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, 1998                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)

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

Registrant's telephone number, including area code             (714) 796-1808
                                                               --------------



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, 1998.

                        Common Stock,
                       $.10 Par Value                   4,441,460 Shares
                       --------------                   ----------------


<PAGE>


                                    
Index to Form 10-Q

                                                                       Page No.
 Part I.        Financial Information


 Condensed Consolidated Balance Sheets
     October 31, 1998 and January 31, 1998                               1

 Condensed Consolidated Statements of Income
     Quarters Ended and Three Quarters Ended October 31, 1998
      and October 31, 1997                                               2

 Condensed Consolidated Statements of Cash Flows
     Three Quarters Ended October 31, 1998 and October 31, 1997          3

 Notes to Condensed Consolidated Financial Statements                    4-6

 Management's Discussion and Analysis of Financial
     Condition and Results of Operations                                 7-13



PART II.       OTHER INFORMATION

Item 6.     Exhibits and Reports on Form 8-K                             14

Signature                                                                15


<PAGE>


                                                                   
                         PART I - FINANCIAL INFORMATION

ITEM 1.       FINANCIAL STATEMENTS

                         COMARCO, Inc. and Subsidiaries
                      Condensed Consolidated Balance Sheets
<TABLE>

                                                 October 31, 1998           January 31, 1998
ASSETS                                              (Unaudited)                     *
<S>                                              <C>                        <C>
Current assets:
         Cash and cash equivalents               $       1,607,000          $      5,256,000
         Short-term investments                          2,486,000                 2,348,000
         Accounts receivable, net                       20,850,000                17,815,000
         Inventory                                       5,102,000                 5,247,000
         Deferred tax asset                              1,890,000                 1,383,000
         Other current assets                              554,000                   832,000
                                                 -----------------          ----------------
Total current assets                                    32,489,000                32,881,000

Long-term investments                                      425,000                 2,364,000
Property and equipment, net                              2,479,000                 2,240,000
Software development costs, net                          4,164,000                 3,131,000
Intangible assets, net                                   3,678,000                 2,660,000
Other assets                                               579,000                   618,000
                                                 -----------------          ----------------
TOTAL ASSETS                                     $      43,814,000          $    43,894,000 
                                                 =================          ================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
         Accounts payable                        $         586,000          $        493,000
         Deferred revenue                                2,186,000                 1,914,000
         Accrued liabilities                            10,321,000                 9,537,000
                                                 -----------------          ----------------
Total current liabilities                               13,093,000                11,944,000

Deferred income taxes                                    1,685,000                 1,480,000

Stockholders' equity:
         Common stock, $.10 par value,
           33,750,000   shares   authorized,
           4,441,460  and  4,719,210  shares
           outstanding at October 31, 1998 and
           January 31, 1998, respectively                  444,000                   472,000
         Capital contributed in excess
           of par value                                  2,608,000                 3,074,000
         Retained earnings                              25,984,000                26,924,000
                                                 -----------------          ----------------
Total stockholders' equity                              29,036,000                30,470,000
                                                 -----------------          ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $      43,814,000          $     43,894,000
                                                 =================          ================


See accompanying notes to the condensed consolidated financial statements.

*The  condensed  consolidated  balance  sheet as of  January  31,  1998 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, 1998     October 31, 1997     October 31, 1998    October 31, 1997
                                  ----------------     ----------------     ----------------    ----------------
<S>                               <C>                 <C>                    <C>                <C>
Revenues:
   Contract revenues              $  15,766,000       $   14,003,000         $   44,807,000     $    41,641,000
   Product sales                      8,435,000            7,972,000             23,156,000          21,446,000
                                      ---------            ---------             ----------          ----------
                                     24,201,000           21,975,000             67,963,000          63,087,000
                                     ----------           ----------             ----------          ----------

Direct costs:
   Contract costs                    10,984,000            9,630,000             30,588,000          28,902,000
   Cost of product sales              3,512,000            3,137,000             10,197,000           8,415,000
                                      ---------            ---------             ----------           ---------
                                     14,496,000           12,767,000             40,785,000          37,317,000

Indirect costs                        7,204,000            6,961,000             21,469,000          19,869,000
                                      ---------            ---------             ----------          ----------

                                     21,700,000           19,728,000             62,254,000          57,186,000
                                     ----------           ----------             ----------          ----------

Operating income                      2,501,000            2,247,000              5,709,000           5,901,000

Net interest income                      40,000               80,000                253,000             336,000
                                         ------               ------                -------             -------

Income before income taxes            2,541,000            2,327,000              5,962,000           6,237,000

Income taxes                            965,000              884,000              2,265,000           2,370,000
                                     ----------           ----------             ----------          ----------


Net income                        $   1,576,000       $    1,443,000         $    3,697,000     $     3,867,000
                                  =============       ==============         ==============     ===============

Earnings per share:
   Basic                              $     .35            $     .31              $     .79          $      .81
                                      =========            =========              =========          ==========

   Diluted                            $     .32            $     .26              $     .73          $      .71
                                      =========            =========              =========          ==========



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, 1998     October 31, 1997
                                                                           ----------------     ----------------
<S>                                                                         <C>                <C>            
Cash flows from operating activities:
    Net income                                                              $   3,697,000      $   3,867,000
    Adjustments to reconcile net income to net
     cash provided (used) by operating activities:
       Depreciation and amortization                                            2,213,000          1,941,000
       Gain on disposal of property and equipment                                  (4,000)              -
       Deferred income taxes                                                     (302,000)          (471,000)
       Provision for doubtful accounts receivable                                  66,000             45,000
       Net purchases of trading securities                                       (576,000)          (607,000)
       Increase in accounts receivable                                         (3,101,000)        (7,810,000)
       Decrease (increase) in inventory                                           145,000         (1,553,000)
       Decrease in other current assets                                           278,000            265,000
       Decrease (increase) in other assets                                         39,000           (271,000)
       Increase in accounts payable                                                93,000            959,000
       Increase (decrease) in deferred revenue                                    272,000           (625,000)
       Increase in accrued liabilities                                            784,000          1,527,000
                                                                            -------------      -------------

    Net cash provided (used) by operating activities                            3,604,000         (2,733,000)

Cash flows from investing activities:
    Purchases of investments                                                         -            (1,204,000)
    Proceeds from sales and maturities of investments                           2,377,000            652,000
    Purchases of property and equipment                                        (1,087,000)        (1,287,000)
    Proceeds from sales of property and equipment                                   4,000             14,000
    Software development costs                                                 (2,235,000)        (1,968,000)
    Cost of acquisition of Industrial Technology intellectual property         (1,000,000)               -
    Cost of acquisition of RAL, net of cash acquired                             (181,000)          (406,000)
    Cost of acquisition of Cubic, net of cash acquired                                -           (1,714,000)
                                                                            --------------     --------------

    Net cash used in investing activities                                      (2,122,000)        (5,913,000)

Cash flows from financing activities:
    Proceeds from issuance of common stock                                         63,000            305,000
    Purchase of common stock                                                   (5,194,000)        (1,833,000)
                                                                            --------------     --------------

    Net cash used in financing activities                                      (5,131,000)         (1,528,000)
                                                                            --------------     ---------------

Net decrease in cash and cash equivalents                                   $  (3,649,000)     $ (10,174,000)
                                                                            ==============     ==============

Supplemental  disclosures of cash flow  information:
  Cash paid during the three
    quarters for:
       Interest                                                             $          -       $       2,000
       Income taxes                                                             2,345,000          1,790,000


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


                         COMARCO, Inc. and Subsidiaries
              Notes to Condensed Consolidated Financial Statements
                      October 31, 1998 and October 31,1997
                                   (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, 1998 and
       January 31, 1998,  the results of its  operations  for the quarters ended
       and three  quarters  ended October 31, 1998 and October 31, 1997, and its
       cash flows for the three  quarters ended October 31, 1998 and October 31,
       1997.  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, 1998 are not  necessarily  indicative of the
       results to be obtained for the full fiscal year.


2.     Significant Accounting Policies - Per Share Information

       During the year ended January 31, 1998, the Company adopted  Statement of
       Financial  Accounting Standards No. 128, Earnings per Share, and computed
       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  effect of  dilutive  stock
       options.  The effect of such potential common stock is computed using the
       treasury  stock  method.  Comparative  earnings  per share data have been
       restated for prior periods.  Consolidated  net income of the Company used
       for 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.  Basic and diluted net income
       per share are calculated as follows:

<PAGE>
<TABLE>

                                                       Quarter Ended                                Three Quarters Ended
                                                       -------------                                --------------------
                                            October 31, 1998     October 31, 1997        October 31, 1998         October 31, 1997
                                            ----------------     ----------------        ----------------         ----------------
         <S>                                <C>                  <C>                      <C>                      <C>
         Basic:

         Net income                         $  1,576,000         $  1,443,000             $   3,697,000            $   3,867,000
         Weighted average shares
           outstanding                         4,562,000            4,715,000                 4,664,000                4,752,000
                                             -----------            ---------                ----------              -----------

         Basic income per common
           share                            $        .35         $        .31             $         .79            $         .81 
                                            ============         ============             =============            =============


         Diluted:

         Net income                         $  1,576,000         $  1,443,000             $   3,697,000            $   3,867,000

         Less - net income allocated
           to subsidiary dilutive stock
           options outstanding                   (71,000)            (114,000)                 (145,000)                (275,000)
                                              -----------         ------------              -----------              -----------

         Net income used in calculation
           of diluted income per
           common share                     $  1,505,000         $  1,329,000             $   3,552,000            $   3,592,000
                                             ===========         ============             =============            =============


         Weighted average shares
           outstanding                         4,562,000            4,715,000                 4,664,000                4,752,000

         Plus - common equivalent shares
           (determined using the "treasury
           stock" method) representing
           shares issuable upon exercise
           of stock options                      188,000              347,000                   200,000                  324,000
                                              ----------           ----------               -----------               ----------

         Weighted average number
           of shares used in calculation
           of diluted income per
           common share                        4,750,000            5,062,000                 4,864,000               5,076,000
                                              ==========           ==========              ============               =========

       Diluted income per common
           share                            $        .32         $        .26             $         .73            $        .71
                                             ===========          ===========             =============            ============
</TABLE>

3.     Business Segment Information

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


       Summarized financial  information by business segment for the first three
       quarters of Fiscal Year 1999 is as follows:
<TABLE>

                                            Wireless      Information Technology
                                        Communications    and Staffing Services    Corporate
                                           Products             Revenues           and Other      Total
                                           --------             --------           ---------      -----   
     <S>                                  <C>                  <C>                  <C>        <C>
     Revenues                             $23,097              $44,866                -        $67,963
       Income before income taxes           4,089                1,716               $157        5,962
       Identifiable assets                 21,475               13,510              8,829       43,814

</TABLE>

       Summarized financial  information by business segment for the first three
quarters of Fiscal Year 1998 is as follows:
<TABLE>

                                            Wireless      Information Technology
                                        Communications    and Staffing Services    Corporate
                                           Products             Revenues           and Other      Total
                                           --------             --------           ---------      -----
       <S>                                  <C>                <C>                 <C>           <C> 
       Revenues                             $20,955            $42,132                -          $63,087
       Income before income taxes             4,848              1,257               $132          6,237
       Identifiable assets                   20,512             10,249             12,562         43,323

</TABLE>

4.     Reclassifications

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




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

              Except  for  the  historical  information  contained  herein,  the
              matters discussed in this Form 10-Q 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.
              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.   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, 1998.


       (a)    Results of Operations

              During the third quarter of Fiscal Year 1999 (year ending  January
              31, 1999),  the Company  recorded total revenues of $24.2 million,
              up 10.0% from the  revenues of $22.0  million  for the  comparable
              period of the prior  fiscal  year.  Revenues  for the first  three
              quarters  of Fiscal  Year 1999 of $68.0  million  are up 7.8% from
              $63.1 million for the comparable  period of the prior fiscal year.
              Increased year-to-year revenues are primarily due to:
              o  sales of the Company's wireless communications products;
              o  increase  in  information  technology  services activity of 16%
                 year-to-year;
              partially offset by:
              o  reduced  activity on  the Company's contract at the Los Angeles
                 County Airports; an
              o  termination  of the  Company's  contract  at Reagan  Washington
                 National Airport on September 30, 1998.

              Total  direct  costs of $14.5  million  for the third  quarter  of
              Fiscal Year 1999 are up $1.7 million, or 13.3%, from $12.8 million
              for the third  quarter of Fiscal Year 1998.  Direct  costs for the
              first three  quarters of Fiscal Year 1999 of $40.8  million are up
              $3.5  million,  or 9.4%,  from $37.3  million  for the  comparable
              period of the  prior  fiscal  year.  The  increases  relate to the
              increased  revenue  activity,   particularly  from  the  Company's
              wireless  communications  products business (as discussed below in
              the wireless communications products section).

              Total  indirect  costs of $7.2  million  for the third  quarter of
              Fiscal Year 1999 are up $.2  million,  or 2.9%,  from $7.0 million
              for the third quarter of Fiscal Year 1998.  Indirect costs for the
              first three  quarters of Fiscal Year 1999 of $21.5  million are up
              $1.6  million,  or 8.0%,  from $19.9  million  for the  comparable
              period of the prior fiscal year.  The  increases  are  principally
              from the Company's wireless  communications products business, and
              results from  increased  product  development  costs and increased
              selling,  general and  administrative  costs, as further discussed
              below.

              Net interest income  (interest  income less interest  expense) for
              the third  quarter of Fiscal Year 1999  amounted  to  $40,000,  as
              compared to $80,000 for the comparable  period of the prior fiscal
              year.  Net interest  income for the first three quarters of Fiscal
              Year 1999  amounted to  $253,000,  as compared to $336,000 for the
              comparable  period of the prior fiscal  year.  The  decreases  are
              principally due to a reduction in cash available to invest from an
              average of $12 million in the first three  quarters of Fiscal Year
              1998 to an average of $9 million in the first  three  quarters  of
              Fiscal Year 1999.

              The Company's  effective tax rate for the first three  quarters of
              Fiscal Year 1999 is 38%, the same as the comparable  period of the
              prior fiscal year.

              Net income of $1.6  million  for the third  quarter of Fiscal Year
              1999 is up $.2 million from $1.4 million for the comparable period
              of the prior year due to the discontinuation of losses incurred at
              a former software  subsidiary.  Net income of $3.7 million for the
              first three quarters of Fiscal Year 1999 is down from $3.9 million
              for the  comparable  period of the prior year due to the increased
              product development and selling,  general and administrative costs
              incurred for the wireless  communications  products  business,  as
              further discussed below,  partially offset by  discontinuation  of
              the losses at a former software subsidiary.


              Wireless Communications Products

              Wireless  communications  products revenues increased 6.3% to $8.4
              million  for the  third  quarter  of  Fiscal  Year  1999 from $7.9
              million  for the  comparable  period  of the  prior  fiscal  year.
              Revenues  increased  10.0% to $23.1  million  for the first  three
              quarters of Fiscal Year 1999 from $21.0 million for the comparable
              period of the prior fiscal year. This increase is due to increased
              sales  of  the  Company's   emergency  callbox  systems.   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, 1998        October 31, 1997
                                                 ----------------        ----------------
                      <S>                             <C>                    <C>           
                      Revenues                        $23,097,000            $20,955,000
                      Cost of product sales            10,146,000              8,031,000
                                                       ----------              ---------

                      Gross margin                     12,951,000             12,924,000
                      Gross margin percentage            56.1%                   61.7%

                      Indirect costs*                   8,862,000              8,076,000
                                                        ---------              ---------

                      Operating income                 $4,089,000             $4,848,000
                                                       ==========             ==========
</TABLE>


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

              The decreased  gross income  percentage is due to greater sales of
              the Company's  emergency  callbox systems,  which have lower gross
              margins than the field  measurement and revenue  assurance product
              families,  whose revenues were relatively unchanged  year-to-year.
              The  Company  believes  that in the fourth  quarter of Fiscal Year
              1999,  product  sales  other than  emergency  callbox  systems are
              expected to be more  favorable due to recently  released  upgraded
              product  offerings,  although  there can be no  assurances in this
              regard.

              The increase in indirect  costs of $.8 million for the first three
              quarters  of Fiscal  Year 1999 over the  comparable  period of the
              prior  fiscal  year is  principally  a result of  increased  costs
              incurred in the Company's product development  program, as well as
              increased selling, general and administrative costs.

              Operating  income as a  percentage  of  revenues  is 23.2% for the
              third  quarter  of Fiscal  Year  1999,  compared  to 25.5% for the
              comparable period of the prior fiscal year.  Operating income as a
              percentage  of revenues  is 17.7% for the first three  quarters of
              Fiscal Year 1999,  compared to 23.1% for the comparable  period of
              the prior fiscal year.  These  decreases  are primarily due to the
              lower  gross  income  due to a  larger  mix of  the  lower  margin
              emergency  callbox  systems  than in the prior  year's first three
              quarters, and due to increased sustaining engineering and research
              and  development   expenses  as  well  as  increased  selling  and
              administrative expenses, as discussed above.

              The Company is continuing its 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  $2,235,000  and  $1,968,000,   respectively,
              during the first  three  quarters  of Fiscal  Years 1999 and 1998,
              respectively.  Corresponding amounts amortized were $1,202,000 and
              $719,000, respectively.

              The Company's  future wireless  products  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 totalled
              $9.5 million for the third quarter of Fiscal Year 1999,  down from
              $10.1  million  from  the   comparable   prior  period.   For  the
              twelve-month  periods  ended  October  31,  1998 and 1997,  orders
              received  were  $27.3  million  and $36.6  million,  respectively.
              Included  in the amount for the twelve  months  ended  October 31,
              1997 was $10 million of  long-term  maintenance  service  business
              associated  with the  purchase  of the GTE callbox  product  line.
              Because of the long sales cycle  involved in selling the Company's
              wireless  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,
              1998  totalled  $16.7  million,  of which $6.8 million  relates to
              long-term maintenance  contracts,  and $3.7 million relates to the
              Company's  contract  to upgrade  the Los  Angeles  County  callbox
              system  to  comply  with the  Americans  with  Disabilities  Act's
              requirements  for use by hearing and speech impaired  individuals.
              The  Company  currently  expects  the  majority of the Los Angeles
              County contract to be performed in Fiscal Year 2000. An additional
              $2.2 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,  although  this trend has been
              declining  over the same  four  years.  This  trend may or may not
              continue as the Company broadens its product offerings. The nature
              of the wireless  communications  products  business is  inherently
              unpredictable;  sales and profits may fluctuate significantly from
              quarter to quarter; and therefore, period-to-period comparisons of
              its  operating  results are not  necessarily  meaningful  and such
              comparisons   cannot  be  relied  upon  as  indicators  of  future
              performance.

              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;  changes
              in laws  governing the  imposition of duties,  quotas,  taxes,  or
              other  charges  relating to the import or export of its  products;
              and changes in foreign  currency  exchange  rates which can impact
              customers' demand for the Company's  products and their ability to
              pay for the Company's 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 a 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,  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.


              Information Technology and Staffing Services Revenue

              Revenues  provided by the  Company's  information  technology  and
              staffing  services  business  area  increased  12.1%,  from  $14.1
              million in the third  quarter of Fiscal Year 1998 to $15.8 million
              in the third  quarter  of Fiscal  Year  1999.  Revenues  from this
              business  area  increased  6.7%,  from $42.1 million for the first
              three  quarters of Fiscal Year 1998 to $44.9 million for the first
              three quarters of Fiscal Year 1999. Revenues in this business area
              decreased from 66.7% of the Company's  total revenues in the first
              three quarters of Fiscal Year 1998 to 66.0% of the Company's total
              revenues  in the first three  quarters  of Fiscal  Year 1999.  The
              increase  in  period-to-period  revenue is due to an  increase  in
              information  technology  services  activity on contracts  with the
              U.S. Government  partially offset by a decrease in activity on the
              Company's  management  services contract at the Los Angeles County
              Airports.

              Sales  to the  U.S.  Government  as  well as to  government  prime
              contractors were 33% and 34% of the Company's total revenue during
              the  first  three   quarters  of  Fiscal   Years  1998  and  1999,
              respectively.  In  the  course  of  the  Company's  business,  its
              contracts with customers are periodically  opened for competition.
              In March 1998, the Company  announced the award of a contract with
              an award  value of $75  million  over  the five  year  life of the
              contract  to  continue  to  provide   engineering  and  management
              services  to the  U.S.  Navy  at  Crane,  Indiana.  The  Company's
              management services contract at Reagan Washington National Airport
              ended on  September  30,  1998.  The  Company  did not  pursue the
              recompete  of  this  contract.  This  contract's  annual  revenues
              approximated $8.8 million,  it was marginally  profitable,  and it
              would have been  unprofitable  if reawarded  to the  Company.  One
              other multi-year government contract is scheduled to end in Fiscal
              Year 1999 with annual revenues of approximately $2.2 million.  The
              Company  plans  to  aggressively   compete  for  work  opened  for
              competition  to the  extent  possible  and to  selectively  pursue
              certain  high  value  contract  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  the  Government  will  fund the
              portions  of existing  contracts  that are  unfunded,  or that the
              governmental agencies will exercise any options.

              Operating income (revenues less direct costs,  indirect costs, and
              depreciation  and  amortization)  for  information  technology and
              staffing  services  is up from  $241,000  in the third  quarter of
              Fiscal Year 1998 to  $543,000 in the third  quarter of Fiscal Year
              1999.  Operating  income for  information  technology and staffing
              services  is up from  $1,053,000  in the first  three  quarters of
              Fiscal  Year 1998 to  $1,620,000  in the first  three  quarters of
              Fiscal  Year 1999.  The  increase is  primarily  due to the margin
              realized on higher  revenues for  information  technology  and the
              discontinuation  of the  losses at a former  software  subsidiary,
              partially   offset  by  lower  operating  income  from  commercial
              staffing due to the cost of opening additional offices.


       (b)    Financial Condition

              The  Company  signed  a  loan  agreement  with  a  bank  effective
              September 26, 1994,  which was amended  effective August 21, 1998.
              The loan  agreement  consists  of a $10 million  revolving  credit
              facility,  which  expires  June 30, 2000.  The 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 $9 million  (includes  highly liquid  long-term
              investments  with  maturities of 12 to 36 months) during the first
              three quarters of Fiscal Year 1999. However, maintaining such cash
              balances is  predicated  on the Company  maintaining  its business
              base  and is  subject  to the  cost of  financing  new  contracts,
              acquisitions, geographic expansion, product development costs, and
              stock re-purchases.

              During the first three quarters of Fiscal Year 1999, the Company's
              average  days'  sales  in  accounts   receivable   have  increased
              slightly,   primarily   due  to   increased   sales  of   wireless
              communications products, which have a longer collection cycle than
              the Company's information technology and staffing revenues.

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

                                                    July 31, 1998           January 31, 1998
                                                    -------------           ----------------
              <S>                                <C>                       <C>
              Current ratio                                  2.48                      2.75
              Working capital                    $     19,396,000          $     20,937,000
              Book value per share                          $6.54                     $6.46
</TABLE>

              The decreases in the current ratio and in working  capital are due
              to the stock  re-purchases  of  approximately  $5.2 million in the
              first three quarters of Fiscal Year 1999. The Company re-purchased
              245,000  shares in the third quarter of Fiscal Year 1999 at a cost
              of $4.5 million.

              The Company has a significant  commitment for capital expenditures
              at October 31, 1998 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.  The amounts  capitalized and
              amortized  in  the  Company's  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,   totaled   $2,235,000  and  $1,202,000,
              respectively, in the first three quarters of Fiscal Year 1999.

              The  Company's   Board  of  Directors   has   authorized  a  stock
              re-purchase  program of up to 1,500,000  shares. As of October 31,
              1998,  the Company  has  re-purchased  and  retired  approximately
              1,211,000  shares.  The average price paid per share  re-purchased
              under the program was $9.32.

              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.

              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.



              Impact of the Year 2000 Issue

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

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

              Information Systems

              The  Company has  received  letters or has  completed  remediation
              whereby all of its accounting and manufacturing  software has been
              determined  to be year 2000  compliant.  The Company is completing
              its inventory of computers and computer peripheral  equipment.  It
              has been  determined  that a few  older  units  are not year  2000
              compliant, and these units will be replaced as part of the regular
              replacement program next year. Efforts evaluating the readiness of
              the  Company's  internal  information  systems are  expected to be
              completed early next year.

              Products

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

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

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

              Other  Software  Products - Over the years,  the  Company has been
              associated with a modest number of software products.  A review of
              commercial  products  still in the  field is being  completed  for
              their year 2000  exposure.  This  review and any  remediation  are
              expected to be completed by March 1999.  The Company  expects that
              year 2000 issues related to these products will be minimal.

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


              Non-IT Systems

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

              Business Partners

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

              Customers

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

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

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

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


<PAGE>

PART II - OTHER INFORMATION


ITEM 5.       OTHER INFORMATION

              The  Securities  and Exchange  Commission  has amended Rule 14a-4,
              which governs the use of discretionary proxy voting authority with
              respect to a  shareholder  proposal that the  shareholder  has not
              sought to include in the proxy  statement  pursuant to Rule 14a-8.
              Rule 14a-4(c)(1) now sets a 45 day advance notice requirement.  If
              a shareholder  fails to notify the Company of his or her intention
              to present a proposal at the meeting at least 45 days prior to the
              month and day on which the prior year's proxy  statement was first
              mailed,  then the  holders  of proxies  solicited  by the Board of
              Directors may use their  discretionary  voting  authority when the
              proposal  is raised at the  Company's  Annual  Meeting.  The proxy
              holders will have such  discretionary  authority even if the proxy
              statement  contained no  discussion  of the proposal and the proxy
              holders' intentions with respect thereto.

              In the case of COMARCO,  Inc.,  April 5, 1999 is the  deadline for
              shareholders  to give such notice with respect to a proposal  that
              is not sought to be included in the Company's proxy statement with
              respect  to the 1999  Annual  Meeting.  As has been the case,  any
              shareholder  who  wishes  to  have  a  proposal  included  in  the
              Company's  proxy  statement for its 1999 Annual  Meeting (which in
              all cases  will be  subject to the rules  regarding  whether  such
              proposal may be excluded notwithstanding the request), must notify
              COMARCO pursuant to Rule 14-8 not later than January 21, 1999.


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, 1998




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