Form 10-Q


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                   QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


For Quarter Ended October 31, 1997           Commission File Number 0-5449



                                  COMARCO, Inc.
            --------------------------------------------------------
             (Exact name of registrant as specified in its charter)

               CALIFORNIA                                   95-2088894
-------------------------------                         ---------------------
(State or other jurisdiction of                        (I.R.S. Employer
 incorporation or organization)                         Identification Number)

22800 Savi Ranch Parkway, Suite 214, Yorba Linda, California        92887-1299
-------------------------------------------------------------       ----------
    (Address of principal executive office)                         (Zip Code)

Registrant's telephone number, including area code               (714) 282-3832
                                                                 --------------


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 the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of November 30, 1997.

                    Common Stock,
                    $.10 Par Value                   4,716,217 Shares
                    --------------                   ----------------


<PAGE>


                                       
Index to Form 10-Q

                                                                      Page No.
                                                                      --------
  Part I.  Financial Information


  Condensed Consolidated Balance Sheets
      October 31, 1997 and January 31, 1997                              1

  Condensed Consolidated Statements of Income
      Quarters Ended and Three Quarters Ended October 31, 1997
      and October 31, 1996                                               2

  Condensed Consolidated Statements of Cash Flows
      Three Quarters Ended October 31, 1997 and October 31, 1996         3

  Notes to Condensed Consolidated Financial Statements                 4-6

  Management's Discussion and Analysis of Financial
      Condition and Results of Operations                             7-11



  PART II.  OTHER INFORMATION

  Item 6.  Exhibits and Reports on Form 8-K                             12 

  Signature                                                             13


<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
<TABLE>

                                 COMARCO, Inc. and Subsidiaries
                             Condensed Consolidated Balance Sheets


                                                        October 31, 1997           January 31, 1997
ASSETS                                                    (Unaudited)                     *
<S>                                                     <C>                        <C>
Current assets:
         Cash and cash equivalents                      $       2,537,000          $     12,711,000
         Short-term investments                                 2,191,000                 1,824,000
         Accounts receivable, net                              19,291,000                11,526,000
         Inventory                                              5,156,000                 3,042,000
         Other current assets                                   2,376,000                 2,257,000
                                                         -----------------          ----------------

Total current assets                                           31,551,000                31,360,000

Long-term investments                                           2,651,000                 1,859,000
Property and equipment, net                                     2,169,000                 1,408,000
Software development costs, net                                 3,352,000                 2,434,000
Intangible assets, net                                          3,022,000                 1,842,000
Other assets                                                      578,000                   307,000
                                                         -----------------          ----------------

TOTAL ASSETS                                            $      43,323,000          $     39,210,000
                                                         =================           ===============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
         Accounts payable                               $       1,176,000          $        217,000
         Deferred revenue                                       2,053,000                 2,678,000
         Accrued liabilities                                    9,563,000                 8,036,000
                                                         -----------------          ----------------

Total current liabilities                                      12,792,000                10,931,000

Deferred income taxes                                           1,215,000                 1,302,000

Stockholders' equity:
         Common stock, $.10 par value,
           33,705,000 shares authorized, 
           4,716,217 and 4,777,959 shares
           outstanding at October 31, 1997 and
           January 31, 1997, respectively                         472,000                   478,000
         Capital contributed in excess
           of par value                                         2,928,000                 4,450,000
         Retained earnings                                     25,916,000                22,049,000
                                                         -----------------          ----------------

Total stockholders' equity                                     29,316,000                26,977,000
                                                         -----------------          ----------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY              $      43,323,000          $     39,210,000
                                                         =================          ================

See accompanying notes to the condensed consolidated financial statements.

*The  condensed  consolidated  balance  sheet as of  January  31,  1997 has been
summarized  from the  Company's  audited  consolidated  balance sheet as of that
date.
</TABLE>


<PAGE>



                         COMARCO, Inc. and Subsidiaries
                   Condensed Consolidated Statements of Income
                                   (Unaudited)

<TABLE>


                                                         Quarter Ended                        Three Quarters Ended
                                                         -------------                        --------------------
                                            October 31, 1997      October 31, 1996    October 31, 1997   October 31, 1996
                                            ----------------      ----------------    ----------------   ----------------
<S>                                         <C>                   <C>                 <C>                <C> 
Revenues:
   Contract revenues                        $   14,003,000        $   14,181,000      $   41,641,000     $   37,650,000
   Product sales                                 7,972,000             4,189,000          21,446,000         13,226,000
                                                 ---------             ---------          ----------         ----------
                                                21,975,000            18,370,000          63,087,000         50,876,000
                                                ----------            ----------          ----------         ----------

Direct costs:
   Contract costs                                9,630,000            10,033,000          28,902,000         25,532,000
   Cost of product sales                         3,974,000             1,760,000           9,850,000          4,902,000
                                                 ---------             ---------           ---------          ---------
                                                13,604,000            11,793,000          38,752,000         30,434,000

Indirect costs                                   6,124,000             5,056,000          18,434,000         15,745,000
                                                 ---------             ---------          ----------         ----------

                                                19,728,000            16,849,000          57,186,000         46,179,000
                                                ----------            ----------          ----------         ----------

Operating income                                 2,247,000             1,521,000           5,901,000          4,697,000

Net interest income                                 80,000               126,000             336,000            426,000
                                                    ------               -------             -------            -------

Income before income taxes                       2,327,000             1,647,000           6,237,000          5,123,000

Income taxes                                       884,000               558,000           2,370,000          1,844,000
                                            --------------        --------------      --------------     --------------


Net income                                  $    1,443,000        $    1,089,000      $    3,867,000     $    3,279,000
                                            ==============        ==============      ==============     ==============

Earnings per share*
   Primary                                       $     .26             $     .20           $     .71          $     .61
                                                 =========             =========           =========         ==========



*Fully diluted earnings per share has not been presented as the effect is immaterial.


See accompanying notes to the condensed consolidated financial statements.
</TABLE>


<PAGE>


                         COMARCO, Inc. and Subsidiaries
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)

<TABLE>

                                                                             Three Quarters Ended
                                                                 -------------------------------------------
                                                                 October 31, 1997           October 31, 1996
                                                                 ----------------           ----------------
<S>                                                              <C>                        <C>            
Cash flows from operating activities:
    Net income                                                   $       3,867,000          $      3,279,000
    Adjustments to reconcile net income to net
     cash used in operating activities:
       Depreciation and amortization                                     1,941,000                 1,708,000
       Loss on disposal of property and equipment                           -                          6,000
       Deferred income taxes                                              (471,000)                 (359,000)
       Provision for doubtful accounts receivable                           45,000                    28,000
       Net purchases of trading securities                                (607,000)                 (648,000)
       Increase in accounts receivable                                  (7,810,000)               (4,536,000)
       Increase in inventory                                            (1,553,000)                 (961,000)
       Decrease (increase) in other current assets                         265,000                  (288,000)
       Increase in other assets                                           (271,000)                   (2,000)
       Increase (decrease) in accounts payable                             959,000                  (162,000)
       Increase (decrease) in deferred revenue                            (625,000)                  277,000
       Increase in accrued liabilities                                   1,527,000                   834,000
                                                                   ----------------          ----------------

    Net cash used in operating activities                               (2,733,000)                 (824,000)
  Cash flows from investing activities:
    Purchases of investments                                            (1,204,000)               (1,572,000)
    Proceeds from sales and maturities of investments                      652,000                 1,562,000
    Purchases of property and equipment                                 (1,287,000)                 (632,000)
    Proceeds from sales of property and equipment                           14,000                       -
    Software development costs                                          (1,968,000)               (1,725,000)
    Cost of acquisition of RAL, net of cash acquired                      (406,000)               (1,197,000)
    Cost of acquisition of GTE callbox, net of cash acquired                  -                   (1,063,000)
    Cost of acquisition of Cubic callbox, net of cash acquired          (1,714,000)                      -
                                                                 ------------------          ----------------

    Net cash used in investing activities                               (5,913,000)               (4,627,000)

Cash flows from financing activities:
    Proceeds from issuance of common stock                                 305,000                   590,000
    Purchase of common stock                                            (1,833,000)                  (89,000)
                                                                 ------------------          ----------------

    Net cash provided (used) by financing activities                    (1,528,000)                  501,000
                                                                 ------------------          ----------------

Net decrease in cash and cash equivalents                        $     (10,174,000)          $    (4,950,000)
                                                                 ==================          ================


Supplemental  disclosures of cash flow  information:
  Cash paid during the three
    quarters for:
       Interest                                                  $          (2,000)         $            -
       Income taxes                                                      1,790,000                 1,677,000

See accompanying notes to the condensed consolidated financial statements.
</TABLE>


<PAGE>


                         COMARCO, Inc. and Subsidiaries
              Notes to Condensed Consolidated Financial Statements
                      October 31, 1997 and October 31,1996
                                   (Unaudited)

1.      General

       The financial statements have been prepared without audit.  However, they
       reflect all adjustments  which in the opinion of management are necessary
       to fairly state the Company's  financial position at October 31, 1997 and
       January 31, 1997, the results of its operations for the quarter ended and
       three  quarters ended October 31, 1997 and October 31, 1996, and its cash
       flows for the three quarters ended October 31, 1997 and October 31, 1996.
       The   information   has  been  prepared  in  accordance  with  Form  10-Q
       instructions,  but does  not  necessarily  include  all  information  and
       footnotes  required  by  generally  accepted  accounting  principles  for
       complete financial statements. The results of the quarter ended and three
       quarters  ended  October 31, 1997 are not  necessarily  indicative of the
       results to be obtained for the full fiscal year.


2.     Asset Acquisitions

       The Condensed  Consolidated  Balance Sheet includes the callbox assets of
       Cubic  Communications,  Inc., acquired by Comarco Wireless  Technologies,
       Inc., a subsidiary of the Company,  in February  1997,  and the Condensed
       Consolidated  Statement of Income includes Cubic callbox operations since
       February  1,  1997.  The  acquisition  has been  accounted  for using the
       purchase method of accounting,  and  accordingly,  the purchase price was
       allocated to the acquired tangible and identifiable intangible assets and
       assumed liabilities based on their respective fair values.

       On August 1, 1996, the Company  acquired the assets of RAL Consulting and
       Staffing  Services,  Inc. The purchase  agreement provided for contingent
       increases  in  the  purchase  price  over  three  years  based  upon  the
       achievement of certain performance  objectives.  During the third quarter
       of Fiscal Year 1998, the first year's objectives were achieved, therefore
       an additional payment to the former owner was made.


3.     Significant Accounting Policies - Per Share Information

       The outstanding  shares used for earnings per share  calculations for all
       years presented  include the weighted average effect of common shares and
       common  share  equivalents  outstanding  during  the year.  Common  share
       equivalents  include  dilutive stock options  computed using the treasury
       stock  method.  Consolidated  net income of the Company used for 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.  Primary earnings per share is calculated as
       follows:


<PAGE>
<TABLE>



                                                       Quarter Ended                                Three Quarters Ended
                                                       -------------                                --------------------
                                            October 31, 1997     October 31, 1996        October 31, 1997       October 31, 1996
                                            ----------------     ----------------        ----------------       ----------------
         <S>                                  <C>                  <C>                     <C>                     <C>              
         Net income                           $ 1,443,000          $ 1,089,000             $ 3,867,000             $ 3,279,000
         less - net income
           allocated to subsidiary
           dilutive stock options
           outstanding                           (114,000)             (49,000)               (275,000)               (158,000)
                                              ------------             --------              ----------               ---------

         Net income used in
           calculation of primary
           income per share                   $ 1,329,000          $ 1,040,000             $ 3,592,000             $ 3,121,000
                                              ============         ============            ============            ============

         Weighted average number
           of common shares used in
           calculation of primary
           income per share                     5,062,000            5,132,000               5,076,000               5,121,000
                                              ============           =========             ============              ==========

       Primary income per
           common share                       $       .26          $       .20             $       .71               $     .61
                                              ============         ===========             ============              ==========

</TABLE>

4.     New Accounting Pronouncements

       In February 1997, the Financial  Accounting Standards Board (FASB) issued
       Statement  of  Financial  Accounting  Standards  No. 128 (SFAS No.  128),
       "Earnings  per  Share."  SFAS  No.  128  provides  new  methods  for  the
       computation,  presentation  and  disclosure of primary and  fully-diluted
       earnings per share,  simplifying  the  calculations  and making them more
       comparable with international accounting standards.  Pursuant to SFAS No.
       128, the Company is required to adopt the provisions of this Statement in
       the  fourth  quarter of Fiscal  Year 1998,  restating  the  current  year
       quarterly  information and all prior periods  presented.  The Company has
       not completed its analysis of the impact on the financial statements that
       will be caused by the adoption of this Statement.

       In February  1997,  the FASB issued  Statement  of  Financial  Accounting
       Standards  No.  129 (SFAS No.  129),  "Disclosure  of  Information  about
       Capital  Structure."  The Company is required to adopt the  provisions of
       this  Statement  for the year ending  January 31,  1999.  This  Statement
       continues the previous requirements to disclose certain information about
       an entity's  capital  structure  found in APB Opinions  No. 10,  "Omnibus
       Opinion - 1966," No. 15, "Earnings per Share," and FASB Statement No. 47,
       "Disclosure of Long-Term  Obligations," for entities that were subject to
       the requirements of those  standards.  As the Company has been subject to
       the  requirements  of each of those  standards,  adoption of SFAS No. 129
       will have no impact on the Company's financial statements.

       In June 1997, the FASB issued Statement of Financial Accounting Standards
       No. 130 (SFAS No. 130),  "Reporting  Comprehensive  Income." SFAS No. 130
       establishes  standards  for the  reporting  and display of  comprehensive
       income and its  components  in the financial  statements.  The Company is
       required to adopt the  provisions  of the  Statement  for the year ending
       January  31,  1999.  Earlier  application  is  permitted;  however,  upon
       adoption the Company will be required to reclassify  previously  reported
       annual and interim  financial  statements.  The Company believes that the
       disclosure of  comprehensive  income in accordance with the provisions of
       SFAS No. 130 will not impact the manner of  presentation of its financial
       statements as currently and previously reported.

       In June 1997, the FASB issued Statement of Financial Accounting Standards
       No. 131 (SFAS No. 131),  "Disclosures about Segments of an Enterprise and
       Related  Information."  SFAS No.  131  requires  the  Company  to present
       certain  information  about operating  segments and related  information,
       including  geographic and major  customer  data, in its annual  financial
       statements and in condensed financial statements for interim periods. The
       Company is required to adopt the provisions of the Statement for the year
       ending January 31, 1999. Earlier application is permitted;  however, upon
       adoption  the Company  will be required  to restate  previously  reported
       annual segment and related  information in accordance with the provisions
       of SFAS No. 131. The Company has not completed its analysis of the impact
       on the financial  statements  that will be caused by the adoption of this
       Statement.


5.     Reclassifications

       Certain reclassifications of prior year amounts have been made to conform
       with the current year presentation.



<PAGE>


ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
              FINANCIAL CONDITION


              This  quarterly  report  on  Form  10-Q  contains  forward-looking
              statements  within the  meaning of Section  27A of the  Securities
              Exchange Act of 1934.  These are  in paragraphs  2, 8, 11, 13, 14,
              16, 18,  21, 23 and 24 of  Management's  Discussion  and  Analysis
              of Results of Operations and Financial Condition.  A more complete
              discussion of business  risks is included in the Company's  Annual
              Report on Form 10-K for the year ended January 31, 1997.

       (a)    Results of Operations

              During the third quarter of Fiscal Year 1998 (year ending  January
              31, 1998),  the Company  recorded total revenues of $22.0 million,
              up 19.6% from revenues of $18.4 million for the comparable  period
              of the prior fiscal year. Revenues for the first three quarters of
              Fiscal Year 1998 of $63.1  million are up 24.0% from $50.9 million
              for the  comparable  period of the prior  fiscal  year.  Increased
              year-to-year revenues are primarily due to:

                 o  increased  sales of  the   Company's wireless communications
                    products, including  various field  measurement  and revenue
                    assurance  system   to  major cellular  telephone  carriers;
                 o  acquisitions as of  October  1,  1996 and  February  5, 1997
                    of  callbox product lines from GTE and Cubic Communications,
                    respectively; and
                 o  acquisition as of August 1, 1996 of a  commercial outsourced
                    staffing company.

              Total  direct  costs of $13.6  million  for the third  quarter  of
              Fiscal Year 1998 are up $1.8 million, or 15.3%, from $11.8 million
              for the third  quarter of Fiscal Year 1997.  Direct  costs for the
              first three  quarters of Fiscal Year 1998 of $38.8  million are up
              $8.4  million,  or 27.6%,  from $30.4  million for the  comparable
              period of the prior  fiscal  year.  The  increases  are due to the
              on-going costs  contributed by the  acquisitions of the commercial
              outsourced  staffing  company  and the  cellular  callbox  product
              lines, as well as costs to add additional wireless  communications
              products  business  capacity  in a new,  larger  U.S.  facility to
              support future higher anticipated sales levels.

              Total  indirect  costs of $6.1  million  for the third  quarter of
              Fiscal Year 1998 are up $1.0 million,  or 19.6%, from $5.1 million
              for the third quarter of Fiscal Year 1997.  Indirect costs for the
              first three  quarters of Fiscal Year 1998 of $18.4  million are up
              $2.7  million,  or 17.1%,  from $15.7  million for the  comparable
              period of the prior fiscal year. The increases are also related to
              the  commercial  outsourced  staffing  and  callbox  product  line
              acquisitions,  as well as  increased  costs from  expansion in the
              wireless   communications   products   business,   including   the
              establishment of two international sales offices.

              Net interest income  (interest  income less interest  expense) for
              the third  quarter of Fiscal Year 1998  amounted  to  $80,000,  as
              compared to $126,000 for the comparable period of the prior fiscal
              year.  Net interest  income for the first three quarters of Fiscal
              Year 1998  amounted to  $336,000,  as compared to $426,000 for the
              comparable  period of the prior fiscal  year.  The  decreases  are
              principally  due to a reduction  in cash  available to invest over
              the current  year's first three  quarters,  as a result of funding
              the  wireless  communications  products  expansion  and the  Cubic
              callbox  product  line  acquisition,  as  well  as  cash  used  to
              re-purchase Company common stock.

              The Company's  effective tax rate for the first three  quarters of
              Fiscal  Year 1998 is 38% versus an  effective  tax rate of 36% for
              the comparable period of the prior fiscal year.

              The overall  increase in net income from the prior  fiscal year is
              due  to  the  significant   increase  in  the  sales  of  wireless
              communications products.


              Wireless Communications Products

              Wireless  communications products revenues increased 97.5% to $7.9
              million  for the  third  quarter  of  Fiscal  Year  1998 from $4.0
              million  for the  comparable  period  of the  prior  fiscal  year.
              Revenues  increased  72.1% to $21.0 million for the three quarters
              ended  October  31,  1997 from $12.2  million  for the  comparable
              period  of the  prior  fiscal  year.  These  increases  are due to
              increased  sales of the Company's  field  measurement  systems and
              revenue  assurance systems for major cellular  telephone  carriers
              and the  acquisition  of the  callbox  product  lines from GTE and
              Cubic  Communications.  The Company has  continued  to broaden its
              product line with the introduction of field measurement equipment,
              including  products  supporting  the  GSM,  CDMA,  IS-136  and PCS
              1800/1900 air interfaces.  Summary  operating  results for Comarco
              Wireless Technologies, Inc., the Company's wireless communications
              products subsidiary, are as follows:

<TABLE>

                                                          Three Quarters Ended         Three Quarters Ended
                                                            October 31, 1997             October 31, 1996
                                                            ----------------             ----------------
                    <S>                                       <C>                          <C>
                    Revenues                                  $20,955,000                  $12,244,000
                    Cost of product sales                       9,466,000                    4,691,000
                                                                ---------                    ---------

                    Gross margin                               11,489,000                    7,553,000
                    Gross margin percentage                         54.8%                        61.7%

                    Indirect costs*                             6,641,000                    4,370,000
                                                                ---------                    ---------

                    Operating income                          $ 4,848,000                  $ 3,183,000
                                                               ==========                   ==========

</TABLE>

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

              The  decreased  gross margin  percentage  is due to the  increased
              costs   incurred  to  increase   the   capacity  of  the  wireless
              communications   products  business,   which  included  additional
              staffing,   moving  to  a  larger  facility  in  California,   and
              associated  costs  to  support  future  anticipated  higher  sales
              levels; along with the addition of the callbox product line.

              The  increase  in  indirect  costs of 52.0%  for the  first  three
              quarters  of Fiscal  Year 1998 over the  comparable  period of the
              prior fiscal year is a result of costs  incurred to establish  two
              international  sales  offices  and an  increase  in  research  and
              development.   Selling,   general  and   administrative   expenses
              increased  55.0% from the first three quarters of Fiscal Year 1997
              to the first three  quarters of Fiscal Year 1998,  while  research
              and  development  expenses  increased 39.3% to $1,169,000 from the
              first  three  quarters  of Fiscal  Year  1997 to the  first  three
              quarters of Fiscal Year 1998.

              Operating  income as a  percentage  of  revenues  is 25.5% for the
              third  quarter  of Fiscal  Year  1998,  compared  to 24.4% for the
              comparable period of the prior fiscal year.  Operating income as a
              percentage  of revenues  is 23.1% for the first three  quarters of
              Fiscal Year 1998,  compared to 26.0% for the comparable  period of
              the prior fiscal year. The year-to-year  decrease is primarily due
              to the  increased  costs  related to  business  expansion  and the
              addition of the callbox product line, as discussed above.

              As part of its overall product development program, the Company is
              continuing  its  software  product   development  program  in  its
              wireless  communications  products  business.  In accordance  with
              Financial  Accounting Standard No. 86, Accounting for the Costs of
              Computer Software to be Sold, Leased, or Otherwise  Marketed,  the
              Company  capitalized  $1,968,000  and  $1,725,000,   respectively,
              during the first  three  quarters  of Fiscal  Years 1998 and 1997,
              respectively.  Corresponding  amounts  amortized were $719,000 and
              $875,000,  respectively.  The Company's  future product  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.  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.

              The Company's orders for wireless  communications products totaled
              $10.1  million for the third  quarter of Fiscal Year 1998, up from
              $8.3  million from the  comparable  prior  period.  For the twelve
              month periods ended  October 1997 and 1996,  orders  received were
              $36.6  million and $19.9  million,  respectively.  Included in the
              amount for the twelve  months ended October 31, 1997 is $4 million
              of long-term  maintenance  service  business  associated  with the
              purchase of the Cubic callbox  product  line.  Because of the long
              sales cycle  involved in selling these  products and the high unit
              sales price, the Company believes that orders are best analyzed by
              looking at a twelve  month time  period,  as orders can  fluctuate
              significantly  from  quarter  to  quarter.  The value of  unfilled
              orders at October 31, 1997 totalled $21.0 million,  of which $10.9
              million relates to long-term maintenance contracts.  An additional
              $2.0 million of deferred revenue has been recorded for anticipated
              customer warranty obligations.

              The   Company   has    experienced    fluctuations   in   wireless
              communications  products  activity in each of the past four years,
              with  greater  sales in the  second  half of its  fiscal  year and
              lesser  amounts  in the  first  half.  This  trend  may or may not
              continue as the Company attempts to broaden its product offerings.
              The nature of the  wireless  communications  products  business is
              inherently unpredictable as the Company has not historically had a
              significant  amount  of  unfilled  orders  at the end of a period.
              Therefore,  the amount of orders,  sales  levels,  and profits are
              difficult to predict and may fluctuate  significantly from quarter
              to quarter.

              The  Company  faces  additional  risk  factors in  developing  its
              wireless  communications  products  business,  including:  foreign
              marketing,    capital   requirements,    technical   requirements,
              employees,  competition,  and proprietary information.  A negative
              impact to any of these risk factors could have a material  adverse
              effect on the Company's business, operating results, and financial
              condition.  Foreign  marketing risks include:  the need for export
              licenses;  tariffs and other  potential  trade  restrictions;  and
              changes in laws governing the imposition of duties, quotas, taxes,
              or other charges relating to the import or export of its products.
              Other companies  having a presence or doing business  overseas may
              have  advantages   over  the  Company  in  these  areas.   Certain
              components  used by the Company in its existing  products are only
              available  from a single or limited  number of suppliers,  and the
              inability   by  any  of  these   suppliers   to  fulfill   Company
              requirements  may result in an interruption in production.  Access
              to technical design of air interface  devices is essential for the
              Company   to   anticipate   and   develop   compatible    wireless
              communications  products,  therefore, the inability to obtain such
              technical  designs on a timely basis would have a direct impact on
              product  design and schedule.  The Company's  future  success also
              depends  in  large  part  on the  continued  service  of  its  key
              personnel,  and on its  ability to  continue to attract and retain
              qualified employees, especially highly skilled engineers, for whom
              competition in the industry is intense.  In addition,  the ability
              of the Company to compete  successfully  depends  upon a number of
              factors,   including  the  rate  at  which  customers  accept  the
              Company's  products  in  overseas  markets,  product  quality  and
              performance,  experienced  sales and  marketing  personnel,  rapid
              development  of  new  products  and  features,  evolving  industry
              standards, and the number and nature of the Company's competitors.
              There can be no assurance that the Company will be able to compete
              successfully in the future. The Company relies on a combination of
              trade secrets,  copyrights,  trademarks, and contractual rights to
              protect its intellectual property.  There can be no assurance that
              the steps  taken by the  Company  will be  adequate to protect 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.


              Outsourced Staffing Services Revenue

              Revenues  provided by the Company's  outsourced  staffing services
              business  area  decreased  2.1%,  from $14.4  million in the third
              quarter of Fiscal Year 1997 to $14.1  million in the third quarter
              of Fiscal Year 1998.  Revenues from this  business area  increased
              9.1%,  from $38.6  million for the first three  quarters of Fiscal
              Year 1997 to $42.1 million for the first three  quarters of Fiscal
              Year 1998.  Revenues in this business area decreased from 75.8% of
              the Company's total revenues in the first three quarters of Fiscal
              Year 1997 to 66.7% of the  Company's  total  revenues in the first
              three quarters of Fiscal Year 1998.  The increase in  year-to-year
              revenue is due to the  acquisition  of the  commercial  outsourced
              staffing company on August 1, 1996, which contributed $7.8 million
              of revenue in the first three quarters of Fiscal Year 1998, versus
              $2.6  million  in the third  quarter  of Fiscal  Year  1998.  This
              increase was  partially  offset by a decrease in other  outsourced
              staffing  revenue  at some of the  Company's  locations  providing
              services to government agencies.

               Sales to  the  U.S.  Government  as  well as to  government prime
               contractors  were  42% and  33% of the  Company's  total  revenue
               during the first three  quarters  of Fiscal  Years 1997 and 1998,
               respectively.  In the  course  of  the  Company's  business,  its
               government  contracts are  periodically  opened for  competition.
               None of the Company's  government  contracts are scheduled to end
               in Fiscal Year 1998,  however  the  Company's  contract  with the
               Naval  Surface  Warfare  Center at Crane,  Indiana  is  currently
               scheduled to end in the first  quarter of Fiscal Year 1999.  This
               contract has generated  approximately  10% of the Company's total
               revenues  for the first three  quarters of Fiscal Year 1998.  The
               Company has  submitted a proposal to the Navy in the  competition
               for this work.  In  addition,  the  Company's  contract  with the
               Metropolitan Washington Airports Authority at Washington National
               Airport is scheduled  to end in the third  quarter of Fiscal Year
               1999.  This  contract  has  generated approximately  11%  of  the
               Company's  total  revenues for the first three quarters of Fiscal
               Year  1998.  Due to  competitive  circumstances  in  the  parking
               management  business,  the  Company  may not elect to pursue this
               work after the contract ends.  The Company plans to  aggressively
               compete for any other work opened for  competition  to the extent
               possible and  selectively  pursue  certain high value  government
               procurements.  There can be no assurance that the Company will be
               selected and awarded the work  associated  with any of its future
               proposals.  In addition,  government agencies may terminate their
               contracts  in whole or in part at their  convenience.  Government
               agencies  may  remove  funding  previously  provided  or may  not
               exercise  option  periods.  Therefore,  there can be no assurance
               that  government  agencies  will fund the  portions  of  existing
               contracts  that are unfunded,  or that the agencies will exercise
               any options.

              Operating  income  (revenues less direct costs and indirect costs)
              for  outsourced  staffing  services is down 56.6% from $555,000 in
              the third  quarter of Fiscal  Year 1997 to  $241,000  in the third
              quarter of Fiscal  Year  1998.  Operating  income  for  outsourced
              staffing services is down 30.4% from $1,514,000 in the first three
              quarters  of Fiscal  Year 1997 to  $1,053,000  in the first  three
              quarters  of Fiscal  Year 1998.  Decreased  operating  income from
              several   government   airport  services  and  Federal  Government
              services  contracts  was partially  offset by increased  operating
              income  provided by the  acquisition of the commercial  outsourced
              staffing company.


       (b)    Financial Condition

              The  Company  signed  a  loan  agreement  with  a  bank  effective
              September 26, 1994,  which was amended  effective August 15, 1997.
              The loan agreement  consists of (1) an $8 million revolving credit
              facility,  which  expires  May  31,  1999,  and  (2) a $5  million
              guidance line of credit, which expires May 31, 1998. The revolving
              credit  facility  and the  guidance  line of credit are  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 $12
              million   (includes  highly  liquid  long-term   investments  with
              maturities of 12 to 36 months)  during the first three quarters of
              Fiscal  Year 1998.  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,
              software  product  development  costs,  and  the  Company's  stock
              re-purchase program.

              During the first three quarters of Fiscal Year 1998, the Company's
              average  days'  sales  in  accounts   receivable  have  increased,
              primarily  due  to  increased  sales  of  wireless  communications
              products,  which have a longer collection cycle than the Company's
              outsourced staffing revenues.

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

                                                   October 31, 1997       January 31, 1997
                                                   ----------------       ----------------
              <S>                                  <C>                    <C>
              Current ratio                                  2.47                   2.87
              Working capital                      $   18,759,000         $   20,429,000
              Book value per share                          $6.22                  $5.65

</TABLE>

              The  decrease in the current  ratio and amount of working  capital
              during the first three  quarters of Fiscal Year 1998 is due to the
              funding  of  the   wireless   communications   products   business
              expansion,  as well as funds used to  re-purchase  Company  common
              stock during the first three quarters of Fiscal Year 1998.

              The Company has a significant  commitment for capital expenditures
              at October 31, 1997 for Comarco  Wireless  Technologies,  Inc. The
              Company  has  developed  and  intends to  continue  to develop new
              product line extensions for the wireless communications  industry.
              This product development program is expected to be funded from the
              Company's current working capital.  Under the software development
              portion of the Company's product development  program, the Company
              capitalized and amortized in accordance with Financial  Accounting
              Standard No. 86,  Accounting for the Costs of Computer Software to
              be Sold, Leased, or Otherwise  Marketed,  $1,968,000 and $938,000,
              respectively, in the first three quarters of Fiscal Year 1998.

              The  Company's   Board  of  Directors   has   authorized  a  stock
              re-purchase  program of up to 1,500,000  shares. As of October 31,
              1997,  the Company  has  re-purchased  and  retired  approximately
              929,000  shares.  The  average  price paid per share  re-purchased
              under the program was $6.55.

              The Company is subject to legal proceedings and claims which 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.

              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.


<PAGE>




PART II - OTHER INFORMATION

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K

       (a)    Exhibits

              The following exhibits are included herewith:

              ll.   Schedule of Computation of Net Income Per Share

       (b)    Reports on Form 8-K

              None.


<PAGE>


                                    SIGNATURE
                                    ---------


Pursuant  to the  requirements  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.




                                  COMARCO, Inc.
                                  -------------
                                  (Registrant)




December 15, 1997




               -------------------------------------------------
                                 Thomas P. Baird
                             Chief Financial Officer
              (Authorized Officer and Principal Financial Officer)