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 July 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)

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

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


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                                   Yes      X      No
                                                           ---        ---

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of August 31, 1998.

                               Common Stock,
                              $.10 Par Value               4,594,460 Shares
                              --------------               ----------------


<PAGE>
Index to Form 10-Q
                                                                     Page No.
                                                                     --------
Part I.        Financial Information


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

   Condensed Consolidated Statements of Income
       Quarters Ended and Two Quarters Ended July 31, 1998
       and July 31, 1997                                                 2

   Condensed Consolidated Statements of Cash Flows
       Two Quarters Ended July 31, 1998 and July 31, 1997                3

   Notes to Condensed Consolidated Financial Statements                  4-6

   Management's Discussion and Analysis of Financial
       Condition and Results of Operations                               7-12



PART II.       OTHER INFORMATION

 Item 6.     Exhibits and Reports on Form 8-K                            13

 Signature                                                               14


<PAGE>
                          PART I - FINANCIAL INFORMATION

ITEM 1.       FINANCIAL STATEMENTS


                         COMARCO, Inc. and Subsidiaries
                      Condensed Consolidated Balance Sheets
<TABLE>
                                                                July 31, 1998       January 31, 1998
ASSETS                                                           (Unaudited)              *
<S>                                                             <C>                 <C>                                 
Current assets:
         Cash and cash equivalents                              $    3,025,000      $   5,256,000
         Short-term investments                                      3,526,000          2,348,000
         Accounts receivable, net                                   18,763,000         17,815,000
         Inventory                                                   4,857,000          5,247,000
         Deferred tax asset                                          1,383,000          1,383,000
         Other current assets                                          733,000            832,000
                                                                --------------      -------------

Total current assets                                                32,287,000         32,881,000

Long-term investments                                                1,498,000          2,364,000
Property and equipment, net                                          2,216,000          2,240,000
Software development costs, net                                      3,989,000          3,131,000
Intangible assets, net                                               3,586,000          2,660,000
Other assets                                                           614,000            618,000
                                                                --------------      -------------

TOTAL ASSETS                                                    $   44,190,000      $  43,894,000
                                                                ==============      =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
         Accounts payable                                       $      551,000      $     493,000
         Deferred revenue                                            1,801,000          1,914,000
         Accrued liabilities                                         8,431,000          9,537,000
                                                                --------------      -------------

Total current liabilities                                           10,783,000         11,944,000

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

Stockholders' equity:
         Common stock, $.10 par value,
           33,750,000 shares authorized, 4,686,460 and
           4,719,210  shares outstanding at July 31, 1998 and
           January 31, 1998, respectively                              469,000            472,000
         Capital contributed in excess
           of par value                                              2,413,000          3,074,000
         Retained earnings                                          29,045,000         26,924,000
                                                                --------------      -------------

Total stockholders' equity                                          31,927,000         30,470,000
                                                                --------------      -------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                      $   44,190,000      $  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                           Two Quarters Ended
                                             -------------                           ------------------
                                     July 31, 1998     July 31, 1997          July 31, 1998      July 31, 1997
                                     -------------     -------------          -------------      -------------
<S>                                 <C>                <C>                   <C>                 <C>
Revenues:
   Contract revenues                $   14,647,000     $  13,716,000         $   29,041,000      $  27,638,000
   Product sales                         7,364,000         7,299,000             14,721,000         13,474,000
                                         ---------         ---------             ----------         ----------
                                        22,011,000        21,015,000             43,762,000         41,112,000
                                        ----------        ----------             ----------         ----------

Direct costs:
   Contract costs                        9,888,000         9,698,000             19,604,000         19,272,000
   Cost of product sales                 3,142,000         3,013,000              6,685,000          5,278,000
                                         ---------         ---------              ---------          ---------
                                        13,030,000        12,711,000             26,289,000         24,550,000

Indirect costs                           7,010,000         6,303,000             14,265,000         12,908,000
                                         ---------         ---------             ----------         ----------

                                        20,040,000        19,014,000             40,554,000         37,458,000
                                        ----------        ----------             ----------         ----------

Operating income                         1,971,000         2,001,000              3,208,000          3,654,000

Net interest income                         95,000           121,000                213,000            256,000
                                            ------           -------                -------            -------

Income before income taxes               2,066,000         2,122,000              3,421,000          3,910,000

Income taxes                               785,000           807,000              1,300,000          1,486,000
                                    --------------     -------------         --------------      -------------


Net income                          $    1,281,000     $   1,315,000         $    2,121,000      $   2,424,000
                                    ==============     =============         ==============      =============

Earnings per share:
   Basic                            $          .27     $         .28         $          .45      $         .51
                                    ==============     =============         ==============      =============

   Diluted                               $     .25         $     .24              $     .42         $      .45
                                         =========         =========              =========         ==========



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



<PAGE>


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

                                                                                      Two Quarters Ended
                                                                          --------------------------------------
                                                                          July 31, 1998            July 31, 1997
                                                                          -------------            -------------
<S>                                                                      <C>                      <C>
Cash flows from operating activities:
    Net income                                                           $    2,121,000           $   2,424,000
    Adjustments to reconcile net income to net
     cash provided (used) by operating activities:
       Depreciation and amortization                                          1,348,000               1,275,000
       Loss (gain) on disposal of property and equipment                         (4,000)                  9,000
       Deferred income taxes                                                       -                   (402,000)
       Provision for doubtful accounts receivable                                44,000                  20,000
       Net purchases of trading securities                                     (767,000)               (482,000)
       Increase in accounts receivable                                         (992,000)             (2,597,000)
       Decrease (increase) in inventory                                         390,000              (1,016,000)
       Decrease in other current assets                                          99,000                 270,000
       Decrease (increase) in other assets                                        4,000                (191,000)
       Increase in accounts payable                                              58,000                 717,000
       Decrease in deferred revenue                                            (113,000)               (340,000)
       Increase (decrease) in accrued liabilities                            (1,106,000)                286,000
                                                                         ---------------          --------------

    Net cash provided (used) by operating activities                          1,082,000                 (27,000)

Cash flows from investing activities:
    Purchases of investments                                                       -                 (1,204,000)
    Proceeds from sales and maturities of investments                           455,000                 583,000
    Purchases of property and equipment                                        (525,000)               (969,000)
    Software development costs                                               (1,579,000)             (1,266,000)
    Cost of acquisition of Industrial Technology intellectual property       (1,000,000)                    -
    Cost of acquisition of Cubic, net of cash acquired                              -                (1,720,000)
                                                                         ---------------          --------------

    Net cash used in investing activities                                    (2,649,000)             (4,576,000)

Cash flows from financing activities:
    Proceeds from issuance of common stock                                       64,000                 219,000
    Purchase of common stock                                                   (728,000)             (1,755,000)
                                                                         ---------------          --------------

    Net cash used in financing activities                                      (664,000)              (1,536,000)
                                                                         ---------------          ---------------

Net decrease in cash and cash equivalents                                $   (2,231,000)          $   (6,139,000)
                                                                         ===============          ===============


Supplemental  disclosures  of cash flow  information:
  Cash paid  during the two
    quarters for:
       Interest                                                          $           -            $           -
       Income taxes                                                           1,569,000                1,268,000




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


<PAGE>


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


2.     Intellectual Property Acquisition

       In May 1998, the Company completed the purchase of intellectual  property
       and related software assets from Industrial Technology, Inc. The acquired
       technology  includes  software  suited for  automating  the comparison of
       digital  speech  quality over diverse  cellular,  PCS, and other wireless
       networks. No tangible assets were acquired. The Company has accounted for
       the purchase price as an intangible asset.


3.     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  effects 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                           Two Quarters Ended
                                                   -------------                           ------------------
                                         July 31, 1998        July 31, 1997         July 31, 1998     July 31, 1997
                                         -------------        -------------         -------------     -------------
   <S>                                   <C>                  <C>                   <C>               <C>
    
   Basic:
    Net income                           $   1,281,000        $   1,315,000         $   2,121,000     $   2,424,000
    Weighted average shares
      outstanding                            4,714,000            4,761,000             4,716,000         4,773,000
                                         -------------        -------------         -------------         ---------

    Basic income per common
      share                              $         .27        $         .28         $         .45     $         .51
                                         =============        =============         =============     =============


    Diluted:

    Net income                           $   1,281,000        $   1,315,000         $   2,121,000     $   2,424,000

    Less - net income allocated
      to subsidiary dilutive stock
      options outstanding                      (52,000)             (89,000)              (74,000)         (156,000)
                                         --------------       --------------        --------------    --------------

    Net income used in calculation
      of diluted income per
      common share                       $   1,229,000        $   1,226,000         $   2,047,000     $   2,268,000
                                         =============        =============         =============     =============


    Weighted average shares
      outstanding                            4,714,000            4,761,000             4,716,000         4,773,000

    Plus - common equivalent shares
      (determined using the "treasury
      stock" method representing
      shares issuable upon exercise
      of stock options                         204,000              319,000               205,000           315,000
                                            ----------           ----------         -------------     -------------

    Weighted average number
      of shares used in calculation
      of diluted income per
      common share                           4,918,000            5,080,000              4,921,000        5,088,000
                                         =============          ===========         ==============      ===========

  Diluted income per common
      share                              $         .25        $         .24         $          .42      $       .45
                                         ==============       =============         ==============      ===========
</TABLE>


4.     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 two
       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                        $14,662              $29,100                  -          $43,762
       Income before income taxes        2,131                1,138                 $152          3,421
       Identifiable assets              19,482               12,841               11,867         44,190
</TABLE>


       Summarized  financial  information by business  segment for the first two
       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                        $13,076              $28,036                   -         $41,112
       Income before income taxes        2,843                  911                  $156         3,910
       Identifiable assets              15,883                8,913                15,818        40,614
</TABLE>


5.     Reclassifications

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


<PAGE>


ITEM 2.       MANAGEMENT'S  DISCUSSIO  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 second quarter of Fiscal Year 1999 (year ending January
              31, 1999),  the Company  recorded total revenues of $22.0 million,
              up 4.8% from the  revenues  of $21.0  million  for the  comparable
              period  of the  prior  fiscal  year.  Revenues  for the  first two
              quarters  of Fiscal  Year 1999 of $43.8  million  are up 6.6% from
              $41.1 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 15%
                   year-to-year;
              partially offset by:
                 o reduced activity on the Company's contract at the Los Angeles
                   County Airports.

              Total  direct  costs of $13.0  million  for the second  quarter of
              Fiscal Year 1999 are up $.3 million,  or 2.4%,  from $12.7 million
              for the second  quarter of Fiscal Year 1998.  Direct costs for the
              first two  quarters  of Fiscal  Year 1999 of $26.3  million are up
              $1.7  million,  or 6.9%,  from $24.6  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 $7.0  million for the second  quarter of
              Fiscal Year 1999 are up $.7 million,  or 11.1%,  from $6.3 million
              for the second quarter of Fiscal Year 1998. Indirect costs for the
              first two  quarters  of Fiscal  Year 1999 of $14.3  million are up
              $1.4  million,  or 10.9%,  from $12.9  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 second  quarter of Fiscal Year 1999  amounted  to $95,000,  as
              compared to $121,000 for the comparable period of the prior fiscal
              year.  Net  interest  income for the first two  quarters of Fiscal
              Year 1999  amounted to  $213,000,  as compared to $256,000 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 $13  million in the first two  quarters  of Fiscal Year
              1998 to an average of $10  million  in the first two  quarters  of
              Fiscal Year 1999.

              The  Company's  effective  tax rate for the first two  quarters of
              Fiscal Year 1998 is 38%, the same as the comparable  period of the
              prior fiscal year.

              Net income of $1.3  million for the second  quarter of Fiscal Year
              1999 is unchanged  from the  comparable  period of the prior year.
              Net income of $2.1  million  for the first two  quarters of Fiscal
              Year 1999 is down from $2.4 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.


              Wireless Communications Products

              Wireless  communications  products revenues increased 4.2% to $7.4
              million  for the  second  quarter  of  Fiscal  Year 1999 from $7.1
              million  for the  comparable  period  of the  prior  fiscal  year.
              Revenues  increased  12.2%  to $14.7  million  for the  first  two
              quarters of Fiscal Year 1999 from $13.1 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>
                                                     Two Quarters Ended     Two Quarters Ended
                                                        July 31, 1998          July 31, 1997
                                                        -------------          -------------
                    <S>                                   <C>                   <C>
                    Revenues                              $14,662,000           $13,076,000
                    Cost of product sales                   6,638,000             5,053,000
                                                            ---------             ---------

                    Gross margin                            8,024,000             8,023,000
                    Gross margin percentage                   54.7%                  61.4%

                    Indirect costs*                         5,893,000             5,180,000
                                                            ---------             ---------
 
                    Operating income                      $ 2,131,000           $ 2,843,000
                                                            =========            ==========

              *Indirect  costs  include  selling,   general  and  administrative
              expenses as well as research and development expenses.
</TABLE>
              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  product  sales  other than  emergency
              callbox  systems may not  increase  over the prior  period for the
              third  quarter of Fiscal  Year  1999,  while  comparisons  for the
              fourth  quarter  of  Fiscal  Year  1999  are  expected  to be more
              favorable due to anticipated upgraded product offerings,  although
              there can be no assurances in this regard.

              The  increase in  indirect  costs of $.7 million for the first two
              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.  Sustaining
              engineering  and research and development  expenses  increased 25%
              year-to-year,  while selling,  general and administrative expenses
              increased 8.3% year-to-year.

              Operating  income as a  percentage  of  revenues  is 20.2% for the
              second  quarter  of Fiscal  Year 1999,  compared  to 24.3% for the
              comparable period of the prior fiscal year.  Operating income as a
              percentage  of  revenues  is 14.5% for the first two  quarters  of
              Fiscal Year 1999,  compared to 21.7% 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 two
              quarters, 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  $1,579,000  and  $1,266,000,   respectively,
              during  the first two  quarters  of  Fiscal  Years  1999 and 1998,
              respectively.  Corresponding  amounts  amortized were $721,000 and
              $644,000, respectively.

              In May 1998,  the Company  completed the purchase of  intellectual
              property and related  software assets from Industrial  Technology,
              Inc.  The  acquired   technology   includes  software  suited  for
              automating  the  comparison of digital speech quality over diverse
              cellular, PCS, and other wireless networks. The Company intends to
              use the  acquired  technology  to enhance its  network  evaluation
              family of products.

              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
              $7.4 million for the second  quarter of Fiscal Year 1999,  up from
              $6.1  million  from  the   comparable   prior   period.   For  the
              twelve-month periods ended July 31, 1998 and 1997, orders received
              were $28.0 million and $36.5  million,  respectively.  Included in
              the  amount  for the twelve  months  ended  July 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 July 31, 1998 totalled $15.7 million,
              of which $7.4 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 at the end of
              Fiscal  Year 1999 and into Fiscal Year 2000.  An  additional  $1.6
              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 5.0%, from $13.9 million
              in the second  quarter of Fiscal Year 1998 to $14.6 million in the
              second  quarter of Fiscal Year 1999.  Revenues  from this business
              area increased 3.9%, from $28.0 million for the first two quarters
              of Fiscal Year 1998 to $29.1 million for the first two quarters of
              Fiscal Year 1999.  Revenues in this business area  decreased  from
              68.1% of the Company's total revenues in the first two quarters of
              Fiscal Year 1998 to 66.4% of the Company's  total  revenues in the
              first  two   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  two   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 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 ends on September 30, 1998.  The Company did not
              pursue the  recompete of this  contract.  This  contract's  annual
              revenues   approximate  $8.8  million,   it  has  been  marginally
              profitable,  and it  would be  unprofitable  if  reawarded  to the
              Company.  Two other multi-year  government contracts are scheduled
              to end in Fiscal Year 1999 with annual  revenues of  approximately
              $3.8 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  $288,000  in the second  quarter of
              Fiscal Year 1998 to $489,000 in the second  quarter of Fiscal Year
              1999.  Operating  income for  information  technology and staffing
              services is up from  $811,000 in the first two  quarters of Fiscal
              Year 1998 to  $1,077,000  in the first two quarters of Fiscal Year
              1999.  The  increase  is  primarily  due to  higher  revenues  for
              information technology and airport management services,  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 $10 million  (includes  highly liquid long-term
              investments  with  maturities of 12 to 36 months) during the first
              two 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 two 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                            2.99                   2.75
                  Working capital                 $  21,504,000        $    20,937,000
                  Book value per share                    $6.81                  $6.46
</TABLE>


              The Company continued to demonstrate  solid financial  strength in
              the above  financial  factors  during  the first two  quarters  of
              Fiscal Year 1999 due to continued profitable activity.

              The Company has a significant  commitment for capital expenditures
              at July 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   $1,579,000   and   $721,000,
              respectively, in the first two 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 July 31,
              1998,  the Company  has  re-purchased  and  retired  approximately
              966,000  shares.  The  average  price paid per share  re-purchased
              under the  program was $7.06.  An  additional  92,000  shares were
              repurchased  during August 1998 for approximately  $1.8 million at
              an average price of $19.59 per share.

              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
              sixteen  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 ensure that its
              proprietary  software and internal  computer systems are Year 2000
              compliant.  The initial phase, which included planning,  inventory
              and assessment, has been substantially completed. The final phase,
              which consists of correction,  testing, deployment and acceptance,
              is in process and is expected to be  completed  by  mid-1999.  The
              Company expects that the cost of making its  proprietary  software
              and internal systems  compliant will not have a material effect on
              its overall financial position or results of operations.

              The Company is also beginning the same two-phase program to assess
              the risks to the Company of non-IT systems. Non-IT systems include
              embedded technology such as  micro-controllers.  The initial phase
              is planned to be completed by the end of 1998 with the final phase
              completed during 1999. Based on a preliminary assessment, the cost
              of non-IT systems  remediation  will not have a material impact on
              the Company.

              The Company has initiated formal  communications  with its crucial
              suppliers  to  determine  whether  they  are or will be Year  2000
              capable.  By mid-1999,  the Company expects to have identified and
              develop  contingency  plans for any such suppliers who will not be
              year 2000 ready.

              The  Company  has also  been  working  with its  customers  and is
              completing an assessment of its  obligations to make their systems
              Year  2000  ready.  The  Company  currently  believes  that  these
              obligations will not have a material effect on the Company.

              Even with the  effort to  address  the Year 2000 Issue made by the
              Company to date,  there can be no  assurance  that the  systems of
              other  entities  on  which  the  Company  relies  will  be  timely
              remediated,  or that a failure to  remediate  by  another  entity,
              would not have a material adverse effect on the Company.

              The Company will utilize both  internal and external  resources to
              reprogram,   or  replace,   and  test   software   for  Year  2000
              modifications.  The  total  cost of the  program  is being  funded
              through  operating cash flows.  The total cost associated with the
              required  modifications  and  conversions  is not  expected  to be
              material to the Company's  consolidated  results of operations and
              financial position.

<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:

              10.29  Fourth  Amendment to  Loan  Agreement dated August 21, 1998
                     between the Company and NationsBank of Virginia, N.A.

              10.30  Fourth  Amended  and  Restated  Master  Line of Credit Note
                     dated August 21, 1998 between the  Company and  NationsBank
                     of Virginia, N.A.

              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)




September 14, 1998



                          ---------------------------

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