##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the quarterly period ended
 APRIL 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the transition period from  to
 Commission file number 0-5449
 COMARCO, INC.
  
 California
(State or other jurisdiction 
of incorporation or organization)
    
    95-2088894
(I.R.S. Employer
Identification No.)
 
 
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
  o þ




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##### 



COMARCO, INC. AND SUBSIDIARIES
 QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED APRIL 30, 2009
 TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS (Unaudited)Condensed Consolidated Balance Sheets as of April 30, 2009 and January 31, 2009
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended April 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    15ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    23ITEM 4. CONTROLS AND PROCEDURES
    
    
    24PART II  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    25ITEM 1A. RISK FACTORS
    
    
    25ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    26ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    26ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    26ITEM 5. OTHER INFORMATION
    
    
    26ITEM 6. EXHIBITS
    
    
    26SIGNATURES
    
    
    28EX-10.3EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 COMARCO, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (In thousands, except share amounts)
 April 30,
    
    
    January 31,2009
    
    
    2009 (A)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    12,517
    
    
    $
    14,144Accounts receivable, net of reserves of $14 and $14
    
    
    2,074
    
    
    
    3,974Inventory, net of reserves of $1,505 and $1,488
    
    
    688
    
    
    
    1,232Other current assets
    
    
    585
    
    
    
    862Total current assets
    
    
    15,864
    
    
    
    20,212Property and equipment, net
    
    
    1,132
    
    
    
    1,279Restricted cash
    
    
    77
    
    
    
    77Total assets
    
    $
    17,073
    
    
    $
    21,568LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    1,046
    
    
    $
    1,501Deferred revenue
    
    
    64
    
    
    
    77Accrued liabilities
    
    
    1,872
    
    
    
    3,092Total current liabilities
    
    
    2,982
    
    
    
    4,670Tax liability: FIN 48
    
    
    86
    
    
    
    86Deferred rent, net of current portion
    
    
    153
    
    
    
    182Deferred revenue, net of current portion
    
    
    6
    
    
    
    9Total liabilities
    
    $
    3,227
    
    
    $
    4,947Commitments and ContingenciesStockholders Equity:Preferred stock, no par value, 10,000,000 shares authorized;
no shares issued or outstanding at April 30, 2009 and
January 31, 2009
    
    
    
    
    
    
    Common stock, $0.10 par value, 50,625,000 shares
authorized; 7,326,671 and 7,326,671 shares issued and
outstanding at April 30, 2009 and January 31, 2009,
respectively
    
    
    733
    
    
    
    733Additional paid-in capital
    
    
    14,771
    
    
    
    14,705Retained earnings (accumulated deficit)
    
    
    (1,658
    )
    
    
    1,183Total stockholders equity
    
    
    13,846
    
    
    
    16,621Total liabilities and stockholders equity
    
    $
    17,073
    
    
    $
    21,568
 
 (A)
    
    Derived from the audited consolidated financial statements as of January 31, 2009.  3




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##### Table of Contents



COMARCO, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 (In thousands, except per share amounts)
 Three Months EndedApril 30,2009
    
    
    2008Revenue
    
    $
    2,022
    
    
    $
    3,820Cost of revenue
    
    
    2,336
    
    
    
    3,846Gross loss
    
    
    (314
    )
    
    
    (26
    )Selling, general, and administrative expenses
    
    
    1,686
    
    
    
    3,502Engineering and support expenses
    
    
    870
    
    
    
    6152,556
    
    
    
    4,117Operating loss
    
    
    (2,870
    )
    
    
    (4,143
    )Other income (expense), net
    
    
    (10
    )
    
    
    53Loss from continuing operations before income taxes
    
    
    (2,880
    )
    
    
    (4,090
    )Income tax benefit
    
    
    
    
    
    
    954Net loss from continuing operations
    
    
    (2,880
    )
    
    
    (3,136
    )Income from discontinued operations, net of income taxes
    
    
    39
    
    
    
    1,479Net loss
    
    $
    (2,841
    )
    
    $
    (1,657
    )Basic and diluted income (loss) per share:Net loss from continuing operations
    
    $
    (0.39
    )
    
    $
    (0.43
    )Net income from discontinued operations
    
    
    
    
    
    
    0.20$
    (0.39
    )
    
    $
    (0.23
    )Weighted average common shares outstanding:Basic
    
    
    7,327
    
    
    
    7,327Diluted
    
    
    7,327
    
    
    
    7,327Common shares outstanding
    
    
    7,327
    
    
    
    7,327
  4




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COMARCO, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (in thousands)
 Three Months EndedApril 30,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net loss from continuing operations
    
    $
    (2,880
    )
    
    $
    (3,136
    )Adjustments to reconcile net loss from continuing operations to
net cash used in operating activities:Depreciation and amortization
    
    
    199
    
    
    
    173Loss on sale/retirement of property and equipment
    
    
    6
    
    
    
    17Stock based compensation expense
    
    
    66
    
    
    
    94Loan origination fees
    
    
    43
    
    
    
    Provision for obsolete inventory
    
    
    16
    
    
    
    23Changes in operating assets and liabilities:Accounts receivable
    
    
    1,900
    
    
    
    (2,547
    )Inventory
    
    
    528
    
    
    
    (210
    )Other assets
    
    
    277
    
    
    
    (242
    )Accounts payable
    
    
    (455
    )
    
    
    125Deferred revenue
    
    
    (16
    )
    
    
    23Deferred rent
    
    
    (29
    )
    
    
    (51
    )Accrued liabilities
    
    
    (1,220
    )
    
    
    1,420Net cash used in continuing operating activities
    
    
    (1,565
    )
    
    
    (4,311
    )Net cash provided by (used in) discontinued operating activities
    
    
    39
    
    
    
    (2,093
    )Net cash used in operating activities
    
    
    (1,526
    )
    
    
    (6,404
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (58
    )
    
    
    (195
    )Net cash used in continuing investing activities
    
    
    (58
    )
    
    
    (195
    )Net cash used in discontinued investing activities
    
    
    
    
    
    
    (344
    )Net cash used in investing activities
    
    
    (58
    )
    
    
    (539
    )CASH FLOWS FROM FINANCING ACTIVITIES:Loan origination fees
    
    
    (43
    )
    
    
    Net cash used in financing activities
    
    
    (43
    )
    
    
    Net decrease in cash and cash equivalents
    
    
    (1,627
    )
    
    
    (6,943
    )Cash and cash equivalents, beginning of period
    
    
    14,144
    
    
    
    17,011Cash and cash equivalents, end of period
    
    $
    12,517
    
    
    $
    10,068Supplemental disclosures of cash flow information:Cash paid for interest
    
    $
    
    
    
    $
    Cash paid for income taxes
    
    $
    14
    
    
    $
    14
  5




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COMARCO, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 1. Organization
 ® ®
 2. Summary of Significant Accounting Policies
 Future operations, Liquidity and Capital Resources:
 ® ® ®
  Basis of Presentation:
  Cash and Cash Equivalents
  6




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COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
  Principles of Consolidation:
  Use of Estimates:
   Reclassifications:
  3. Stock-Based Compensation
   7




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COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
  Three Months EndedApril 30,2009
    
    
    2008Total compensation expense relating to SFAS 123R
    
    $
    66
    
    
    $
    103Less: Amounts reflected in discontinued operations
    
    
    
    
    
    
    (9
    )Compensation expense relating to SFAS 123R from continuing operations
    
    $
    66
    
    
    $
    94Impact on basic and diluted earnings per share
    
    
    0.01
    
    
    
    0.01
   Three Months EndedApril 30, 2008Expected dividend yield
    
    
    0.0
    %Expected volatility
    
    
    37.9
    %Weighted average risk-free interest rate
    
    
    2.7
    %Expected life (in years)
    
    
    5.9Expected forfeitures
    
    
    8.2
    %
    8




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COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
  Outstanding OptionsNumber of
    
    Weighted-AverageShares
    
    Exercise PriceBalance, January 31, 2009
    
    
    1,184,000
    
    
    $
    4.34Options granted
    
    
    
    
    
    
    Options canceled or expired
    
    
    (73,000
    )
    
    
    9.71Options exercised
    
    
    
    
    
    
    Balance, April 30, 2009
    
    
    1,111,000
    
    
    $
    3.98
  Options Outstanding
    
    Options ExercisableWeighted-Avg.Range of
    
    Number
    
    Remaining
    
    Weighted-Avg.
    
    Number
    
    Weighted-Avg.Exercise Prices
    
    Outstanding
    
    Contractual Life
    
    Exercise Price
    
    Exercisable
    
    Exercise Price$
    1.09 to 4.90
    
    
    
    813,500
    
    
    
    9.5
    
    
    $
    1.29
    
    
    
    7,500
    
    
    $
    4.906.19 to 9.89
    
    
    
    166,000
    
    
    
    5.6
    
    
    
    7.77
    
    
    
    161,500
    
    
    
    7.5710.43 to 11.60
    
    
    
    60,000
    
    
    
    6.0
    
    
    
    10.72
    
    
    
    48,750
    
    
    
    10.7913.21 to 15.07
    
    
    
    17,500
    
    
    
    1.3
    
    
    
    14.27
    
    
    
    17,500
    
    
    
    14.2720.04 to 23.67
    
    
    
    54,000
    
    
    
    1.1
    
    
    
    22.16
    
    
    
    54,000
    
    
    
    22.161,111,000
    
    
    8.2 years
    
    
    3.98
    
    
    
    289,250
    
    
    
    11.17
  4. Recent Accounting Pronouncements
  5. Discontinued Operations
 Call Box
  9




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COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
   Three Months Ended April 30,2009
    
    
    2008Revenues
    
    $
    
    
    
    $
    2,421Income (loss) from discontinued operations:Gain on sale, net of taxes
    
    $
    
    
    
    $
    Income (loss) from discontinued operations, before taxes
    
    
    (4
    )
    
    
    774Income tax expense
    
    
    
    
    
    
    (303
    )Total income (loss) from discontinued operations
    
    $
    (4
    )
    
    $
    471
 Wireless Test Solutions
    Three Months Ended April 30,2009
    
    
    2008Revenues
    
    $
    
    
    
    $
    6,092Income from discontinued operations:Gain on sale, net of taxes of $0
    
    $
    43
    
    
    $
    Income from discontinued operations, before taxes
    
    
    
    
    
    
    1,659Income tax expense
    
    
    
    
    
    
    (651
    )Total income from discontinued operations
    
    $
    43
    
    
    $
    1,008
  6. Stockholders Equity
  10




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COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
 7. Loss Per Share
  8. Customer and Supplier Concentrations
  Three Months Ended April 30,2009
    
    
    2008Total revenue
    
    $
    2,022
    
    
    
    100
    %
    
    $
    3,820
    
    
    
    100
    %Customer concentration:Lenovo Information Products Co., Ltd.
    
    $
    2,006
    
    
    
    99
    %
    
    $
    3,223
    
    
    
    84
    %Kensington Technology Group
    
    
    12
    
    
    
    1
    %
    
    
    459
    
    
    
    12
    %$
    2,018
    
    
    
    100
    %
    
    $
    3,682
    
    
    
    96
    %
  Three Months EndedApril 30,2009
    
    
    2008North America
    
    $
    41
    
    
    $
    76Europe
    
    
    9
    
    
    
    529Asia
    
    
    1,972
    
    
    
    3,215$
    2,022
    
    
    $
    3,820
  April 30, 2009
    
    
    January 31, 2009Total gross accounts receivable
    
    $
    2,088
    
    
    
    100
    %
    
    $
    3,988
    
    
    
    100
    %Customer concentration:Lenovo Information Products Co., Ltd.
    
    $
    2,044
    
    
    
    98
    %
    
    $
    3,366
    
    
    
    84
    %Trust International BV
    
    
    
    
    
    
    
    
    
    
    606
    
    
    
    15
    %$
    2,044
    
    
    
    98
    %
    
    $
    3,972
    
    
    
    99
    %
  11




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COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
   Three months Ended April 30,2009
    
    2008Total product costs
    
    $
    1,731
    
    
    
    100
    %
    
    $
    3,407
    
    
    
    100
    %Supplier concentration:Flextronics Electronics
    
    $
    1,098
    
    
    
    63
    %
    
    $
    3,123
    
    
    
    92
    %$
    1,098
    
    
    
    63
    %
    
    $
    3,123
    
    
    
    92
    %
  9. Inventory
  April 30,
    
    
    January 31,2009
    
    
    2009Raw materials
    
    $
    330
    
    
    $
    290Finished goods
    
    
    358
    
    
    
    942$
    688
    
    
    $
    1,232
  10. Warranty Arrangements
  12




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COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
 April 30,2009
    
    
    2008Beginning balance
    
    $
    86
    
    
    $
    46Accruals for warranties issued during the period
    
    
    20
    
    
    
    39Utilization
    
    
    (36
    )
    
    
    (18
    )$
    70
    
    
    $
    67
 11. Loan Agreement
   12. Commitments and Contingencies
 Purchase Commitments with Suppliers
  Executive Severance Commitments
  Letter of Credit
  13




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COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
  Legal Contingencies
    14




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 The following discussion and analysis should be read in conjunction with our unaudited interim
consolidated financial statements and the related notes and other financial information appearing
elsewhere in this quarterly report on Form 10-Q .
 Forward-Looking Statements
     Basis of Presentation
  15




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Executive Summary
 ® ®
  
    
    On March 16, 2009, we entered into an exclusive Retail Strategic Product Development
and Supply Agreement (the Targus Agreement) with Targus Group International, Inc., a
Delaware corporation (Targus). The product offerings for Targus include the
following:
 
    
    A programmable AC adapter that connects easily to a standard
wall plug and includes a DC cable that supports charging two devices
simultaneously. It will be packaged with up to 10 SmartTips®.
    
    A programmable AC adapter that includes both input and output
cables (AC or AC/DC) and will be packaged with up to 10 SmartTips®.
 We began shipments to Targus under this Targus Agreement during the second quarter of
fiscal 2010.
    
    Revenue for the first quarter of fiscal 2010 decreased to $2.0 million compared to
$3.8 million for the first quarter of fiscal 2009. The decrease is primarily
attributable to reduced shipments to Lenovo, in anticipation of the release of our new
product. We anticipate that we will begin shipping our new product for Lenovo in the
second half of the current fiscal year.
    
    In late January 2008, we began volume production of a small form factor 90-watt
AC/DC standalone power adapter designed to the stringent specifications of Lenovo, a
leading notebook computer OEM. This innovative product is currently being marketed and
sold as an OEM-branded aftermarket accessory.
    
    During the first quarter of fiscal 2008, we entered into a non-exclusive
distribution arrangement with Kensington Technology Group (Kensington), thereby
terminating our exclusive distribution agreement. Under the exclusive Targus Agreement
described above, we will no longer sell to Kensington effective during the second
quarter of fiscal 2010.
    
    The current level of sales is insufficient to fully absorb our operating expenses.
Our ability to drive increased sales is dependent upon, among others, the following
factors:
 
    
    Successful development and release for manufacture of certain
AC and AC/DC standalone power adapter products designed to address the
requirements of our retail and OEM accessories channels;
    
    Securing additional OEM partners; and
    
    Market and customer acceptance of our new products expected to
be available by the end of the second and third quarters of fiscal 2010.
 
    
    Our ChargeSource® products are based on proprietary patented construction technology
that enables the production of slim and light power sources for many rechargeable
mobile devices from standard wall outlets, as well as power outlets in airplanes, cars,
and other modes of transportation.
    
    We are currently in negotiations with our third party contract manufacturers in an
effort to reduce our unit costs for our products. Reducing our product costs is
important to our efforts to improve our margins.
    
    We are focused on preserving our cash balances by monitoring expenses, identifying
costs savings, and investing only in those development programs and products that we
believe will most likely contribute to our profitability.
 16




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Critical Accounting Policies
   Results of Operations
  Revenue
 Three Months Ended April 30,2009
    
    
    2008(In thousands)% of
    
    
    
    
    
    
    % of
    
    
    2009 over 2008Revenue
    
    
    
    
    
    
    Revenue
    
    
    % ChangeRevenue
    
    $
    2,022
    
    
    
    100
    %
    
    $
    3,820
    
    
    
    100
    %
    
    
    (47
    %)Operating loss
    
    $
    (2,870
    )
    
    
    
    
    
    $
    (4,143
    )Loss from continuing operations
    
    $
    (2,880
    )
    
    
    
    
    
    $
    (3,136
    )
 Revenue by Geographic Region
 Three Months Ended April 30,2009
    
    
    2008
    
    
    2009 over 2008(In thousands)
    
    
    % ChangeRevenue:North America
    
    $
    41
    
    
    $
    76
    
    
    
    (46
    %)Europe
    
    
    9
    
    
    
    529
    
    
    
    (98
    %)Asia
    
    
    1,972
    
    
    
    3,215
    
    
    
    (39
    %)$
    2,022
    
    
    $
    3,820
    
    
    
    (47
    %)
 17




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Revenue by Customer
 Three Months Ended April 30,2009
    
    
    2008
    
    
    2009 over 2008(In thousands)
    
    
    % ChangeRevenue:Lenovo
    
    $
    2,006
    
    
    $
    3,223
    
    
    
    (38
    %)Kensington
    
    
    12
    
    
    
    458
    
    
    
    (97
    %)Tumi
    
    
    
    
    
    
    139
    
    
    
    (100
    %)Other
    
    
    4
    
    
    
    
    
    
    
    100
    %$
    2,022
    
    
    $
    3,820
    
    
    
    (47
    %)
 Revenue
  Cost of Revenue and Gross Margin
 Three Months Ended April 30,2009
    
    2008(In thousands)% of
    
    
    
    
    
    % of
    
    2009 over 2008Total
    
    
    
    
    
    Total
    
    % ChangeCost of revenue:Product costs
    
    $
    1,731
    
    
    
    74
    %
    
    $
    3,407
    
    
    
    89
    %
    
    
    (49
    %)Under-absorption of fixed supply
chain overhead
    
    
    493
    
    
    
    21
    %
    
    
    386
    
    
    
    10
    %
    
    
    28
    %Inventory reserve and scrap
charges
    
    
    112
    
    
    
    5
    %
    
    
    
    
    
    
    
    
    
    
    100
    %Freight, expedite, and other
charges
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    1
    %
    
    
    (100
    %)$
    2,336
    
    
    
    100
    %
    
    $
    3,846
    
    
    
    100
    %
    
    
    (39
    %)
 Three Months Ended April 30,
    
    2009 over 20082009
    
    2008
    
    ppt ChangeGross loss
    
    
    (16
    %)
    
    
    (1
    %)
    
    
    (15
    )
  18




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##### Table of Contents



Operating Costs and Expenses
 Three Months Ended April 30,2009
    
    
    2008(in thousands)% of
    
    
    
    
    
    
    % of
    
    
    2009 over 2008Revenue
    
    
    
    
    
    
    Revenue
    
    
    % ChangeOperating expenses:Selling, general, and
administrative expenses,
excluding corporate overhead
    
    $
    815
    
    
    
    40
    %
    
    $
    1,139
    
    
    
    30
    %
    
    
    (28
    %)Corporate overhead
    
    
    871
    
    
    
    43
    %
    
    
    2,363
    
    
    
    62
    %
    
    
    (61
    %)Engineering and support expenses
    
    
    870
    
    
    
    43
    %
    
    
    615
    
    
    
    16
    %
    
    
    41
    %$
    2,556
    
    
    
    126
    %
    
    $
    4,117
    
    
    
    108
    %
    
    
    (37
    %)
    Other Income, net
  Income Tax Expense
  19




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##### Table of Contents



Discontinued Operations, net of income taxes
 Income from Discontinued Operations  Call Box
(in thousands except change)
 Three Months Ended April 30,
    
    
    Year over Year2009
    
    
    2008
    
    
    % ChangeRevenues
    
    $
    
    
    
    $
    2,421
    
    
    
    (100
    %)Income (loss) from discontinued operations:Gain on sale, net of income taxes
    
    $
    
    
    
    $
    
    
    
    
    Income (loss) from discontinued
operations, before taxes
    
    
    (4
    )
    
    
    774
    
    
    
    (101
    %)Income tax expense
    
    
    
    
    
    
    (303
    )
    
    
    (100
    %)Total income (loss) from discontinued operations
    
    $
    (4
    )
    
    $
    471
    
    
    
    (101
    %)
  Income from Discontinued Operations  Wireless Test Solutions  (in thousands except change)
 Three Months Ended April 30,
    
    
    Year over Year2009
    
    
    2008
    
    
    % ChangeRevenues
    
    $
    
    
    
    $
    6,092
    
    
    
    (100
    %)Income from discontinued operations:Gain on sale, net of income taxes of $0
    
    $
    43
    
    
    $
    
    
    
    
    100
    %Income from discontinued
operations, before taxes
    
    
    
    
    
    
    1,659
    
    
    
    (100
    %)Income tax expense
    
    
    
    
    
    
    (651
    )
    
    
    (100
    %)Total income from discontinued operations
    
    $
    43
    
    
    $
    1,008
    
    
    
    (96
    %)
  20




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##### Table of Contents



Liquidity and Capital Resources
  Three Months Ended April 30,2009
    
    2008(in thousands)Cash used in:Operating activities
    
    $
    (1,526
    )
    
    $
    (6,404
    )Investing activities
    
    
    (58
    )
    
    
    (539
    )Financing activities
    
    
    (43
    )
    
    
    
 Operating Activities
    Investing Activities
  ®
  Financing Activities
   21




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##### Table of Contents




    
    In the event that any of our significant customers cancel a significant amount of
orders or are unable to perform due to their inability to take delivery of the ordered
products and/or pay for such products in a timely manner, we would be required to
establish alternative distribution channels. Such significant change would negatively
impact our revenue, operating results, and cash flows.
    
    Should the contract manufacturer of our ChargeSource® products become unable to
manufacture our products at the level currently anticipated, our operating results and
cash flows would be negatively impacted.
    
    The delay in development or release of our ChargeSource® products could negatively
impact our revenue, operating results and cash flows.
  22




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Currency Risk
  Interest Rate Sensitivity
    23




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  (1)
    
    pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the issuer;(2)
    
    provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the issuer are being made
only in accordance with authorizations of management and directors of the issuer; and(3)
    
    provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the issuers assets that could have a
material effect on the financial statements.
  24




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 iGo, Inc. (formerly Mobility Electronics, Inc.) (iGo) vs. Comarco Wireless Technologies,
Inc., Case No. 5:07cv00084, U.S. District Court for the Eastern District of Texas.
   
 ITEM 1A. RISK FACTORS
  Our Restated Articles of Incorporation and our Amended and Restated Bylaws and at least one
agreement to which we are a party contain provisions which may discourage attempts by others to
acquire or merge with us, which could reduce the market value of our common stock.
  
    
    the authorization of our board of directors to issue preferred stock with such
rights and preferences as may be determined by the board of directors, without the
approval of our shareholders;
    
    the prohibition of action by the written consent of the shareholders;
 25




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##### Table of Contents




    
    the establishment of advance notice requirements for director nominations and
other proposals by shareholders for consideration at shareholder meetings;
    
    the requirement that the holders of at least two-thirds of the outstanding
common stock entitled to vote at a meeting are required to approve certain business
combinations with interested stockholders; and
    
    the requirement that the holders of at least two-thirds of the outstanding
common stock entitled to vote at a meeting are required to approve certain changes
to specific provisions of our Articles of Incorporation (including those provisions
described above).
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
 
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
None.
 
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
 
 ITEM 5.
    
    OTHER INFORMATION
None.
 
 ITEM 6.
    
    EXHIBITS
 3.1
    
    Articles of Incorporation of Comarco, Inc., as amended
(incorporated by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q,
filed on December 15, 2000)3.2
    
    Amended and Restated Bylaws of Comarco, Inc. (incorporated by
reference to Exhibit 3.1 to our Current Report on Form 8-K, filed on February
24, 2009)3.3
    
    Certificate of Determination of Series A Participating
Preferred Stock (incorporated by reference to Exhibit 99.2 to our Registration
Statement on Form 8-A, filed on February 6, 2003)10.1
    
    Loan and Security Agreement, dated as of February 12, 2009, by
and among Comarco, Inc., Comarco Wireless Technologies, Inc. and Silicon Valley
Bank (incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K, filed on February 18, 2009)10.2
    
    Strategic Product Development and Supply Agreement, dated as of
March 16, 2009, by and between Comarco, Inc. and Targus Group International,
Inc. (incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K, filed March 20, 2009) *
 26




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##### Table of Contents



10.3
    
    Compromise Settlement Agreement and Release, dated as of July
12, 2003, among Comarco, Inc., Comarco Wireless Technologies, Inc., iGo, Inc.
(formerly Mobility Electronics, Inc.) and the other parties identified therein31.1
    
    Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Confidential treatment has been requested with respect to certain provisions of
this agreement. Omitted portions have been filed separately with the SEC. 27




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##### Table of Contents



SIGNATURES
  COMARCO, INC.Date: June 15, 2009
    /s/ SAMUEL M. INMAN, IIISamuel M. Inman, IIIPresident and Chief Executive Officer

(Principal Executive Officer), DirectorDate: June 15, 2009
    /s/ WINSTON E. HICKMANWinston E. HickmanVice President and Chief Financial Officer
(Principal Financial and Accounting Officer) 28




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    Description3.1
    
    Articles of Incorporation of Comarco, Inc., as amended (incorporated by reference to
Exhibit 3.1 to our Quarterly Report on Form 10-Q, filed on December 15, 2000)3.2
    
    Amended and Restated Bylaws of Comarco, Inc. (incorporated by reference to Exhibit 3.1 to our
Current Report on Form 8-K, filed on February 24, 2009)3.3
    
    Certificate of Determination of Series A Participating Preferred Stock (incorporated by
reference to Exhibit 99.2 to our Registration Statement on Form 8-A, filed on February 6,
2003)10.1
    
    Loan and Security Agreement, dated as of February 12, 2009, by and among Comarco, Inc.,
Comarco Wireless Technologies, Inc. and Silicon Valley Bank (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K, filed on February 18, 2009)10.2
    
    Strategic Product Development and Supply Agreement, dated as of March 16, 2009, by and
between Comarco, Inc. and Targus Group International, Inc. (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K, filed March 20, 2009) *10.3
    
    Compromise Settlement Agreement and Release, dated as of July 12, 2003, among Comarco, Inc.,
Comarco Wireless Technologies, Inc., iGo, Inc. (formerly Mobility Electronics, Inc.) and the
other parties identified therein31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
 
 *
    
    Confidential treatment has been requested with respect to certain provisions of this agreement.
Omitted portions have been filed separately with the SEC. 29