, plant,
equipment   and  other   infrastructure   systems  that  may  contain   embedded
microcontroller  technology);  (iii)  certain  systems  of the  Company's  major
vendors and material service providers  (insofar as they relate to the Company's
business activities with such parties);  and (iv) the Company's material clients
(insofar  as the Year 2000  Issue  relates to the  Company's  ability to provide
services to such clients).

No public infrastructure problems or any other significant problems with respect
to any of the areas listed in the previous  paragraph  were  encountered  during
rollover to the year 2000. After system verification and testing,  the Company's
systems are  operating  normally.  The  Company is not aware of any  significant
issues related to the Year 2000 Issue.

The Company  continues to monitor the status of its  operations,  major vendors,
material  service  providers and material  clients to ensure that no significant
business interruptions occur.

Costs  incurred  to  achieve  year 2000  readiness  were  charged  to expense as
incurred.  Such costs  included both internal  resources  dedicated to achieving
year 2000 compliance,  as well as the costs of independent  consultants retained
to  assess  the  Company's  year  2000  initiatives.  Substantially  all  of the
Company's year 2000 costs were incurred prior to January 31, 2000. The year 2000
costs incurred were not material to the consolidated financial statements.


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, 2000,  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 in the year ended January 31, 2000 was limited
to a minor amount of available-for-sale investments; these investments were sold
during the year ended January 31, 2000,  and  therefore,  the interest rate risk
was eliminated.

<PAGE>


Item 8.  Financial Statements and Supplementary Data


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                          Page
                                                                          ----
Independent Auditors' Report.............................................. 25
Financial Statements:
     Consolidated Balance Sheets, January 31, 2000 and 1999............... 26
     Consolidated Statements of Income, Years Ended
     January 31, 2000, 1999, and 1998..................................... 27
     Consolidated Statements of Cash Flows, Years Ended
     January 31, 2000, 1999, and 1998..................................... 28
     Consolidated Statements of Comprehensive Income, Years Ended
     January 31, 2000, 1999, and 1998..................................... 29
     Notes to Consolidated Financial Statements,
     January 31, 2000, 1999, and 1998..................................... 30
Financial Statement Schedule - II Reserves, Years Ended
January 31, 2000, 1999, and 1998.......................................... 54

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, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  January 31,  2000,  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 20, 2000



<PAGE>


                         COMARCO, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)

                                     ASSETS
<TABLE>

                                                                        January 31,
                                                              -------------------------------
                                                                  2000               1999
                                                              --------------      -----------
<S>                                                           <C>                <C>
Current assets:
   Cash and cash equivalents..............................    $      5,064       $      3,220
   Short-term investments.................................           3,721              2,775
   Accounts receivable, net...............................           6,695             11,231
   Inventory..............................................           4,852              4,157
   Deferred tax asset.....................................           2,908              2,112
   Net assets available for sale..........................           9,361             10,872
   Other current assets...................................           2,651                337
                                                              ------------       ------------

     Total current assets.................................          35,252             34,704

Long-term investments ....................................              --                526
Property and equipment, net...............................           2,763              1,948
Software development costs, net...........................           5,839              4,185
Intangible assets, net....................................           2,222              1,545
Other assets..............................................              72                 93
                                                              ------------       ------------
                                                              $     46,148       $     43,001
                                                              ============       ============
</TABLE>
                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S>                                                           <C>                <C>
Current liabilities:
   Accounts payable.......................................    $        666       $        499
   Deferred revenue.......................................           3,077              2,902
   Accrued liabilities....................................           8,052              6,470
                                                              ------------       ------------

     Total current liabilities............................          11,795              9,871
Deferred income taxes.....................................           2,599              1,928

Stockholders' equity:
   Common stock, $.10 par value, 33,750,000 shares
   authorized; shares outstanding of 4,340,362 in 2000 and
   4,456,460 in 1999......................................             434                446
   Paid-in capital........................................           4,692              2,795
   Accumulated other comprehensive income:
     Unrealized investment gains..........................               3                 16
   Retained earnings......................................          26,625             27,945
                                                              ------------        -----------

     Total stockholders' equity...........................          31,754             31,202

Commitments and contingencies (Notes  15 and 21)
                                                              ------------        -----------
                                                              $     46,148        $    43,001
                                                              ============        ===========
</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,
                                                        -----------------------------------------------------
                                                            2000                1999               1998
                                                        -------------       -------------      --------------
<S>                                                     <C>                 <C>                <C>
Revenues:
   Product sales....................................    $    33,499         $    28,849        $    25,586
   Services.........................................          5,725               5,155              3,938
                                                        -----------         -----------        -----------
                                                             39,224              34,004             29,524
                                                        -----------         -----------        -----------
Cost of sales:
   Product sales....................................         16,983              11,569              8,704
   Services.........................................          3,811               3,473              2,751
                                                        -----------         -----------        -----------
                                                             20,794              15,042             11,455
                                                        -----------         -----------        -----------

Gross profit........................................         18,430              18,962             18,069
Selling, general and administrative costs...........          9,203               9,526              8,534
Engineering and support costs.......................          3,808               3,480              3,592
                                                        -----------         -----------        -----------

Operating income....................................          5,419               5,956              5,943
Interest income.....................................            274                 298                404

Minority interest in earnings.......................            (46)                ---                ---
                                                        -----------         -----------        -----------

Income before income taxes..........................          5,647               6,254              6,347
Income tax expense..................................          2,061               2,283              2,317
                                                        -----------         -----------        -----------

Net income from continuing operations...............          3,586               3,971              4,030

Net income (loss) from discontinued operations......           (433)              1,712                845
                                                        -----------         -----------        -----------

Net income..........................................    $     3,153         $     5,683        $     4,875
                                                        ===========         ===========        ===========

Earnings per share - continuing operations:
     Basic..........................................    $       .82         $       .86        $       .85
                                                        ===========         ===========        ===========
     Diluted........................................    $       .74         $       .77        $       .72
                                                        ===========         ===========        ===========
Earnings (loss) per share - discontinued operations:
     Basic..........................................    $     (.10)         $       .37        $       .18
                                                        ===========         ===========        ===========
     Diluted........................................    $     (.10)         $       .36        $       .17
                                                        ===========         ===========        ===========
Earnings per share:
     Basic..........................................    $       .72         $      1.23        $      1.03
                                                        ===========         ===========        ===========
     Diluted........................................    $       .64         $      1.13        $       .89
                                                        ===========         ===========        ===========
</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,
                                                                ------------------------------------------------------
                                                                    2000                 1999               1998
                                                                --------------       -------------      --------------
<S>                                                             <C>                  <C>                <C>
Cash flows from operating activities:
   Net income from continuing operations....................    $     3,586          $     3,971        $     4,030
   Adjustments to reconcile net income from continuing
     operations  to net cash provided by operating activities:
       Loss (gain) on disposal of property and equipment....             85                   (4)                --
       Depreciation and amortization........................          3,159                2,925              3,469
       Provision for doubtful accounts receivable...........             24                   24                 66
       Minority interest in earnings of subsidiary..........             46                   --                 --
       Deferred income taxes................................           (125)                (281)               205
       Changes in operating assets and liabilities, net of
        effects from the purchases of  GTE & Cubic:
           Increases in investments.........................           (975)                (980)              (537)
         Decrease (increase) in accounts receivable.........          4,512               (2,189)            (3,425)
         Decrease (increase) in inventory...................           (695)               1,090             (1,644)
         Decrease (increase) in other assets................         (2,293)                  92               (184)
         Increase in current liabilities....................          1,924                1,327                 69
                                                                --------------       -------------      -------------
   Net cash provided by operating activities................          9,248                5,975              2,049
                                                                --------------       -------------      -------------
Cash flows from investing activities:
   Purchases of investments.................................             --                   --             (1,204)
   Proceeds from sales of investments.......................            542                2,407                712
   Purchases of property and equipment......................         (1,876)                (995)            (1,293)
   Proceeds from sales of property and equipment............             29                    4                 14
   Software development costs...............................         (3,563)              (2,936)            (2,506)
   Cost of acquisition of Cubic, net of cash acquired.......             --                   --             (1,717)
   Cost of acquisition of ITI technology....................             --               (1,000)                --
   Cost of acquisition of CWT minority interest.............           (433)                  --                 --
                                                                --------------       -------------      -------------
   Net cash used in investing activities....................         (5,301)              (2,520)            (5,994)
                                                                --------------       -------------      -------------
Cash flows from financing activities:
   Proceeds from issuance of stock, including tax benefit...          1,456                  227                453
   Proceeds from issuance of subsidiary stock...............            179                   --                 --
   Purchase of common stock.................................         (4,816)              (5,194)            (1,835)
                                                                --------------       -------------      -------------
   Net cash used by financing activities....................         (3,181)              (4,967)            (1,382)
                                                                --------------       -------------      -------------

Net increase (decrease) in cash and cash equivalents -
   continuing operations...................................             766               (1,512)            (5,327)

Net increase (decrease) in cash and cash equivalents -
   discontinued operations.................................           1,078                 (524)            (2,128)
                                                                --------------       -------------      -------------
Net increase (decrease) in cash and cash equivalents........          1,844               (2,036)            (7,455)

Cash and cash equivalents, beginning of year................          3,220                5,256             12,711
                                                                --------------       -------------      -------------

Cash and cash equivalents, end of year......................    $     5,064          $     3,220        $     5,256
                                                                ==============       =============      =============
</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,
                                                                -----------------------------------------------------
                                                                    2000                1999               1998
                                                                -------------       -------------      --------------

<S>                                                             <C>                 <C>                <C>
Net income..................................................    $     3,153         $     5,683        $     4,875
Other comprehensive income:
  Unrealized holding gains (losses) on investments, net of tax          (13)                 16                 --
                                                                -------------       -------------      --------------

Comprehensive income........................................    $     3,140         $     5,699        $     4,875
                                                                =============       =============      ==============

</TABLE>






































          See accompanying notes to consolidated financial statements.
<PAGE>



                         COMARCO, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       JANUARY 31, 2000 AND 1999 AND 1998


1.   Significant Accounting Policies

     a. The Company--COMARCO,  Inc. and its subsidiaries (the "Company") provide
test and  measurement  products and services  for wireless  telephone  carriers,
systems for the wireless  transmission of voice and data, and wireless accessory
products for portable wireless appliances such as notebook  computers,  cellular
telephones  and  personal   organizers.   In  October  1996,   Comarco  Wireless
Technologies,   Inc.  ("CWT")  acquired  the  callbox  assets  of  GTE  Cellular
Communications  Corporation.  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 was 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--  Revenues  from  product  sales are 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.

     Revenues from  services are recorded as services are  rendered.  Certain of
the Company's  services  revenues are earned under long term  agreements and are
recorded    using    the    percentage-of-completion     method.    Under    the
percentage-of-completion  method, revenue is recorded as costs are incurred, and
profit is recognized on each contract based on the percentage  that the incurred
costs bear to total estimated costs. 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.

     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 $4.7  million  and $3.1  million at January  31,  2000 and 1999,
respectively, consist primarily of money market funds, which are stated at cost,
which approximates fair value.

     f.  Investments--Investments  at  January  31,  2000  and 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  weighted-average  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 two 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  fifteen  years.  Costs in  excess  of net  assets  acquired  are  being
amortized  over  fifteen  years.  All  such  amortization  is  computed  on  the
straight-line basis.

     The Company  reviews its long-lived  assets,  including  excess of purchase
price over net assets  acquired  and other  intangible  assets,  for  impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.  The Company recognizes an impairment loss when
the sum of the  expected,  undiscounted  future  cash  flows  is less  than  the
carrying amount of the asset. The assessment of the recoverability of long-lived
assets  will be  impacted  if  estimated  future  operating  cash  flows are not
achieved.

   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.  Minority  interest--During  the year ended  January  31,  2000,  the
Company  issued 58,000  shares of CWT stock from the exercise of stock  options,
which resulted in the creation of a minority interest in the amount of $297,000.
In December 1999, the Company elected to acquire the minority  interest  through
the  payment of $433,000  in cash and the  issuance of 46,177  shares of Company
stock.  Under the purchase method of accounting,  intangible  assets of $980,000
were created in the acquisition of the minority  interest.  Future  exercises of
CWT stock options will result in the creation of a new minority interest. If the
Company elects to acquire any future minority interests,  additional  intangible
assets will be recognized.

     m. Per Share  Information--During  the year ended  January  31,  1998,  the
Company adopted Statement of Financial  Accounting  Standards  ("SFAS") 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.

     n. 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.

     o. 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.

     p.  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.

     q.  Reclassifications--Certain  reclassifications  of 1999 and 1998 amounts
have been made to conform to the 2000 presentation.


2.  Discontinued Operations

In  July  1999,  the  Company  announced  that  it was  embarking  on a plan  to
strengthen  the  Company's  focus on the  wireless  communications  products and
services  business  segment.  This plan,  which was formalized at the end of the
quarter  ended  October 31, 1999,  involves  selling the  Company's  information
technology  and staffing  services  product  lines.  Therefore,  this segment is
reflected as discontinued  operations and prior periods have been restated.  The
Company  has  engaged  an  investment  banking  firm  to  market  and  sell  the
discontinued  segment.  The Company expects the sale of the discontinued segment
to be  completed  during the year ended  January  31,  2001.  Revenues  from the
discontinued segment were $51.7 million, $58.0 million, and $55.6 million in the
years ended January 31, 2000, 1999, and 1998, respectively. Net income (loss) of
the  discontinued  segment was $(0.4) million,  $1.7 million,  and $0.8 million,
which includes income tax expense (benefit) of $(0.2) million,  $1.2 million and
$0.6 million, in the years ended January 31, 2000, 1999, and 1998, respectively.

The components of net assets available for sale of the  discontinued  operations
included in the Consolidated Balance Sheets were as follows:

<TABLE>
                                                               January 31,
                                                       ----------------------------
                                                          2000             1999
                                                       -----------      -----------
                                                         (Dollars in thousands)
         <S>                                           <C>              <C>
         Accounts receivable, net..................    $   9,188        $  11,920

         Other current assets......................           87              239
         Property and equipment, net...............          385              476
         Intangible assets, net....................        2,460            2,042
         Other assets..............................          424              481
         Accounts payable..........................         (353)            (576)
         Accrued liabilities.......................       (2,830)          (3,710)
                                                       -----------      -----------
                                                       $   9,361        $  10,872
                                                       ===========      ===========
</TABLE>

3.   Investments

Securities  classified  as available for sale are as follows at January 31, 2000
and 1999:

<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>
2000        Equity            $ 83            $ 4             --               $ 87
1999        Debt               512             14             --                526
1999        Equity             102             14             --                116
</TABLE>

Proceeds  from the sales of  available-for-sale  securities  in the years  ended
January 31, 2000 and 1999 were $542,000 and $2.4 million, respectively. No gross
realized gains or losses were recorded on sales of available-for-sale securities
in the years ended January 31, 2000 and 1999.

Short-term  investments  at January 31, 2000 and 1999  included  amounts of $3.6
million and $2.7  million,  respectively,  related to balances  maintained  in a
non-qualified  deferred  compensation plan for Company executives and directors.
These  investments  are  classified  as  trading  securities.  The amount of net
unrealized holding gains on these trading securities recorded in the years ended
January 31, 2000 and 1999 were $173,000 and $281,000, respectively.


4.   Accounts Receivable

Accounts receivable consist of the following:
<TABLE>
                                                                   January 31,
                                                           ----------------------------
                                                              2000             1999
                                                           -----------      -----------

                                                             (Dollars in thousands)
         <S>                                               <C>              <C>
         Commercial....................................    $  6,733         $ 11,198
         Other ........................................          72              129
                                                           -----------      -----------
                                                              6,805           11,327
         Less:  Allowances for doubtful accounts.......        (110)             (96)
                                                           -----------      -----------
                                                           $  6,695         $ 11,231
                                                           ===========      ===========
</TABLE>

5.   Inventory

Inventory consists of the following:
<TABLE>
                                                                     January 31,
                                                             ----------------------------
                                                                2000             1999
                                                             -----------      -----------

                                                               (Dollars in thousands)
         <S>                                               <C>              <C>
         Raw materials.................................    $   4,122        $   3,819
         Work-in-process...............................          274              196
         Finished goods................................          456              142
                                                            ----------      -----------
                                                           $   4,852        $   4,157
                                                           ===========      ===========
</TABLE>
6.   Property and Equipment

Property and equipment consist of the following:
<TABLE>

                                                                      January 31,
                                                              ----------------------------
                                                                 2000             1999
                                                              -----------      -----------

                                                                (Dollars in thousands)
         <S>                                                 <C>              <C>
         Office furnishings and fixtures.................    $   1,362        $     976
         Equipment.......................................        5,357            4,139
         Software........................................          281              228
                                                             -----------      -----------
                                                                 7,000            5,343
         Less: Accumulated depreciation and amortization.       (4,237)          (3,395)
                                                             -----------      -----------
                                                             $   2,763        $   1,948
                                                             ===========      ===========
</TABLE>

7.   Software Development Costs

Software development costs consist of the following:
<TABLE>
                                                                       January 31,
                                                               ----------------------------
                                                                  2000             1999
                                                               -----------      -----------

                                                                 (Dollars in thousands)
         <S>                                                   <C>              <C>
         Software development costs........................    $   7,944        $   8,042
         Less: Accumulated amortization....................       (2,105)          (3,857)
                                                               -----------      -----------
                                                               $   5,839        $   4,185
                                                               ===========      ===========
</TABLE>

Capitalization  of software  development  costs for the years ended  January 31,
2000,  1999,  and 1998  amounted  to  $3,563,000,  $2,936,000,  and  $2,506,000,
respectively.  Amortization  of software  development  costs for the years ended
January 31,  2000,  1999,  and 1998  amounted  to  $1,909,000,  $1,882,000,  and
$1,809,000, respectively.


8.   Intangible Assets

Intangible assets consist of the following:
<TABLE>
                                                                                 January 31,
                                                                         ----------------------------
                                                                            2000             1999
                                                                         -----------      -----------

                                                                           (Dollars in thousands)
         <S>                                                             <C>              <C>
         Costs in excess of net assets acquired......................... $   1,724        $     744
         Other intangible assets, based on allocated purchase price.....     1,000            1,000
                                                                         -----------      -----------
                                                                             2,724            1,744
         Accumulated amortization.......................................      (502)            (199)
                                                                         -----------      -----------
                                                                         $   2,222        $   1,545
                                                                         ===========      ===========
</TABLE>

Amortization  of intangible  assets for the years ended January 31, 2000,  1999,
and 1998 amounted to $303,000, $149,000, and $50,000, respectively.


9.   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 8.75% at January 31,  2000.  There were no  borrowings  under the
line of credit at January 31, 2000 or 1999.  The loan  agreement  also  includes
certain restrictive covenants.


10.      Accrued Liabilities

Accrued liabilities consist of the following:
<TABLE>
                                                                                 January 31,
                                                                         ----------------------------
                                                                            2000             1999
                                                                         -----------      -----------
                                                                           (Dollars in thousands)
         <S>                                                             <C>              <C>
         Accrued payroll and related expenses........................    $   5,688        $   4,575
         Other.......................................................        2,364            1,895
                                                                         -----------      -----------
                                                                         $   8,052        $   6,470
                                                                         ===========      ===========
</TABLE>

11.      Stockholders' Equity

Changes in the  components of  stockholders'  equity for the years ended January
31, 1998, 1999, and 2000 were as follows:
<TABLE>
                                                                            Accumulated Other
                                                Common                        Comprehensive        Retained
                                               Stock Par       Paid-in         Income, net         Earnings
                                                 Value         Capital                                             Total
                                             --------------  ------------  ------------------    ------------  --------------
                                                                     (Dollars in thousands)
<S>                                          <C>             <C>            <C>                  <C>            <C>
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
   Net income............................            --              --             --                3,153          3,153
   Exercise of stock options, 83,625
     shares..............................             8             583             --                   --            591
   Tax benefit from exercise of stock
     options.............................            --             865             --                   --            865
   Purchase and retirement of common
     stock, 245,900 shares...............           (25)           (436)            --               (4,355)        (4,816)
   Minority interest resulting from
     exercise of subsidiary options......            --              --             --                 (118)          (118)
   Issuance of common stock to acquire
     subsidiary minority interest, 46,177
     shares..............................             5             885             --                   --            890
   Recognition of unrealized holding loss
      on available for sale securities...            --              --            (13)                  --            (13)
                                             --------------  ------------   ----------------     ------------   -------------
Balance at January 31, 2000,
     4,340,362 shares....................    $      434      $    4,692     $        3           $   26,625     $    31,754
                                             ==============  ============   ================     ============   =============
</TABLE>


12.  ...................................Income Taxes

Income taxes consist of the following amounts:
<TABLE>
                                                                             Years Ended January 31,
                                                                -----------------------------------------------------
                                                                    2000               1999                1998
                                                                -------------       -------------      --------------
                                                                               (Dollars in thousands)
   <S>                                                          <C>                <C>                 <C>
   Federal income tax:
     Current...............................................     $   1,906          $    1,869          $   2,012
     Deferred..............................................          (318)                (52)              (278)
   State income taxes:
     Current...............................................           538                 477                640
     Deferred..............................................           (65)                (11)               (57)
                                                                -------------       -------------      --------------
                                                                $   2,061           $   2,283          $   2,317
                                                                =============       =============      ==============
</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, 2000,
1999  and  1998  were  differing   depreciation  methods,  the  amortization  of
intangibles,  accrued  compensation,  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,  2000,  1999,  and 1998 are as
follows:
<TABLE>

                                                                    Years Ended January 31,
                                              ---------------------------------------------------------------------
                                                      2000                    1999                    1998
                                              ---------------------   ---------------------   ---------------------
                                                          Percent                 Percent                 Percent
                                                          Pretax                  Pretax                  Pretax
                                               Amount      Income       Amount     Income      Amount      Income
                                              ---------   ---------   ---------   ---------   ---------   ---------

                                                                     (Dollars in thousands)
<S>                                           <C>         <C>         <C>         <C>         <C>         <C>
Computed "expected" tax on income before
   income taxes...........................    $ 1,976       35.0%     $ 2,189       35.0%     $ 2,221       35.0%
Surtax exemption..........................        (56)      (1.0)         (63)      (1.0)         (63)      (1.0)
State tax, net of federal benefit.........        312        5.5          308        4.9          385        6.1
Other, net................................       (171)      (3.0)        (151)      (2.4)        (226)      (3.6)
                                              ---------   ---------   ---------   ---------   ---------   ---------

Taxes on income...........................    $ 2,061       36.5%     $ 2,283       36.5%     $ 2,317       36.5%
                                              =========   =========   =========   =========   =========   =========
</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, 2000 and
1999 are presented below:


<TABLE>

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

                                                                         2000                     1999
                                                                   ---------------          ---------------
                                                                           (Dollars in thousands)
   <S>                                                               <C>                  <C>
   Deferred tax assets:
      Accounts receivable....................................        $       600          $        385
      Property and equipment, principally due to differing
       depreciation methods..................................                239                   138
      Employee benefits, principally due to accrual for
       financial reporting purposes..........................              2,265                 1,745
      Other..................................................                233                    61
                                                                     -------------        -------------
      Total gross deferred tax assets........................              3,337                 2,329
      Less valuation allowance...............................                 --                    --
                                                                     -------------        -------------
      Net deferred tax assets................................        $     3,337          $      2,329
                                                                     -------------        -------------

    Deferred tax liabilities:
      Prepaid expenses.......................................        $        91          $         96
      Long-term investments..................................                 --                    12
      Property and equipment, principally due to differing
       depreciation methods..................................                220                    56
      Software development costs.............................              2,452                 1,716
      Other..................................................                265                   265
                                                                     -------------        -------------
      Total gross deferred tax liabilities...................        $     3,028          $      2,145
                                                                     -------------        -------------
      Net deferred tax asset................................         $       309          $        184
                                                                     =============        =============
</TABLE>

There was no valuation allowance for deferred tax assets as of February 1, 1999,
and no change in the  valuation  allowance  for the year ended January 31, 2000.
The Company believes that deferred tax assets will be recoverable through normal
operations.


13.   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 up to 1,802,891  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, 2000 are summarized below:
<TABLE>

                                                                Outstanding Options
                                                   ----------------------------------------------

                                                   Number of Shares          Weighted-Average
                                                                              Exercise Price
                                                   ------------------   -----------------------------
<S>                                                <C>                           <C>
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
   Options granted..............................         70,000                  $ 20.17
   Options canceled or expired..................        (15,500)                 $ 20.53
   Options exercised............................        (83,625)                 $  6.36
                                                   ---------------
Balance, January 31, 2000.......................        659,000                  $ 12.68
                                                   ===============
</TABLE>

The following table summarizes  information  about stock options  outstanding at
January 31, 2000:
<TABLE>

                                      Options Outstanding                               Options Exercisable
                   -----------------------------------------------------------  -------------------------------------
                          Number           Weighted-Avg.                               Number
      Range of          Outstanding          Remaining           Weighted-Avg.       Exercisable        Weighted-Avg.
   Exercise Prices      at 1/31/00        Contractual Life      Exercise Price       at 1/31/00        Exercise Price
--------------------------------------   -------------------   ------------------  ----------------   ------------------
  <S>                 <C>                    <C>                   <C>             <C>                     <C>
  $1.88 to 2.00            95,000            1.0 years              $1.96                95,000            $1.96
     4.56 to 6.25         131,000            3.2                     5.31               131,000             5.31
  8.63 to 11.50            69,500            5.1                     9.04                69,500             9.04
  14.50 to 17.625         188,250            6.9                    16.12               108,250            15.76
  19.81 to 23.31          175,250            8.6                    21.75                47,500             22.52
                      ----------------                                             ----------------
  $1.88 to 23.31          659,000            5.5                   $12.68               451,250            $9.50
                      ================                                             ================

</TABLE>

Stock  options  exercisable  at January 31, 2000,  1999,  and 1998 were 451,250,
432,125, and 360,875 respectively, at weighted-average exercise prices of $9.50,
$7.31,  and $5.18,  respectively.  Shares  available  under the plans for future
grants at January 31, 2000, 1999, and 1998 were 183,355,  237,855,  and 293,355,
respectively.

The per share weighted-average fair value of employee and director stock options
granted  during the years ended  January  31,  2000,  1999,  and 1998 was $8.40,
$8.89,  and $8.93,  respectively,  on the date of grant using the Black  Scholes
option-pricing model with the following weighted-average assumptions:
<TABLE>

                                                 Years ended January 31,
                                              -------------------------------
                                                2000       1999       1998
                                              ----------  --------   --------
         <S>                                   <C>         <C>        <C>
         Expected dividend yield                0.0%        0.0%       0.0%
         Expected volatility                   31.4%       32.5%      34.2%
         Risk-free interest rate                5.5%        5.5%       6.1%
         Expected life                         6 years     6 years    6 years
</TABLE>

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, 2000, all 3,058,000  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, 1998, 11,000 options were granted at
an exercise  price of $17.62.  In the fiscal  years  ended  January 31, 1999 and
2000,  no options  were  granted.  At January 31, 1999 and at January 31,  1998,
there were 419,000 outstanding  options at a weighted-average  exercise price of
$5.33. In the fiscal year ended January 31, 2000,  58,000 options were exercised
at a weighted-average  exercise price of $3.08 per share, and 5,000 options were
canceled at a weighted-average exercise price of $13.22 per share. Stock options
exercisable  at January  31,  2000,  1999 and 1998 were  345,500,  361,750,  and
257,000,  respectively, at weighted-average exercise prices of $5.28, $4.53, and
$4.20,  respectively.  Shares  available  under  the plan for  future  grants at
January 31, 2000, 1999 and 1998 were 186,000, 181,000 and 181,000, respectively.

The following table summarizes  information about CWT stock options  outstanding
at January 31, 2000:
<TABLE>

                                    Options Outstanding                                Options Exercisable
                 -----------------------------------------------------------  --------------------------------------
                       Number           Weighted-Avg.                                Number
       Range of      Outstanding          Remaining           Weighted-Avg.        Exercisable       Weighted-Avg.
   Exercise Prices   at 1/31/00        Contractual Life      Exercise Price        at 1/31/00        Exercise Price
------------------  ---------------   -------------------   ------------------   ----------------  -------------------
  <S>               <C>                      <C>                   <C>           <C>                     <C>
  $2.53 to 4.30        265,000               4.7 years             $3.06              265,000            $3.06
  11.97 to 13.22        80,000               5.9                   12.28               75,000            12.22
         17.62          11,000               7.1                   17.62                5,500            17.62
                    -------------                                                --------------
  $2.53 to 17.62       356,000               5.1                   $5.59              345,500            $5.28
                    =============                                                ==============
</TABLE>

The per share  weighted-average  fair value of CWT stock options  granted during
the year ended  January  31, 1998 was $7.35 on the date of grant using the Black
Scholes option-pricing model with the following weighted-average assumptions:
<TABLE>
       <S>                                          <C>
       Expected dividend yield                         0.0%
       Expected volatility                            35.6%
       Risk-free interest rate                          6.2%
       Expected life                                5 years
</TABLE>

The  Company  applies  APB  Opinion  No. 25 in  accounting  for its  plans  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,
                                                                    ------------------------------------
                                                                      2000         1999         1998
                                                                    ----------   ----------   ----------

                                                                     (Dollars in thousands, except per
                                                                              share amounts)
         <S>                                                        <C>          <C>          <C>
         Net income: As reported                                    $   3,153    $   5,683    $   4,875
                     Pro forma..................................        2,634        5,150        4,481
         Earnings per common share - basic:
                     As reported................................    $     .72    $    1.23    $    1.03
                     Pro forma..................................          .60         1.12          .94
         Earnings per common share - diluted:
                     As reported................................    $     .64    $    1.13    $     .89
                     Pro forma............................... ..........  .54         1.05          .86
 </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  periods of four years and  compensation
cost for options granted prior to February 1, 1995 is not considered.


14.  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, 2000
                                ----------------------------------
                                                          $ Per
                                  Income      Shares      Share
                                ----------- ----------- ----------
<S>                             <C>           <C>        <C>
Basic Earnings Per Share:
   Net income.................  $   3,153      4,381     $   .72

Effect of subsidiary options         (216)        --

Effect of dilutive securities:
   Stock options..............         --        177
                                -----------   ---------  ----------
Diluted Earnings per Share:
   Net income.................  $   2,937      4,558     $    64
                                ===========   =========  ==========



                                   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      5,07      $    .89
                                ===========  ==========  ==========
</TABLE>


15.   Lease Commitments

Rental  commitments under  noncancelable  operating  leases,  principally on the
Company's office space, equipment and automobiles were $3,848,000 at January 31,
2000, payable as follows: $1,124,000, $981,000, $698,000, $654,000, and $391,000
in the years ended January 31, 2001, 2002,  2003, 2004, and 2005,  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,
2000, 1999, and 1998 was $2,078,000, $1,776,000, and $1,593,000, respectively.


16.  Employee Benefit Plans

The  Company has a Savings  and  Retirement  Plan (the  "Plan")  which  provides
benefits to eligible employees.  Under the Plan, as amended effective January 1,
2000, 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 20% of
pre-tax earnings.  Employees at one Company location are permitted to contribute
up  to  25%  of  pre-tax   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, 2000,  1999,  and 1998
were approximately $904,000, $812,000, and $623,000, respectively.


17.   Supplemental Disclosures of Cash Flow Information
<TABLE>

                                                                  Years Ended January 31,
                                                    -----------------------------------------------------
                                                        2000               1999                1998
                                                    -------------       -------------      --------------
                                                                   (Dollars in thousands)
<S>                                                    <C>                 <C>                <C>
Cash paid during the year for:
   Interest....................................        $   --              $   --             $   --
   Income taxes................................        $3,648              $3,459             $2,656
</TABLE>

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.

In December  1999,  the Company  acquired the minority  interest of CWT that was
created from the exercise of CWT stock  options  through the payment of $433,000
in cash and the issuance of 46,177 shares of Company stock. Intangible assets of
$980,000 were created in the acquisition of the minority interest.


18.  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  $0.6 million,  $0.8 million,  and $1.7 million,  in the years
ended  January  31,  2000,  1999,  and 1998,  respectively,  related to wireless
communications  products and  development  of software  tools.  These costs were
expensed as incurred.


19.  Business Segment Information

The Company  provides  test and  measurement  products and services for wireless
telephone carriers, systems for the wireless transmission of voice and data, and
advanced  technology  products for portable wireless appliances such as notebook
computers, cellular telephones and personal organizers.

Revenues by geographic area consisted of the following:

<TABLE>
                                                            Years Ended January 31,
                                              -----------------------------------------------------
                                                  2000               1999                1998
                                              -------------       -------------      --------------
                                                             (Dollars in thousands)
     <S>                                      <C>               <C>                  <C>
     United States.........................   $  35,280         $    28,411          $  20,595
     Canada................................         753               1,223                558
     Europe................................         907               1,417              3,559
     Asia..................................         338                 699              2,138
     Latin America.........................       1,946               2,254              2,674
                                              -------------       -------------      --------------
                                              $  39,224           $  34,004          $  29,524
                                              =============       =============      ==============
</TABLE>

Long-lived  assets  outside of North America were  insignificant  at January 31,
2000, 1999, and 1998.

Two customers  each  accounted  for 12% of total  revenues,  and one  additional
customer  accounted  for 10% of  revenues  in  Fiscal  Year  2000.  Two of these
customers'  revenues  were  higher in Fiscal  Year  2000 due to  one-time  major
upgrade contracts for the Los Angeles County and the San Francisco Bay areas. No
one  customer  accounted  for more than 10% of revenues in Fiscal Years 1999 and
1998.


20.  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 as a component
of discontinued operations for the year ended January 31, 1998.


21.  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, 1999.

In the  fiscal  year  ended  January  31,  2000,  the  Company  recorded a final
discontinued  operations' pre-tax $1.3 million loss to terminate two fixed price
contracts  with  a  single  government  agency  and an  additional  discontinued
operations'  pre-tax loss of $1.4 million  related to the change in management's
estimate to complete a  multi-year  fixed price  contract  after  completion  of
protracted  negotiations  with the U.S. Air Force over the Company's request for
equitable  adjustment.  The negotiation  resulted in additional  funding of $5.1
million and a 30-month  contract  extension.  The modified  contract now ends in
March 2002. The $1.4 million provision is based on the Company's assumptions and
future performance expectations over the remaining 26-month contract performance
period of the contract as of January 31, 2000. If the Company's  assumptions  or
performance  do not  meet  expectations,  additional  loss  provisions  would be
required.

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 have been established for its most
probable assessment of the potential outcomes of the above open matters.


22.  Quarterly Financial Data (Unaudited)

Unaudited  summarized  financial  data by quarter for Fiscal Years 2000 and 1999
are as follows (in  thousands,  except per share data):

<TABLE>
Fiscal Year 2000                                                                Quarter Ended
                                                         ------------------------------------------------------------
                                                           April 30        July 31       October 31      January 31
                                                         --------------  -------------  -------------  --------------
<S>                                                      <C>             <C>            <C>
Revenues from continuing operations..................    $     7,842     $     8,973    $    11,959    $    10,450
Gross profit from continuing operations..............          3,861           3,979          5,701          4,889
Operating income from continuing operations..........            879             815          2,315          1,410
Net income from continuing operations................            609             580          1,482            915
Net income (loss)....................................            959           1,012           (412)         1,594


                                                         --------------  -------------  -------------  --------------
Basic earnings (loss) per share......................    $       .22     $       .23    $     (.09)    $       .36
                                                         ==============  =============  =============  ==============


                                                         --------------  -------------  -------------  --------------
Diluted earnings (loss) per share....................    $       .20     $       .21    $     (.11)    $       .34
                                                         ==============  =============  =============  ==============



Fiscal Year 1999                                                                Quarter Ended
                                                         ------------------------------------------------------------
                                                           April 30        July 31       October 31      January 31
                                                         --------------  -------------  -------------  --------------

Revenues from continuing operations..................    $     7,311     $     7,351    $     8,435    $    10,907
Gross profit from continuing operations..............          3,815           4,209          4,927          6,011
Operating income from continuing operations..........            404           1,230          1,735          2,587
Net income from continuing operations................            331             842          1,127          1,671
Net income...........................................            840           1,281          1,576          1,986


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


                                                         --------------  -------------  -------------  --------------
Diluted earnings per share...........................    $       .17     $       .25    $       .31    $       .40
                                                         ==============  =============  =============  ==============
</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 2000 annual meeting of  shareholders,  which the Company expects to file
with the SEC by May 30, 2000.


ITEM 11.  Executive Compensation

Information  regarding executive  compensation is incorporated by reference from
the  Company's  definitive  proxy  statement  for the  2000  annual  meeting  of
shareholders, which the Company expects to file with the SEC by May 30, 2000.


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 2000 annual meeting of shareholders, which the Company expects
to file with the SEC by May 30, 2000.


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 2000 annual
meeting of  shareholders,  which the Company expects to file with the SEC by May
30, 2000.



                                     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, 2000, 1999, and 1998 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 Bank of America,  N.A.  (formerly  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  Bank  of  America,  N.A.
                  (formerly  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 Bank of   America,  N.A.  (formerly
                  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 For
                  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  Bank of  America,  N.A.  (formerly
                  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  Bank of  America,  N.A.
                  (formerly  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 Bank of America, N.A.
                  (formerly  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  Bank of  America,  N.A.  (formerly
                  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 Bank of America,  N.A.
                  (formerly  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 Bank of America,  N.A.
                  (formerly  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   betwee   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  Bank of  America,  N.A.  (formerly
                  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 Bank of America,  N.A.
                  (formerly  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 Bank of America,  N.A.
                  (formerly  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  Bank of  America,  N.A.  (formerly
                  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 Bank of America,  N.A.
                  (formerly  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.
                  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

         On July 22,  1999,  the  Company  filed a  Current  Report  on Form 8-K
         reporting the  announcement of a strategic plan to enhance  shareholder
         value by marketing the Company's  information  technology  and staffing
         services  product lines and enclosing its press release of July 7, 1999
         to that effect.


<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 26, 2000.

                                                    COMARCO, INC.


                                               /s/ THOMAS A. FRANZA
                                             -----------------------------
                                                   Thomas A. Franza
                                           President and Chief Executive Officer


     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 and Chief Executive
                                 Officer (Principal Executive
     /s/ THOMAS A. FRANZA                Officer)                 April 26, 2000

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

                                           Vice President
                                               and
                                 Treasurer (Principal Financial
     /s/ THOMAS P. BAIRD              and Accounting Officer)     April 26, 2000

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




     /s/ DON M. BAILEY                Chairman of the Board       April 26, 2000

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




     /s/ WILBUR L. CREECH                    Director             April 26, 2000
----------------------------
       Wilbur L. Creech




     /s/ GERALD D. GRIFFIN                    Director            April 26, 2000

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







     /s/ PAUL G. YOVOVICH                      Director           April 26, 2000
--------------------------------

       Paul G. Yovovich





<PAGE>

                        COMARCO, INC. AND SUBSIDIARIES

                             SCHEDULE II - RESERVES

                       Three Years Ended January 31, 2000

                             (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>            <C>
Year ended January 31, 2000:
   Allowance for doubtful accounts and
     provision for unbilled receivables
     (deducted from accounts
     receivable).......................    $       96      $       24     $    10(1)      $       --     $      110

Year ended January 31, 1999:
   Allowance for doubtful accounts and
     provision for unbilled receivables
     (deducted from accounts
     receivable).......................    $       72      $       24     $       --      $       --     $       96

Year ended January 31, 1998:
   Allowance for doubtful accounts and
     provision for unbilled receivables
     (deducted from accounts
     receivable).......................    $        6      $       66     $       --      $       --     $       72
</TABLE>

(1) Write off of uncollectible receivables.