UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
APRIL 30,JULY 31, 2003
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-5449
COMARCO, INC.
(Exact name of registrant as specified in its charter)
California | 95-2088894 | |
(State or other jurisdiction | ||
of incorporation or organization) | (I.R.S. Employer Identification No.) |
2 Cromwell, Irvine, California 92618
(Address of principal executive offices and zip code)
(949) 599-7400
(Registrant’s telephone number, including area code)
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.
Yesþ No¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes¨ Noþ
The registrant had 7,024,3257,160,801 shares of common stock outstanding as of JuneSeptember 10, 2003.
COMARCO, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED APRIL 30,JULY 31, 2003
Page | ||||||
PART I — FINANCIAL INFORMATION | ||||||
ITEM 1. | FINANCIAL STATEMENTS | |||||
Condensed Consolidated Balance Sheets as of | 3 | |||||
4 | ||||||
5 | ||||||
6 | ||||||
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |||||
ITEM 3. | ||||||
ITEM 4. | ||||||
PART II — OTHER INFORMATION | ||||||
ITEM 1. | ||||||
ITEM 2. | ||||||
ITEM 3. | ||||||
ITEM 4. | ||||||
ITEM 5. | ||||||
ITEM 6. | ||||||
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMARCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)thousands, except share data)
April 30, 2003 | January 31, 2003 | |||||
(Unaudited) | ||||||
ASSETS | ||||||
Current Assets: | ||||||
Cash and cash equivalents | $ | 23,708 | $ | 25,387 | ||
Short-term investments | 2,143 | 2,386 | ||||
Accounts receivable, net | 2,513 | 2,053 | ||||
Inventory | 3,583 | 3,656 | ||||
Deferred tax assets, net | 2,748 | 2,748 | ||||
Other current assets | 1,348 | 1,391 | ||||
Total current assets | 36,043 | 37,621 | ||||
Property and equipment, net | 3,523 | 3,532 | ||||
Software development costs, net | 5,865 | 5,558 | ||||
Goodwill, net | 2,393 | 2,393 | ||||
Acquired intangible assets, net | 830 | 707 | ||||
Other assets | 1,133 | 1,144 | ||||
$ | 49,787 | $ | 50,955 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
Current Liabilities: | ||||||
Accounts payable | $ | 470 | $ | 310 | ||
Deferred revenue | 3,776 | 3,552 | ||||
Accrued liabilities | 5,544 | 5,845 | ||||
Total current liabilities | 9,790 | 9,707 | ||||
Deferred compensation | 2,143 | 2,386 | ||||
Deferred tax liabilities, net | 877 | 877 | ||||
Minority interest | 542 | 564 | ||||
Stockholders’ equity: | ||||||
Preferred stock, no par value, 10,000,000 shares authorized, no shares outstanding at April 30, 2003 and January 31, 2003 | — | — | ||||
Common stock, $0.10 par value, 50,625,000 shares authorized, 7,027,565 and 7,049,565 shares outstanding at April 30, 2003 and January 31, 2003, respectively | 703 | 705 | ||||
Additional paid-in capital | 11,032 | 11,198 | ||||
Retained earnings | 24,700 | 25,518 | ||||
Total stockholders’ equity | 36,435 | 37,421 | ||||
$ | 49,787 | $ | 50,955 | |||
July 31, 2003 | January 31, 2003 | |||||
ASSETS | ||||||
Current Assets: | ||||||
Cash and cash equivalents | $ | 18,880 | $ | 25,387 | ||
Short-term investments | 2,386 | 2,386 | ||||
Accounts receivable, net | 2,532 | 2,053 | ||||
Inventory | 3,769 | 3,656 | ||||
Deferred tax assets, net | 4,153 | 2,748 | ||||
Other current assets | 1,402 | 1,391 | ||||
Total current assets | 33,122 | 37,621 | ||||
Property and equipment, net | 3,588 | 3,532 | ||||
Capitalized software development costs, net | 6,103 | 5,558 | ||||
Goodwill, net | 2,845 | 2,393 | ||||
Acquired intangible assets, net | 791 | 707 | ||||
Other assets | 1,133 | 1,144 | ||||
$ | 47,582 | $ | 50,955 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
Current Liabilities: | ||||||
Accounts payable | $ | 688 | $ | 310 | ||
Deferred revenue | 2,494 | 3,552 | ||||
Accrued liabilities | 5,794 | 5,845 | ||||
Total current liabilities | 8,976 | 9,707 | ||||
Deferred compensation | 2,386 | 2,386 | ||||
Deferred tax liabilities, net | 914 | 877 | ||||
Minority interest | 159 | 564 | ||||
Stockholders’ equity: | ||||||
Preferred stock, no par value, 10,000,000 shares authorized, no shares outstanding at July 31, 2003 and January 31, 2003 | — | — | ||||
Common stock, $0.10 par value, 50,625,000 shares authorized, 7,160,801 and 7,049,565 shares outstanding at July 31, 2003 and January 31, 2003, respectively | 716 | 705 | ||||
Additional paid-in capital | 11,985 | 11,198 | ||||
Retained earnings | 22,446 | 25,518 | ||||
Total stockholders’ equity | 35,147 | 37,421 | ||||
$ | 47,582 | $ | 50,955 | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
COMARCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended April 30, | ||||||||
2003 | 2002 | |||||||
Revenue | $ | 6,456 | $ | 7,765 | ||||
Cost of revenue | 3,954 | 4,980 | ||||||
Gross profit | 2,502 | 2,785 | ||||||
Selling, general and administrative costs | 2,319 | 2,335 | ||||||
Engineering and support costs | 1,544 | 1,417 | ||||||
Operating loss | (1,361 | ) | (967 | ) | ||||
Other income, net | 108 | 107 | ||||||
Minority interest in losses of subsidiary | 22 | 9 | ||||||
Loss before income taxes and cumulative effect of change in accounting principle | (1,231 | ) | (851 | ) | ||||
Income tax benefit | (413 | ) | (314 | ) | ||||
Net loss before cumulative effect of change in accounting principle | $ | (818 | ) | $ | (537 | ) | ||
Cumulative effect of change in accounting principle | — | (2,926 | ) | |||||
Net loss | $ | (818 | ) | $ | (3,463 | ) | ||
Net loss per share before cumulative effect of change in accounting principle: | ||||||||
Basic | $ | (0.12 | ) | $ | (0.08 | ) | ||
Diluted | $ | (0.12 | ) | $ | (0.08 | ) | ||
Net loss per share: | ||||||||
Basic | $ | (0.12 | ) | $ | (0.50 | ) | ||
Diluted | $ | (0.12 | ) | $ | (0.50 | ) | ||
Weighted average common shares outstanding: | ||||||||
Basic | 7,034 | 6,968 | ||||||
Diluted | 7,034 | 6,968 | ||||||
Common shares outstanding | 7,028 | 6,969 | ||||||
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Revenue | $ | 5,525 | $ | 10,009 | $ | 11,981 | $ | 17,775 | ||||||||
Cost of revenue | 4,308 | 7,217 | 8,262 | 12,198 | ||||||||||||
Gross profit | 1,217 | 2,792 | 3,719 | 5,577 | ||||||||||||
Selling, general and administrative costs | 3,438 | 2,395 | 5,757 | 4,730 | ||||||||||||
Asset impairment charges | — | 8,407 | — | 8,407 | ||||||||||||
Engineering and support costs | 1,431 | 1,303 | 2,975 | 2,721 | ||||||||||||
Operating loss | (3,652 | ) | (9,313 | ) | (5,013 | ) | (10,281 | ) | ||||||||
Other income, net | 58 | 96 | 166 | 203 | ||||||||||||
Minority interest | 28 | 70 | 50 | 79 | ||||||||||||
Loss before income taxes | (3,566 | ) | (9,147 | ) | (4,797 | ) | (9,999 | ) | ||||||||
Income tax benefit | (1,312 | ) | (2,422 | ) | (1,725 | ) | (2,736 | ) | ||||||||
Net loss before cumulative effect of change in accounting principle | (2,254 | ) | (6,725 | ) | (3,072 | ) | (7,263 | ) | ||||||||
Cumulative effect of change in accounting principle | — | — | — | (2,926 | ) | |||||||||||
Net loss | $ | (2,254 | ) | $ | (6,725 | ) | $ | (3,072 | ) | $ | (10,189 | ) | ||||
Net loss per share — basic and diluted: | ||||||||||||||||
Net loss before cumulative effect of change in accounting principle | $ | (0.31 | ) | $ | (0.96 | ) | $ | (0.43 | ) | $ | (1.04 | ) | ||||
Cumulative effect of change in accounting principle | $ | — | $ | — | $ | — | $ | (0.42 | ) | |||||||
Net loss per share — basic and diluted | $ | (0.31 | ) | $ | (0.96 | ) | $ | (0.43 | ) | $ | (1.46 | ) | ||||
Basic and diluted weighted average common shares | 7,161 | 6,972 | 7,082 | 6,970 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
COMARCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended April 30, | ||||||||
2003 | 2002 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (818 | ) | $ | (3,463 | ) | ||
Adjustments to reconcile net loss from continuing operations to net cash provided | ||||||||
Cumulative effect of change in accounting principle | — | 2,926 | ||||||
Depreciation and amortization | 1,009 | 1,565 | ||||||
Tax benefit from exercise of stock options | — | 11 | ||||||
Deferred income taxes | — | 280 | ||||||
Provision for doubtful accounts receivable | 10 | 6 | ||||||
Provision for obsolete inventory | (114 | ) | (38 | ) | ||||
Minority interest in losses of subsidiary | (22 | ) | (9 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (470 | ) | 4,130 | |||||
Inventory | 187 | 97 | ||||||
Other assets | 54 | (40 | ) | |||||
Accounts payable | 160 | 327 | ||||||
Deferred revenue | 223 | (696 | ) | |||||
Accrued liabilities | (274 | ) | (2,702 | ) | ||||
Net cash provided by (used in) operating activities | (55 | ) | 2,394 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchases of property and equipment | (483 | ) | (329 | ) | ||||
Software development costs | (785 | ) | (1,100 | ) | ||||
Acquired intangible assets | (161 | ) | — | |||||
Net cash used in investing activities | (1,429 | ) | (1,429 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Net proceeds from issuance of common stock | — | 121 | ||||||
Purchase and retirement of common stock | (168 | ) | (278 | ) | ||||
Net cash used in financing activities | (168 | ) | (157 | ) | ||||
Net increase (decrease) in cash and cash equivalents – continuing operations | (1,652 | ) | 808 | |||||
Net decrease in cash and cash equivalents – discontinued operations | (27 | ) | (78 | ) | ||||
Net increase (decrease) in cash and cash equivalents | (1,679 | ) | 730 | |||||
Cash and cash equivalents, beginning of period | 25,387 | 21,288 | ||||||
Cash and cash equivalents, end of period | $ | 23,708 | $ | 22,018 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | — | $ | — | ||||
Cash paid for income taxes | $ | 2 | $ | 103 | ||||
Six Months Ended July 31, | ||||||||
2003 | 2002 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (3,072 | ) | $ | (10,189 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 2,281 | 3,279 | ||||||
Tax benefit from exercise of stock options | 99 | 133 | ||||||
Deferred income taxes | (1,368 | ) | (2,667 | ) | ||||
Asset impairment charges | — | 8,407 | ||||||
Loss on disposal of property and equipment | 23 | 154 | ||||||
Cumulative effect of change in accounting principle | — | 2,926 | ||||||
Provision for doubtful accounts receivable | 13 | (6 | ) | |||||
Provision for obsolete inventory | (254 | ) | 1,382 | |||||
Minority interest in loss of subsidiary | (50 | ) | (79 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Decrease in trading securities | — | 688 | ||||||
Decrease (increase) in accounts receivable | (492 | ) | 3,573 | |||||
Decrease (increase) in inventory | 141 | 530 | ||||||
Decrease (increase) in other assets | — | (527 | ) | |||||
Deferred compensation | — | (688 | ) | |||||
Increase in accounts payable | 378 | 302 | ||||||
Decrease in deferred revenue | (1,058 | ) | (149 | ) | ||||
Decrease in accrued liabilities | (23 | ) | (1,916 | ) | ||||
Net cash provided by (used in) operating activities | (3,382 | ) | 5,153 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Proceeds from sales of property and equipment | — | 131 | ||||||
Purchases of property and equipment | (1,102 | ) | (868 | ) | ||||
Acquired intangible assets | (161 | ) | — | |||||
Capitalized software development costs | (1,728 | ) | (2,015 | ) | ||||
Net cash used in investing activities | (2,991 | ) | (2,752 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Net proceeds from issuance of common stock | — | 121 | ||||||
Net proceeds from issuance of subsidiary common stock | 89 | 78 | ||||||
Purchase of common stock | (195 | ) | (353 | ) | ||||
Net cash used in financing activities | (106 | ) | (154 | ) | ||||
Net increase (decrease) in cash and cash equivalents – continuing operations | (6,479 | ) | 2,247 | |||||
Net increase (decrease) in cash and cash equivalents – discontinued operations | (28 | ) | 345 | |||||
Net increase (decrease) in cash and cash equivalents | (6,507 | ) | 2,592 | |||||
Cash and cash equivalents, beginning of period | 25,387 | 21,288 | ||||||
Cash and cash equivalents, end of period | $ | 18,880 | $ | 23,880 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | — | $ | 10 | ||||
Cash paid for income taxes | $ | 2 | $ | 356 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. | Organization |
Comarco, Inc., through its subsidiary Comarco Wireless Technologies, Inc. (collectively, “Comarco” or the “Company”), is a leading provider of wireless field test solutionsapplications for the wireless industry. Comarco also designs and manufactures emergency call box systems and mobile power products for notebook computers, cellular telephones, PDAs, and other handheld devices. Comarco Wireless Technologies, Inc. (“CWT”) was incorporated in the state of Delaware in September 1993. During October 1999, the Company embarked on a plan to divest its non-wireless businesses, which included the defense and commercial staffing businesses. The divestiture plan was completed during November 2000. Accordingly, the Company’s continuing operations consist solely of the operations of CWT.
During the first quarter of fiscal 2003, the Comarco Board of Directors adopted a preferred stock rights plan. The plan is designed to ensure that Comarco’s shareholders receive fair and equal treatment in the event of any attempted takeover of Comarco, and to guard against partial tender offers, open market accumulations, and other tactics designed to gain control of Comarco without paying all of Comarco’s shareholders a fair price for their shares. Each preferred stock purchase right will entitle the holder to buy one one-one hundredth of a share of the Company’s Series A Participating Preferred Stock at an exercise price of $75. The rights will expire in 10 years.
2. | Summary of Significant Accounting Policies |
Basis of Presentation:
The interim condensed consolidated financial statements of Comarco included herein have been prepared without audit in accordance with generally accepted accounting principles for interim information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The Company believes that the disclosures are adequate to make the information presented not misleading when read in conjunction with the audited consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended January 31, 2003. The financial information presented herein reflects all adjustments, consisting only of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The results for the three and six months ended April 30,July 31, 2003 are not necessarily indicative of the results to be expected for the year ending January 31, 2004.
Stock-Based Compensation:
The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants using the intrinsic value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and FASB Interpretation No. 44 (“FIN 44”), “Accounting for Certain Transactions Involving Stock-Based Compensation, an Interpretation of APB Opinion No. 25” and related interpretations in accounting for its stock-based compensation plans. The Company has adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” Accordingly, no compensation expense ishas been recognized for the stock option grants. Had compensation cost for the Company’s stock option plans been determined based on the fair value at the grant date for awards during the quartersthree and six months ended April 30,July 31, 2003 and 2002 consistent with the provisions of SFAS No. 123, the Company’s Net Loss, Basic Loss Per Share, and Diluted Loss Per Share would have been reduced to the pro forma amounts as follows:follows (in thousands, except per share amounts):
COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
Three Months Ended April 30, | Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||
Net loss: | ||||||||||||||||||||||||
As reported | $ | (818 | ) | $ | (3,463 | ) | $ | (2,254 | ) | $ | (6,725 | ) | $ | (3,072 | ) | $ | (10,189 | ) | ||||||
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (153 | ) | (151 | ) | (154 | ) | (157 | ) | (309 | ) | (314 | ) | ||||||||||||
Pro forma | $ | (971 | ) | $ | (3,614 | ) | $ | (2,408 | ) | $ | (6,882 | ) | $ | (3,381 | ) | $ | (10,503 | ) | ||||||
Loss per common share — basic: | ||||||||||||||||||||||||
As reported | $ | (0.12 | ) | $ | (0.50 | ) | $ | (0.31 | ) | $ | (0.96 | ) | $ | (0.43 | ) | $ | (1.46 | ) | ||||||
Pro forma | (0.14 | ) | (0.52 | ) | (0.34 | ) | (0.99 | ) | (0.47 | ) | (1.51 | ) | ||||||||||||
Loss per common share — diluted: | ||||||||||||||||||||||||
As reported | $ | (0.12 | ) | $ | (0.50 | ) | $ | (0.31 | ) | $ | (0.96 | ) | $ | (0.43 | ) | $ | (1.46 | ) | ||||||
Pro forma | (0.14 | ) | (0.52 | ) | (0.34 | ) | (0.99 | ) | (0.47 | ) | (1.51 | ) |
The fair value of options granted under the Company’s stock option plans during the six months ended July 31, 2003 and 2002 were estimated on the date of grant using the Black-Scholes option-pricing model utilizing the following weighted average assumptions:
Six Months Ended July 31, | ||||||
2003 | 2002 | |||||
Weighted average risk-free interest rate | 2.6 | % | 4.4 | % | ||
Expected life (in years) | 6 | 6 | ||||
Expected stock volatility | 44.0 | % | 42.9 | % | ||
Dividend yield | None | None |
Principles of Consolidation:
The condensed consolidated financial statements of the Company include the accounts of Comarco, Inc., CWT, and wholly owned subsidiaries primarily reported as discontinued operations. All material intercompany balances, transactions, and profits have been eliminated.
Use of Estimates:
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the period reported. Actual results could differ from those estimates.
Certain accounting principles require subjective and complex judgments to be used in the preparation of financial statements. Accordingly, a different financial presentation could result depending on the judgments, estimates, or assumptions that are used. Such estimates and assumptions include, but are not specifically limited to, those required in the valuation of long-lived assets, allowance for doubtful accounts, and valuation allowances for deferred tax assets.
Reclassifications:
Certain prior period balances have been reclassified to conform to the current period presentation.
3. | Recent Accounting Pronouncements |
In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Exit or Disposal Activities.” SFAS No. 146 addresses the recognition, measurement, and reporting of costs associated with exit and disposal activities, including restructuring activities. SFAS No. 146 also addresses recognition of certain costs related to terminating a contract that is not a capital lease, costs to consolidate facilities or relocate employees and termination of benefits provided to employees that are involuntarily terminated under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred compensation contract. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The Company adopted the provisions of SFAS No. 146 as of
COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
activities that are initiated after December 31, 2002. The Company adopted the provisions of SFAS No. 146 as of February 1, 2003, and such adoption hasdid not hadhave a material effect on the Company’s consolidated results of operations or financial position.
In October 2002, the Emerging Issues Task Force (“EITF”) issued EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.” The EITF indicated that this guidance is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The provisionsadoption of EITF Issue No. 00-21 aredid not expected to have a material effect on the Company’s consolidated results of operations or financial position because the Company’s qualifying arrangements are treated in a manner consistent with the stated provisions.
In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34.34 (“FIN No. 45”).” This InterpretationFIN No. 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The InterpretationFIN No. 45 also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the InterpretationFIN No. 45 are applicable to guarantees issued or modified after December 31, 2002. The Company adopted the disclosure provisions of the InterpretationFIN No. 45 effective February 1, 2003. WhileSuch adoption did not have a material impact on the Company has various indemnity obligations included in contracts entered into in the normal courseCompany’s consolidated results of business, the obligations are primarily in the form of indemnities that could result in increases in future costs but do not represent significant commitmentsoperations or contingent liabilities of the indebtedness of others.financial position.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to the accompanying condensed consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.51 (“FIN No. 46”).” This InterpretationFIN No. 46 addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The InterpretationFIN No. 46 applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. The application of this Interpretation isFIN No. 46 did not expected to have a material effect on the Company’s consolidated results of operations or financial position. The Interpretation requires certain disclosures in financial statements issued after January 31, 2003 if it is reasonably possible that we will consolidate or disclose information about variable interest entities when the Interpretation becomes effective. The Company has no variable interest entities whichthat would require disclosure or consolidationsconsolidation under this Interpretation.FIN No. 46.
In April 2003, FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative discussed in paragraph 6(b) of Statement 133, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying to conform it to language used in FIN 45, and (4) amends certain other existing pronouncements, which will collectively result in more consistent reporting of contracts as either derivatives or hybrid instruments. SFAS No. 149 is effective for contracts and hedging relationships entered into or modified after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on the Company’s consolidated financial statements as the Company has not entered into any derivative or hedging transactions.
In May 2003, FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 establishes standards for how an issuer classifies and
COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
measures certain financial instruments with characteristics of both debt and equity and requires an issuer to classify the following instruments as liabilities in its balance sheet:
SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and is effective for all other financial instruments as of the first interim period beginning after June 15, 2003. SFAS No. 150 is to be implemented by reporting the cumulative effect of a change in accounting principle. The Company does not expect the adoption of SFAS No. 150 will have a material impact on its consolidated financial statements.
4. | Stockholders’ Equity |
During 1992, our Board of Directors authorized a stock repurchase program of up to 3.0 million shares of the Company’s common stock. From program inception through April 30,July 31, 2003, the Company has repurchased approximately 2.6 million shares for an average price of $8.22 per share. During the firstsecond quarter ended April 30,July 31, 2003, the Company repurchased 22,2003,640 shares of common stock in the open market for an average price of $7.65$7.32 per share.
5. | ChargeSource Product Recall |
In cooperation with the Consumer Products Safety Commission, on March 20, 2003, Comarco voluntarily initiated a product safety recall of certain of its ChargeSource AC power adapters. This product safety recall impacts
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
approximately 125,000 units that were sold in fiscal 2003. Comarco and Targus Group International (“Targus”), the Company’s exclusive distributor of ChargeSource products, entered into an agreement to address the impact of the recall action. Under the terms of the agreement Comarco issued a $3.2 million credit to Targus in fiscal 2003 in consideration of a full release. Additionally, the Company accrued $554,000 in costs related to the recall action.
The following table presents a reconciliation of the use of the product recall accrual (in thousands):
Product Recall 1/31/03 | Adjustments | Payments | Product Recall Liability 4/30/03 | Adjustments | Payments | Product Recall Liability 7/31/03 | ||||||||||||
$554 | $ — | $39 | $515 | — | $(249) | $305 | ||||||||||||
The product recall liability is included in accrued liabilities in the accompanying condensed consolidated balance sheets. The Company believes that the balance remaining as of April 30,July 31, 2003 is adequate to cover additional product recall costs expected to be incurred.paid.
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Additionally, of the $3.2 million credit issued to Targus in the fourth quarter of fiscal 2003, returns totaling $1.3$1.9 million have been madereceived from Targus through April 30,July 31, 2003.
6. |
The Company calculates net incomeearnings (loss) per share in accordance with SFAS No. 128, “Earnings Per Share.” Under SFAS No. 128, basic net incomeearnings (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted net incomeearnings (loss) per share reflects the effects of potentially dilutive securities. Since the Company incurred a net loss for the first quarterthree and six months ended April 30,July 31, 2003 and April 30,July 31, 2002, basic and diluted net loss per share were the same because 24,889the inclusion of potential common shares in the calculation would have been antidilutive.
Potential common shares of 24,339 and 58,789 dilutive securities, respectively, were not included because24,731 have been excluded from diluted weighted average common shares for the three and six months ended July 31, 2003, as the effect would have been antidilutive. Similarly, potential common shares of 39,300 and 49,463 have been excluded from diluted weighted average common shares for the three and six months ended July 31, 2002, as the effect would have been antidilutive.
The following tables presenttable presents reconciliations of the numerators and denominators of the basic and diluted loss per share computations for net loss. In the tables below, “Net Loss”“Loss” represents the numerator and “Shares” represents the denominator (in thousands, except per share amounts):
Three Months Ended April 30, | Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||
Basic and Diluted: | ||||||||||||||||||||||||
Basic and diluted: | ||||||||||||||||||||||||
Net loss before cumulative effect of change in accounting principle | $ | (818 | ) | $ | (537 | ) | $ | (2,254 | ) | $ | (6,725 | ) | $ | (3,072 | ) | $ | (7,263 | ) | ||||||
Weighted average shares outstanding | 7,034 | 6,968 | 7,161 | 6,972 | 7,082 | 6,970 | ||||||||||||||||||
Basic and diluted loss per share before cumulative effect of change in accounting principle | $ | (0.12 | ) | $ | (0.08 | ) | $ | (0.31 | ) | $ | (0.96 | ) | $ | (0.43 | ) | $ | (1.04 | ) | ||||||
Cumulative effect of change in accounting principle | $ | — | $ | (2,926 | ) | $ | — | $ | — | $ | — | $ | (2,926 | ) | ||||||||||
Weighted average shares outstanding | 7,034 | 6,968 | 7,161 | 6,972 | 7,082 | 6,970 | ||||||||||||||||||
Basic and diluted loss per share from cumulative effect of change in accounting principle | $ | — | $ | (0.42 | ) | $ | — | $ | — | $ | — | $ | (0.42 | ) | ||||||||||
Net loss | $ | (818 | ) | $ | (3,463 | ) | $ | (2,254 | ) | $ | (6,725 | ) | $ | (3,072 | ) | $ | (10,189 | ) | ||||||
Weighted average shares outstanding | 7,034 | 6,968 | 7,161 | 6,972 | 7,082 | 6,970 | ||||||||||||||||||
Basic and diluted loss per share | $ | (0.12 | ) | $ | (0.50 | ) | $ | (0.31 | ) | $ | (0.96 | ) | $ | (0.43 | ) | $ | (1.46 | ) | ||||||
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(UNAUDITED)
7. | Inventory |
Inventory consists of the following (in thousands):
April 30, 2003 | January 31, 2003 | July 31, 2003 | January 31, 2003 | |||||||||
Raw materials | $ | 2,369 | $ | 2,483 | $ | 2,795 | $ | 2,483 | ||||
Work in progress | 74 | 352 | 104 | 352 | ||||||||
Finished goods | 1,140 | 821 | 870 | 821 | ||||||||
$ | 3,583 | $ | 3,656 | $ | 3,769 | $ | 3,656 | |||||
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(UNAUDITED)
Inventories are net of write downs for excess and obsolete inventory of approximately $2.3 million and $2.6 million as of July 31, 2003 and January 31, 2003, respectively. The Company regularly reviews inventory quantities on hand and records a write down for excess and obsolete inventory based primarily on historical usage, forecasted product demand, and production requirements for the next twelve months.
8. | Capitalized Software Development Costs, Net |
SoftwareCapitalized software development costs consist of the following (in thousands):
April 30, 2003 | January 31, 2003 | July 31, 2003 | January 31, 2003 | |||||||||||||
Capitalized software development costs | $ | 6,991 | $ | 9,362 | $ | 7,934 | $ | 9,362 | ||||||||
Less: accumulated amortization | (1,126 | ) | (3,804 | ) | (1,831 | ) | (3,804 | ) | ||||||||
$ | 5,865 | $ | 5,558 | $ | 6,103 | $ | 5,558 | |||||||||
CapitalizedAmortization of software development costs for the quartersthree months ended April 30,July 31, 2003 and 2002 totaled $0.8$0.7 million and $1.1$1.2 million, respectively. For the six months ended July 31, 2003 and 2002, amortization of software development costs totaled $1.2 million and $2.1 million, respectively. Amortization of software development costs for the quarters ended April 30, 2003 and 2002 totaled $478,000 and $906,000, respectively, and havehas been reported in cost of revenue in the accompanying condensed consolidated financial statements.
Additionally, during the first quarter of fiscal 2004, fully amortized software development costs totaling $3.2 million and the corresponding accumulated amortization were retired.
9. | Goodwill and Acquired Intangible Assets, Net |
Goodwill and acquired intangible assets consist of the following (in thousands):
April 30, 2003 | January 31, 2003 | July 31, 2003 | January 31, 2003 | |||||||||||||
Goodwill | $ | 2,796 | $ | 2,796 | $ | 3,248 | $ | 2,796 | ||||||||
Less: accumulated amortization | (403 | ) | (403 | ) | (403 | ) | (403 | ) | ||||||||
$ | 2,393 | $ | 2,393 | $ | 2,845 | $ | 2,393 | |||||||||
Acquired intangible assets | $ | 1,613 | $ | 1,452 | $ | 1,613 | $ | 1,452 | ||||||||
Less: accumulated amortization | (783 | ) | (745 | ) | (822 | ) | (745 | ) | ||||||||
$ | 830 | $ | 707 | $ | 791 | $ | 707 | |||||||||
Amortization of definite liveddefinite-lived acquired intangible assets for the quartersthree months ended April 30,July 31, 2003 and 2002 totaled $38,000 and $88,000, respectively. Amortization of definite-lived acquired intangible assets for the six months ended July 31, 2003 and 2002 totaled $77,000 and $176,000, respectively. The Company ceased amortizing goodwill beginning February 1, 2002 upon adoption of SFAS No. 142.
10. | Customer Concentrations |
The Company’s sales have historically been concentrated with a small number of customers. During the three months ended July 31, 2003 and 2002, sales to customers that accounted for 10 percent or more of revenues for the period totaled $2.0 million and $4.6 million, respectively. Sales to Targus accounted for approximately 11 percent and 34 percent of total revenue for the three months ended July 31, 2003 and 2002, respectively. During the three months ended July 31, 2003, two
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
customers in addition to Targus accounted for approximately 10 percent and 14 percent of total revenue for the second quarter. For the three months ended July 31, 2002, one customer in addition to Targus accounted for approximately 12 percent of total revenue.
For the six months ended July 31, 2003 and 2002, sales to customers that accounted for 10 percent or more of revenue for the period totaled $2.2 million and $6.7 million, respectively. Sales to Targus accounted for approximately 18 percent and 38 percent of total revenues during those periods, respectively. For the six months ended July 31, 2003 and 2002, no other customer constituted more than 10 percent of revenue.
As of July 31, 2003, approximately 30 percent of total accounts receivable related to one customer that accounted for 10 percent or more of Comarco’s total revenue. The loss of, or reduction in, sales to any of these customers could have a material adverse effect on the Company’s business, results of operations, and financial position.
Business Segment Information |
The Company has two reportable operating segments: wireless test solutions and wireless applications.
Wireless test solutions designs and manufactures hardware and software tools for use by wireless carriers, equipment vendors, and others. Radio frequency engineers, professional technicians, and others use these tools to design, deploy, and optimize wireless networks, and to verify the performance of the wireless networks once deployed.
Wireless applications designs and manufactures call box systems and mobile power products for notebook computers, cellular telephones, PDAs, and other handheld devices. Call box systems provide emergency communication over existing wireless networks. In addition to the call box products, the Company provides system installation and long-term maintenance services. Currently, approximately 14,000 CWT call boxes are installed, the majority of which are serviced and maintained under long-term agreements, which expire at various timesdates through February 2011.
Performance measurement and resource allocation for the reportable segments are based on many factors. The primary financial measures used are revenue and gross profit. The revenue, gross profit, gross margin, and total assets attributable to these segments are as follows (in thousands):
Three Months Ended April 30, 2003 | Three Months Ended July 31, 2003 | Three Months Ended July 31, 2002 | |||||||||||||||||||||||||||||||||||||
Wireless Test Solutions | Wireless Applications | Corporate | Total | Wireless Test Solutions | Wireless Applications | Total | Wireless Test Solutions | Wireless Applications | Total | ||||||||||||||||||||||||||||||
Revenue | $ | 1,855 | $ | 4,601 | $ | — | $ | 6,456 | $ | 2,480 | $ | 3,045 | $ | 5,525 | $ | 3,375 | $ | 6,634 | $ | 10,009 | |||||||||||||||||||
Cost of revenue | 1,189 | 2,765 | — | 3,954 | 1,191 | 3,117 | 4,308 | 3,443 | 3,774 | 7,217 | |||||||||||||||||||||||||||||
Gross profit | $ | 666 | $ | 1,836 | $ | — | $ | 2,502 | |||||||||||||||||||||||||||||||
Gross profit (loss) | $ | 1,289 | $ | (72 | ) | $ | 1,217 | $ | (68 | ) | $ | 2,860 | $ | 2,792 | |||||||||||||||||||||||||
Gross margin | 35.9 | % | 39.9 | % | — | 38.8 | % | 52.0 | % | (2.4 | )% | 22.0 | % | (2.0 | )% | 43.1 | % | 27.9 | % | ||||||||||||||||||||
Total assets | $ | 15,851 | $ | 12,017 | $ | 21,919 | $ | 49,787 | |||||||||||||||||||||||||||||||
Three Months Ended April 30, 2002 | Six Months Ended July 31, 2003 | Six Months Ended July 31, 2002 | |||||||||||||||||||||||||||||||||||||
Wireless Test Solutions | Wireless Applications | Corporate | Total | Wireless Test Solutions | Wireless Applications | Total | Wireless Test Solutions | Wireless Applications | Total | ||||||||||||||||||||||||||||||
Revenue | $ | 3,108 | $ | 4,657 | $ | — | $ | 7,765 | $ | 4,334 | $ | 7,647 | $ | 11,981 | $ | 6,484 | $ | 11,291 | $ | 17,775 | |||||||||||||||||||
Cost of revenue | 2,177 | 2,803 | — | 4,980 | 2,379 | 5,883 | 8,262 | 5,622 | 6,576 | 12,198 | |||||||||||||||||||||||||||||
Gross profit | $ | 931 | $ | 1,854 | $ | — | $ | 2,785 | $ | 1,955 | $ | 1,764 | $ | 3,719 | $ | 862 | $ | 4,715 | $ | 5,577 | |||||||||||||||||||
Gross margin | 29.9 | % | 39.8 | % | — | 35.9 | % | 45.1 | % | 23.1 | % | 31.0 | % | 13.3 | % | 41.8 | % | 31.4 | % | ||||||||||||||||||||
Total assets | $ | 27,039 | $ | 13,433 | $ | 21,724 | $ | 62,196 | |||||||||||||||||||||||||||||||
Wireless Test Solutions | Wireless Applications | Corporate | Total | |||||||||
Assets at July 31, 2003 | $ | 13,450 | $ | 10,053 | $ | 24,079 | $ | 47,582 | ||||
Assets at July 31, 2002 | $ | 14,424 | $ | 14,090 | $ | 22,601 | $ | 51,115 | ||||
Revenue by geographic area consistedconsists of the following (in thousands):
Three Months Ended April 30, | ||||||
2003 | 2002 | |||||
North America | $ | 5,780 | $ | 7,080 | ||
Europe | 617 | 372 | ||||
Asia | 31 | 122 | ||||
Latin America | 28 | 191 | ||||
$ | 6,456 | $ | 7,765 | |||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||
North America | $ | 3,728 | $ | 8,334 | $ | 9,509 | $ | 15,414 | ||||
Europe | 1,170 | 945 | 1,787 | 1,317 | ||||||||
Asia | 127 | 246 | 158 | 369 | ||||||||
Latin America | 500 | 484 | 527 | 675 | ||||||||
$ | 5,525 | $ | 10,009 | $ | 11,981 | $ | 17,775 | |||||
Commitments and Contingencies |
Purchase Commitments with Suppliers
We generally issue purchase orders to our suppliers with delivery dates from four to six weeks from the purchase order date. In addition, we regularly provide significant suppliers with rolling six-month forecasts of material and finished goods requirements for planning and long-lead time parts procurement purposes only. We are committed to accept delivery of materials pursuant to our purchase orders subject to various contract provisions which allow us to delay receipt of such order or allow us to cancel orders beyond certain agreed lead times. Such cancellations may or may not include cancellation costs payable by us. In the past, we have been required to take delivery of materials from our suppliers that were in excess of our requirements and we have previously recognized charges and expenses related to such excess material. If we are unable to adequately manage our suppliers and adjust such commitments for changes in demand, we may incur additional inventory expenses related to excess and obsolete inventory. Such expenses could have a material adverse effect on our business, results of operations, and financial position.
Legal Contingencies
Comarco was named as a defendant in two lawsuits filed by Mobility Electronics, Inc. (“Mobility”), and subsequently the Company filed two actions against Mobility and affiliates as further discussed below.
Mobility commenced proceedings for patent infringement against the Company and CWT with respect to CWT’s ChargeSource power supply products (the “Mobility Action”). The Company was first served with Mobility’s amended complaint on August 10, 2001. In addition to asserting that the Company and CWT have infringed a Mobility patent, the amended complaint seeks declaratory judgment that three of CWT’s power-supply related patents are either invalid or not infringed by power supplies produced or to be produced by Mobility. The Company and CWT moved for dismissal of the amended complaint in its entirety. The motion was denied, but the Court indicated that based on the results of discovery the Court may grant a renewed motion to dismiss the declaratory judgment claim. The Company and CWT believe that they have meritorious defenses with respect to Mobility’s patent and declaratory judgment causes of actions.
On June 21, 2002, CWT filed an action for patent infringement against the Xtend Micro Products, Inc. (“Xtend”) and its parent entity, iGo Corporation (“iGo”). CWT alleges that certain patents owned by CWT are infringed by Xtend’s PowerXtender™ and AC Adapter power supply products as well as other power supply and power adapter products and related accessories. On July 15, 2002, Xtend and iGo answered the complaint denying the allegations in CWT’s complaint and asserting a number of affirmative defenses. Xtend and iGo have indicated in court filings that they will seek to have this case transferred to and consolidated with the Mobility Action because this case involves two of the patents involved in the Mobility Action, and Mobility and iGo have recently merged into a single corporate entity. CWT believes that its case against Xtend and iGo is meritorious and that CWT has valid grounds for opposing any motion to consolidate this case with the Mobility Action that may be filed by Xtend and/or iGo.
COMARCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
On January 31, 2003, CWT filed an action for patent infringement against Mobility Electronics, Inc., Hipro Electronics Co. Ltd., and iGo Corporation with regard to a universal power adapter called “Juice.” Defendant Hipro manufactures Juice for Mobility, which in turn offers it for sale through its wholly owned subsidiary iGo Corporation. On February 27, 2003, Mobility and iGo answered the complaint while Hipro filed a motion to dismiss based on lack of personal jurisdiction and improper service.
On March 4,Effective July 12, 2003, CWT filed a Motion for Preliminary Injunction seekingall the parties to enjoin Mobility, Hipro, and iGo from making, using, selling or offering for sale the “Juice” product. The Court has set a June 11, 2003 hearing date for both CWT’s Motion for Preliminary Injunction and Hipro’s Motion to Dismiss. The parties participated inall three actions entered into a settlement conference before a United States Magistrate Judge on May 20, 2003 without reaching a settlement.
agreement. All three actions are being dismissed. Under the terms of the settlement agreement, the Company was not required to make any payment. Mobility and CWT believes that its case against Mobility, Hipro,cross-licensed certain patent rights related to powering electronic devices, including certain patent rights relating to automatic programmability and iGo Corp is meritorious. As described above, this action has been consolidated for purposes of discovery with the Mobility Arizona Action.combination AC/DC capability.
Los Angeles County Service Authority for Freeway Emergencies (“LASAFE”) filed an action against CWT on June 10, 2002, relating to two contracts between LASAFE and CWT concerning call box systems manufactured by CWT, upgraded by CWT to comply with the Americans with Disabilities Act (“ADA”), and maintained by CWT until its contractual obligations to provide maintenance expired. On August 2, 2002, LASAFE filed a first amended complaint. The complaint includes eight counts. In the first five counts LASAFE alleges CWT breached its contractual obligations and implied warranties by failing to properly maintain and repair the call box systems and failing to provide certain deliverables to LASAFE. In the last three counts LASAFE alleges that a patent owned by CWT should be assigned to LASAFE, and CWT should compensate LASAFE because an LASAFE employee is the true inventor of the invention claimed in the patent. The complaint seeks an unspecified amount of actual and punitive damages, ownership of the patent, an order that CWT specifically perform its obligations under the contracts, recovery of attorneys fees, and an audit to determine the number of allegedly infringing call boxes.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
On August 16, 2002, CWT filed an answer and a motion to dismiss the first five counts founded in state contract and warranty law on the grounds that the Federal District Court lacks jurisdiction over the state law claims, which was subsequently granted. The Court has set a scheduling order and has set a trial date of February 3, 2004. CWT believes that it has meritorious defenses with respect to all of LASAFE’s claims.
On November 7, 2002, LASAFE filed a complaint in state court alleging the five causes of action that were dismissed in the federal court action referenced in the above paragraph.action. Specifically, LASAFE alleges that CWT breached its contractual obligations and implied warranties by failing to properly maintain and repair the call box systems and failing to provide certain deliverables to LASAFE, and seeks over $1 million in damages. On January 9, 2003, CWT filed its answer and a cross-complaint asserting causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing based on LASAFE’s failure to pay CWT all monies due under a contract with LASAFE and LASAFE’s conduct during the course of the contract.
On June 3, 2003, the parties mediated the disputes involved in the federal and the state actions and reached a tentative settlement agreement. The LASAFE board approved such a settlement, the parties are currently working on drafting the formal settlement agreement, and the federal and state cases have been stayed. The estimated cost of the proposed settlement has been recorded as cost of revenue and did not yet respondedhave a material impact on the Company’s consolidated results of operations and financial position. No additional costs are expected to CWT’s cross-complaint.be incurred.
In February 2003, Steven C. Dixon filed suit against Circuit City Stores, Inc.; Belkin Corporation; Targus, Inc.; and Tecnozone Enterprises, LLC. The Court has set a trial date of April 5, 2004. CWT believescomplaint alleged that it has meritorious defensespower supply products supplied to LASAFE’s claimsCircuit City for resale by Belkin, Targus, and believes that LASAFE will have significant difficulties proving causationTecnozone infringed United States Patent No. 6,064,177 (the ‘177 patent). ChargeSource power supply products supplied to Targus by Comarco Wireless Technologies, Inc. were among the products at issue. In June 2003, this case was settled and damages on its claims for breach of implied warranties.dismissed with prejudice. No additional costs related to this matter are expected be incurred.
The Company is from time to time involved in various legal proceedings incidental to the conduct of our business. We believe that the outcome of all other such pending legal proceedings will not in the aggregate have a material adverse effect on our results of operations and financial condition and operating results.position.
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this quarterly report on Form 10-Q. This report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms, or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. Important factors which may cause actual results to differ materially from the forward-looking statements are described in the section entitled “Risk Factors” in Part I, Item 1 of the our report on Form 10-K for the year ended January 31, 2003, and other risks identified from time to time in our filings with the Securities and Exchange Commission, press releases, and other communications.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither any other person nor we assume responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
Overview
Comarco, Inc., through its subsidiary Comarco Wireless Technologies, Inc. (collectively, “Comarco,” or the “Company”), is a leading provider of field test applications for the wireless industry. Comarco also designs and manufactures emergency call box systems and mobile power products for notebook computers, cellular telephones, PDAs, and other handheld devices. During October 1999, we embarked on a plan to divest our non-wireless businesses, which included the defense and commercial staffing businesses. The divestiture plan was completed during November 2000. Accordingly, our continuingOur operations consist solely of the operations of Comarco Wireless Technologies, Inc. (“CWT”).
Results of Operations – Continuing Operations
We have two reportable operating segments: wireless test solutions and wireless applications.
Wireless Test Solutions
Our wireless test solutions business designs and manufactures hardware and software tools for use by wireless carriers, equipment vendors, and others. Radio frequency engineers, professional technicians, and others use these field test applications to design, deploy, and optimize wireless networks, and to verify the performance of the wireless networks once deployed. The downturn in the wireless industry has reduced overall demand for our wireless test solutions products, and continues to make it difficult for us to forecast our wireless test solutions operations for fiscal 2004.
During the first half of fiscal 2004, we completed the development of our Seven.Five hardware and various related software applications, and have begun shipping products to customers in Europe, North America and Latin America. Seven.Five is a mobile test platform that is adaptable to many test applications. It provides wireless infrastructure analysis, benchmarking and optimization for 2G, 2.5G and 3G network deployments. We expect to complete the development of additional Seven.Five software applications during the second half of fiscal 2004.
The Seven.Five family consists of the following members:
Wireless Applications
Our wireless applications business designs and manufactures emergency call box systems and mobile power products for notebook computers, cellular telephones, PDAs, and other handheld devices. Our call box products provide emergency communication over existing wireless networks. In addition to the call box products, we provide system installation and long-term maintenance services. Currently, we have approximately 14,000 call boxes installed, the majority of which are serviced and maintained under long-term agreements.agreements, which expire at various dates through February 2011.
Approximately 75 percent of our call box revenue is derived from agencies of California’s state and local governments. The State of California is currently experiencing financial and political challenges. We believe these challenges have created uncertainty with respect to the spending patterns of our California based customers. As a result, projects and the related contracts to upgrade and expand certain call box systems have been delayed. While we currently believe that these projects will move ahead, we are unable to forecast the timing of such events in the near-term.
The wireless applications business also includes the ChargeSource family of mobile power products. Our currentDuring the second quarter of fiscal 2004, our offering of ChargeSource products consistwas expanded with the release of a 70-wattthe 120-watt universal AC powerAC/DC adapter our second-generation mobile power system.and the 120-watt universal DC adapter. By simply changing the compact SmartTips connected to the end of the charging cable, the
universal AC power adapter isthese products are capable of charging and powering multiple target devices, including most notebook computers, cellular telephones, PDAs, and other handheld devices. During the third quarter of fiscal 2002, the ChargeSource product offering was expanded with the introduction of the 70-watt universal DC power adapter. This universal DC power adapter allows traveling professionals to use all their existing ChargeSource SmartTips on the road or in the air. This device connects to the in-seat power outlet available on most major airlines or the cigarette lighter plug found in automobiles. Targus Group International (“Targus”) currently distributes both of these products.
Until recently, most current notebook computers required no more than 70 watts of power to operate. However, the personal computer industry is currently transitioning to notebook computers with increasing power requirements. As the power requirement increases, so does the size of the original equipment of the manufacturer (“OEM”) AC charger sold with the notebook computer. To address this industry wide trend, we have developed a family of ChargeSource products that are compatible with all legacy and current and future notebook computers.computers, as well as those notebook computers expected to be available during the next 18 months. These
new ChargeSource products are able to deliver up to 120 watts of power in a very small form factor. The new ChargeSource family of products which are expectedconsists of the following:
Our new 120-watt ChargeSource products, as well as the universal battery are compatible with existing Smart Tips and are backwards compatible with the 70-Watt adapters.adapters, which we continue to manufacture and sell based on the requirements of the retailers. Targus Group International (“Targus”) currently distributes our available products.
In cooperation with the Consumer Products Safety Commission, on March 20, 2003, Comarco voluntarily initiated a product safety recall of its legacy ChargeSource 70-watt AC power adapters. This product safety recall impacts approximately 125,000 units that were sold in fiscal 2003. Comarco and Targus entered into an agreement to address the impact of the recall action. Under the terms of the agreement Comarco issued a $3.2 million credit to Targus in fiscal 2003 in consideration of a full release. Additionally, the Company accrued $554,000 in costs related to the recall action.
Of the $3.2 million credit issued to Targus in the fourth quarter of fiscal 2003, returns totaling $1.3$1.9 million have been madereceived from Targus through April 30,July 31, 2003. Additionally, of the Company accrued $554,000 in costs accrued related to the recall the Company has paid $39,000action in related costs through April 30, 2003.cost of revenue. The Company believes that the balance remaining as of April 30,July 31, 2003 of $305,000, is adequate to cover additional product recall costs expected to be incurred.
The following table sets forth certain items as a percentage of revenue from our condensed consolidated statements of operations for the three and six months ended April 30,July 31, 2003 and 2002. The table and discussion that follows provides information which management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. The discussion should be read in conjunction with the condensed consolidated financial statements and accompanying notes thereto included elsewhere herein.
Three Months Ended April 30, | ||||||
2003 | 2002 | |||||
Revenue | 100.0 | % | 100.0 | % | ||
Cost of revenue | 61.3 | 64.1 | ||||
Gross profit | 38.7 | 35.9 | ||||
Selling, general and administrative costs | 35.9 | 30.1 | ||||
Engineering and support costs | 23.9 | 18.2 | ||||
Operating loss | (21.1 | ) | (12.4 | ) | ||
Other income, net | 1.7 | 1.4 | ||||
Minority interest in losses of subsidiary | 0.3 | — | ||||
Loss before income taxes | (19.1 | ) | (11.0 | ) | ||
Income tax benefit | (6.4 | ) | (4.0 | ) | ||
Net loss before cumulative effect of change in accounting principle | (12.7 | )% | (7.0 | )% | ||
Three Months July 31, | Six Months July 31, | |||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||
Revenue | 100 | % | 100 | % | 100 | % | 100 | % | ||||
Cost of revenue | 78.0 | 72.1 | 69.0 | 68.6 | ||||||||
Gross margin | 22.0 | 27.9 | 31.0 | 31.4 |
(continued)
Six Months Ended July 31, Selling, general and administrative costs Asset impairment charge Engineering and support costs Operating loss Other income, net Minority interest Loss before income taxes Income tax benefit Net loss before cumulative effect of change in accounting principle Three Months Ended July 31, 2003 2002 2003 2002 62.2 23.9 48.0 26.6 — 84.0 — 47.3 25.9 13.0 24.8 15.3 (66.1 ) (93.0 ) (41.8 ) (57.8 ) 1.1 0.9 1.4 1.1 0.5 0.7 0.4 0.4 (64.5 ) (91.4 ) (40.0 ) (56.3 ) (23.7 ) (24.2 ) (14.4 ) (15.4 ) (40.8 )% (67.2 )% (25.6 )% (40.9 )%
Comparison of the three months ended July 31, 2003 to the three months ended July 31, 2002
Consolidated
Revenue
Total revenue for the firstsecond quarter of fiscal 2004, which ended April 30,July 31, 2003, was $6.5$5.5 million compared to $7.8$10.0 million for the firstsecond quarter of fiscal 2003, a decrease of $1.3$4.5 million or 16.944.8 percent. As discussed below, the decrease is attributable to decreased sales of our wireless test solutionsapplications products, as well as our exit from our engineering services business during the second quarter of fiscal 2003.
We track the geographic location of our sales based upon the location of our customers to which our products are shipped. Certain of our customers purchase products from us at central locations and then reship the product to locations throughout the world. Accordingly, we are unable to track the ultimate geographic location of our products. Sales to customers in North America and Europe accounted for approximately 67 percent and 21 percent of revenue, or $3.7 million and $1.2 million, respectively, for the second quarter ended July 31, 2003. For the comparable period of the prior fiscal year, sales to customers in North America and Europe accounted for approximately 83 percent and 9 percent of revenue, or $8.3 million and $0.9 million, respectively.
Cost of Revenue and Gross Margin
Total cost of revenue for the firstsecond quarter of fiscal 2004 was $4.0$4.3 million compared to $5.0$7.2 million for the firstsecond quarter of fiscal 2003, a decrease of approximately $1.0$2.9 million or 20.640.3 percent. As a percentage of revenue, gross margin increaseddecreased to 38.722.0 percent from 35.927.9 percent for the firstsecond quarter of the prior fiscal year. The increase is primarily due to maintaining a higher cost structure duringdecrease in gross margin reflects the firstcosts of ramping-up production of our newly released 120-watt universal power adapters.
Legal, Settlement, and Related Costs
During the second quarter of fiscal 20032004, we settled each of the matters more fully discussed in supportthe section “Legal Proceedings” in Part II, Item 1 of completing our remaining contractual obligationsthis report on Form 10-Q. These matters related to our engineering services customers.wireless applications business, and for the second quarter of fiscal 2004, we incurred approximately $1.9 million in legal, settlement, and related costs. Approximately $1.7 million of these costs are included in selling, general and administrative costs for the second quarter, with the balance recorded in cost of revenue. No additional costs related to these matters are expected to be incurred.
Selling, General and Administrative Costs
Selling, general, and administrative costs for the firstsecond quarter of fiscal 2004 were $3.4 million, compared to $2.4 million for the second quarter of fiscal 2003, an increase of $1.0 million or 43.6 percent. As discussed above, we incurred approximately $1.7 million in legal, settlement, and 2003related costs during the second quarter of fiscal 2004. These costs were $2.3 million. During prior fiscal years, we reduced our indirect cost structure in response to a broad downturnexcess of comparable costs incurred in the wireless industry and the resulting reduced demand for our wireless test solutions products. As a result, our selling, general, and administrative expenses were flat in comparison tosecond quarter of the prior fiscal year. As a percentage of revenue, selling, general and administrative costs were 35.9 percent and 30.1 percent for the quarters ended April 30, 2003 and 2002, respectively, due to the relative fixed nature of our current cost structure and a reduced revenue base.
For at least the balance of fiscal 2004, quarterly selling, general, and administrative costs are expected to fluctuate due to increasing revenue levelsrange between $2.0 million and $2.3 million, consistent with both the second quarter of fiscal 2003 and the timingfirst quarter of legalfiscal 2004. As a percentage of revenue, selling, general, and administrative costs incurred in addressingwere 62.2 percent and 23.9 percent for the legal matters discussed in the section entitled “Legal Proceedings” in Part II, Item 1 of this report on Form 10-Q.quarters ended July 31, 2003 and 2002, respectively.
Engineering and Support Costs
The Company capitalizes costs incurred for the development of software embedded in our wireless test solutions products that will be sold when technological feasibility has been established. These capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenue and changes in hardware and software technologies. Costs that are capitalized include direct labor and related overhead. Engineering and support costs for the firstsecond quarter of fiscal 2004 and 2003 are as follows (in thousands):
Three Months Ended April 30, | Three Months Ended July 31, | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
Engineering | $ | 1,884 | $ | 1,842 | $ | 2,041 | $ | 1,601 | ||||||||
Less: Capitalized software development | (782 | ) | (1,100 | ) | ||||||||||||
Less: Capitalized software development costs | (944 | ) | (915 | ) | ||||||||||||
Support Costs | 442 | 675 | 334 | 617 | ||||||||||||
$ | 1,544 | $ | 1,417 | $ | 1,431 | $ | 1,303 | |||||||||
Engineering and support costs, net of capitalized software development costs, for the firstsecond quarter of fiscal 2004 were $1.5$1.4 million compared to $1.4$1.3 million for the prior fiscal quarter, an increase of approximately $0.1 million. Gross engineering and support costs, before reduction for capitalized software development costs, decreasedincreased $0.2 million in comparison to the firstsecond quarter of fiscal 2003. This decreaseincrease is primarily due to increased product development costs offset by reduced staffing of our product support function. Capitalized software development costs decreased $0.3 million resulting in an increase in engineering and support costs, net of capitalized software development costs, of $0.1remained constant at $0.9 million for the firstsecond quarter of fiscal 2004 in comparison to the prior fiscal quarter. The reduction of capitalized software developmentincrease in engineering costs during the firstsecond quarter of fiscal 2004 is consistent with our strategy of lowering the cost structure in support of our wireless test solutions business, whereby we discontinued certain software development projects and focused our available resources onattributable to the development and release of a single flexible product platform, Seven.Five.Seven.Five products, including the Seven.Five Solo and Seven.Five Duo, during the second quarter of fiscal 2004.
Other Income
Other income consists primarily of interest income.
Income Tax ExpenseBenefit
The effective tax rates for the quarters ended April 30,July 31, 2003 and 2002, were 33.636.8 percent primarily and 36.926.5 percent, respectively. The lower prior year effective tax rate used to compute the tax benefit of $2.4 million was caused primarily by non-deductible asset impairment charges recorded during the second quarter of fiscal 2003. No such non-deductible expenses were recorded in fiscal 2004.
Wireless Test Solutions
Three Months Ended April 30, | Three Months Ended July 31, | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Revenue | $ | 1,855 | $ | 3,108 | $ | 2,480 | $ | 3,375 | ||||||||
Cost of revenue | 1,189 | 2,177 | 1,191 | 3,443 | ||||||||||||
Gross profit | $ | 666 | $ | 931 | ||||||||||||
Gross profit (loss) | $ | 1,289 | $ | (68 | ) | |||||||||||
Gross margin | 35.9 | % | 29.9 | % | 52.0 | % | (2.0 | )% | ||||||||
Revenue
Wireless test solutions revenue for the firstsecond quarter of fiscal 2004 was $1.9$2.5 million compared to $3.1$3.4 million for the firstsecond quarter of fiscal 2003, a decrease of $1.3$0.9 million or 40.326.5 percent. This decrease reflects the reduced demand forshifting of sales from our legacy 2G wireless test solutions products to our newly released Seven.Five platform, as well as reductions in engineering services, which we ceased providing during the second quarter of fiscal 2003. Revenue from engineering services for the firstsecond quarter of fiscal 2003 totaled approximately $450,000.
Cost of Revenue and Gross Margin
Cost of revenue from our wireless test solutions business for the firstsecond quarter of fiscal 2004 was $1.2 million compared to $2.2$3.4 million for the firstsecond quarter of fiscal 2003, a decrease of approximately $1.0$2.2 million or 45.465.4 percent. Excluding the cost of revenue attributable to engineering services, which totaled approximately $0.7 million, the grossGross margin for the first quarter of fiscal 2003 was 43.8 percent. Accordingly, as a percentage of revenue, gross margin for the firstsecond quarter of fiscal 2004 decreasedincreased to 35.952.0 percent from 43.8(2.0) percent for the corresponding period of the prior fiscal year. The decrease in cost of revenue was due to decreased sales volumes of our hardware and software tools, as well as decreased amortization of capitalized software development costs. Amortization of software development costs for the first quarter ended April 30, 2003 and 2002 totaled $0.5 million and $0.9 million, respectively. The decreaseincrease in gross margin was primarily due to decreased absorptiona change in the relative mix of fixedbusiness for the second quarter (product sales vs. maintenance revenue). Also contributing to the increase in gross margin is a non-cash inventory impairment charge totaling $1.4 million that was recorded in the second quarter of fiscal 2003. No comparable costs attributable to lower product sales.were incurred during fiscal 2004.
Wireless Applications
Three Months Ended April 30, | Three Months Ended July 31, | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Revenue | $ | 4,601 | $ | 4,657 | $ | 3,045 | $ | 6,634 | ||||||||
Cost of revenue | 2,765 | 2,803 | 3,117 | 3,774 | ||||||||||||
Gross profit | $ | 1,836 | $ | 1,854 | ||||||||||||
Gross profit (loss) | $ | (72 | ) | $ | 2,860 | |||||||||||
Gross margin | 39.9 | % | 39.8 | % | (2.4 | )% | 43.1 | % | ||||||||
Revenue
Wireless applications revenue for the firstsecond quarter of 2004 was $4.6$3.0 million compared to $4.7$6.6 million for the firstsecond quarter of 2003, a decrease of approximately $0.1$3.6 million or 1.254.1 percent. This decrease was due to a $0.3$2.3 million decrease in sales of our ChargeSource products partially offset byand a $0.2$1.3 million increasedecrease in sales of our call box products.
The decrease in sales of our ChargeSource products is due to the phase-out of our 70-watt products as our primary market offering and the transition to newly developed 120-watt products. We began shipping both the 120-watt universal AC/DC and 120-watt universal DC power adapters at the end of the second quarter of fiscal 2004. For the remainder of fiscal 2004, we expect that our ChargeSource revenue will be approximately $5.5 million per quarter.
The decrease in sales of our call box products relates to delays in receiving contracts to upgrade and services. Forexpand several call systems based in California. As previously discussed, California is currently experiencing financial and political challenges. We believe these challenges have created uncertainty with respect to the first quarterspending patterns of fiscal 2004,our California based customers. As a result, projects and the related contracts to upgrade and expand certain call box revenue was generated from both the sales of products and providing maintenance services under long-term contracts and totaled $0.5 million and $1.2 million, respectively.systems have been delayed. Sales of call box products tend to fluctuate from quarter to quarter while revenue from the long-term maintenance contracts are relatively comparable quarter to quarter.
Cost of Revenue and Gross Margin
Wireless applications cost of revenue for the firstsecond quarter of fiscal 2004 and 2003 was $2.8 million.$3.1 million compared to $3.7 million for the second quarter of fiscal 2003. As a percentage of revenue, gross margin was comparable at 39.9(2.4) percent versus 39.843.1 percent for the corresponding period of the prior fiscal year. The decrease in gross margin reflects the costs of ramping-up production of our newly released 120-watt universal power adapters, while dramatically reducing production quantities of legacy products. The new 120-watt products began shipping at the end of the second quarter of fiscal 2004.
Comparison of the Six Months Ended July 31, 2003 to the Six Months Ended July 31, 2002
Consolidated
Revenue
Total revenue for the six months ended July 31, 2003, was $12.0 million compared to $17.8 million for the six months ended July 31, 2002, a decrease of approximately $5.8 million or 32.6 percent. As discussed below, the decrease is attributable to a $3.6 million decrease in sales of our wireless applications products and a $2.1 million decrease in sales of our wireless test solutions products.
Sales to customers in North America and Europe accounted for approximately 79 percent and 15 percent of revenue, or $9.5 million and $1.8 million, respectively, for the six months ended July 31, 2003. For the comparable period of the prior fiscal year, sales to customers in North America and Europe accounted for approximately 87 percent and 7 percent of revenue, or $15.4 million and $1.3 million, respectively.
Cost of Revenue and Gross Margin
Total cost of revenue for the six months ended July 31, 2003, was $8.3 million compared to $12.2 million for the corresponding period of fiscal 2003, a decrease of approximately $3.9 million or 32.3 percent. As a percentage of revenue, gross margin was 31.0 percent as compared to 31.4 percent for the six months ended July 31, 2003 and 2002, respectively. As discussed previously, during the three months ended July 31, 2002, we recorded a non-cash inventory impairment charge totaling $1.4 million related to our wireless test solutions legacy 2G products. As discussed below, the decrease in gross margin is primarily attributable to the costs of ramping up production of our newly released 120-watt universal power adapters.
Selling, General and Administrative Costs
Selling, general and administrative costs for the six months ended July 31, 2003 were $5.7 million compared to $4.7 million for the corresponding period of the prior fiscal year, an increase of $1.0 million or 21.7 percent. The increase in selling, general and administrative expenses is attributable to the legal settlements and
related fees incurred during the second quarter of fiscal 2004. As a percentage of revenue, selling, general and administrative costs were 48.0 percent and 26.6 percent for the six months ended July 31, 2003 and 2002, respectively.
Engineering and Support Costs
The Company capitalizes costs incurred for the development of software embedded in our wireless test solutions products that will be sold when technological feasibility has been established. These capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenue and changes in hardware and software technologies. Costs that are capitalized include direct labor and related overhead. Engineering and support costs for the six months ended July 31, 2003 and 2002, are as follows (in thousands):
Six Months Ended July 31, | ||||||||
2003 | 2002 | |||||||
Engineering | $ | 3,925 | $ | 3,444 | ||||
Less: Capitalized software development costs | (1,726 | ) | (2,015 | ) | ||||
Support Costs | 776 | 1,292 | ||||||
$ | 2,975 | $ | 2,721 | |||||
Engineering and support costs, net of capitalized software development costs, for the six months ended July 31, 2003 were $3.0 million compared to $2.7 million for the corresponding period of the prior fiscal year, an increase of approximately $0.3 million. Gross engineering and support costs, before reduction for capitalized software development costs, remained flat at $4.7 million in comparison to the second half of fiscal 2003. This is primarily due to increased product development costs offset by reduced staffing of our product support function. Capitalized software development costs decreased $0.3 million for the second half of fiscal 2004 in comparison to the comparable period of the prior fiscal year. The increase in engineering costs during the second half of fiscal 2004 is attributable to the development and release of Seven.Five products, including the Seven.Five Solo and Seven.Five Duo, during the second quarter of fiscal 2004.
Other Income
Other income consists primarily of interest income.
Income Tax Benefit
The effective tax rate for the six months ended July 31, 2003 and 2002, was 36.0 percent and 27.4 percent, respectively. The lower prior year effective tax rate used to compute the tax benefit of $2.7 million was caused primarily by non-deductible asset impairment charges recorded during the second quarter of fiscal 2003. No such non-deductible expenses were recorded in fiscal 2004.
Cumulative Effect of Accounting Change
The Company adopted SFAS No. 142 “Goodwill and Other Intangible Assets” effective February 1, 2002. During the second quarter of fiscal 2003, we completed the required transitional impairment test under the new rules and recorded a non-cash charge of $2.9 million to write down fully the carrying value of the goodwill related to our EDX software reporting unit. This reporting unit is included in our wireless test solutions segment for financial reporting purposes, and the related goodwill was generated through our acquisition of EDX Engineering, Inc. during December 2000. Such charge is reflected as a cumulative effect of change in accounting principle. In calculating the impairment charge, the fair value of the impaired reporting unit underlying the wireless infrastructure segment was estimated using a discounted cash flow methodology. This charge writes off the entire carrying value of the recorded goodwill for that reporting unit. No comparable charges were recorded during the six months ended July 31, 2003.
Wireless Test Solutions
Six Months Ended July 31, | ||||||||
2003 | 2002 | |||||||
(Dollars in thousands) | ||||||||
Revenue | $ | 4,334 | $ | 6,484 | ||||
Cost of revenue | 2,379 | 5,622 | ||||||
Gross profit | $ | 1,955 | $ | 862 | ||||
Gross margin | 45.1 | % | 13.3 | % | ||||
Revenue
Revenue from our wireless test solutions segment for the six months ended July 31, 2003, was $4.3 million compared to $6.5 million for the six months ended July 31, 2002, a decrease of 33.1 percent. Of the total decrease of $2.2 million, $0.9 million relates to the exiting of the engineering services business which we ceased providing in the second quarter of fiscal 2003. The remaining decrease of $1.3 million represents the shifting of sales from our legacy 2G wireless test solutions products to our newly released Seven.Five products.
Cost of Revenue and Gross Margin
Cost of revenue from our wireless infrastructure segment in the six months ended July 31, 2003, was $2.4 million compared to $5.6 million for the six months ended July 31, 2002, a decrease of approximately $3.2 million or 57.7 percent. Gross margin for the six months ended July 31, 2003 increased to 45.1 percent from 13.3 percent for the corresponding period of the prior fiscal year. The increase in gross margin was due to a change in the relative mix of business for the six months ended July 31, 2003 (product sales vs. maintenance revenue). Also contributing to the increase in gross margin is a non-cash inventory impairment charge totaling $1.4 million that was recorded in the second quarter of fiscal 2003. No comparable costs were incurred during fiscal 2004.
Wireless Applications
Six Months Ended July 31, | ||||||||
2003 | 2002 | |||||||
(Dollars in thousands) | ||||||||
Revenue | $ | 7,647 | $ | 11,291 | ||||
Cost of revenue | 5,883 | 6,576 | ||||||
Gross profit | $ | 1,764 | $ | 4,715 | ||||
Gross margin | 23.1 | % | 41.8 | % | ||||
Revenue
Revenue from our wireless applications segment for the six months ended July 31, 2003 was $7.6 million compared to $11.3 million for the six months ended July 31, 2002, a decrease of approximately $3.6 million or 32.3 percent. This decrease was due to a $2.6 million decrease in sales of our ChargeSource products and a $1.0 million decrease in sales of our call box products.
The decrease in sales of our ChargeSource products is due to the phase-out of our 70-watt products as our primary market offering and the transition to newly developed 120-watt products. We began shipping both the 120-watt universal AC/DC and 120-watt universal DC power adapters at the end of the second quarter of fiscal 2004. For the remainder of fiscal 2004, we expect that our ChargeSource revenue will be approximately $5.5 million per quarter.
The decrease in sales of our call box products relates to delays in receiving contracts to upgrade and expand several call systems based in California. As previously discussed, California is currently experiencing financial and political challenges. We believe these challenges have created uncertainty with respect to the spending patterns of our California based customers. As a result, projects and the related contracts to upgrade and expand certain call box systems have been delayed. Sales of call box products tend to fluctuate from quarter to quarter while revenue from the long-term maintenance contracts are relatively comparable quarter to quarter.
Cost of Revenue and Gross Margin
Cost of revenue from our wireless applications segment for the six months ended July 31, 2003 was $5.9 million compared to $6.6 million for the six months ended July 31, 2002, a decrease of $0.7 million or 10.5 percent. As a percentage of revenue, gross margin decreased to 23.1 percent from 41.8 percent for the six months ended July 31, 2002. The decrease in gross margin is attributable to startup production costs associated with the new 120-watt products, while dramatically reducing production quantities of legacy products. The new 120-watt products began shipping at the end of the second quarter of fiscal 2004.
Liquidity and Capital Resources
Our financial position remains strong, with cash and cash equivalents of $23.7$18.9 million at April 30,July 31, 2003.
The following table summarizes Comarco’s cash flows for the six months ended July 31, 2003 and 2002:
Six Months Ended July 31, | ||||||||
2003 | 2002 | |||||||
(In thousands) | ||||||||
Net cash provided by (used in): | ||||||||
Operating activities | $ | (3,382 | ) | $ | 5,153 | |||
Investing activities | (2,991 | ) | (2,752 | ) | ||||
Financing activities | $ | (106 | ) | $ | (154 | ) | ||
Net increase (decrease) in cash and cash equivalents — continuing operations | $ | (6,479 | ) | $ | 2,247 | |||
Cash Flows from Operating Activities
WeCash used cash fromin operations of $0.1was $3.4 million for the first quarterhalf of fiscal 2004 compared to $2.4$5.2 million of cash generated from operations for the corresponding period of the prior fiscal year. The net incomeloss from continuing operations before non-cash charges of depreciation and amortization was approximately $0.2$0.8 million. ThisAdditionally, the Company’s deferred revenue decreased by $1.1 million and our deferred income taxes increased by $1.4 million. The decrease in deferred revenue reflects a non-cash increase in revenue for the period as we ratably recognize the revenue of previously deferred sales over the term of the service period. Similarly, the increase in deferred income taxes reflects the non-cash portion of our recorded income tax benefit.
The $5.2 million in cash provided by operations for the six months ended July 31, 2002 is primarily related to net income from operations before non-cash charges of depreciation and amortization, asset impairment charges, and cumulative effect of change in accounting principle of $5.8 million. Cash generated was offsetis further increased by an increasea reduction in accounts receivable of approximately $0.5$3.6 million and is offset primarily due to reduced collections from Targus, our ChargeSource product distributor, asby a resultdecrease in accrued liabilities of $1.9 million and the $3.2$2.7 million credit issuedincrease in the fourth quarter of fiscal 2003. The increase in cash generation for the first quarter of fiscal 2003 was primarily due to significant collections of accounts receivable partially offset by the net loss for the quarter. Accounts receivable decreased $4.1 million to $5.6 million at April 30, 2002 from $9.7 million at January 31, 2002, primarily due to significantly lower revenue generated by our wireless test solutions business for the first quarter of fiscal 2003.deferred tax benefit.
Cash Flows from Investing Activities
Net cash used in investing activities was $1.4$3.0 million for the first quarterhalf of fiscal 2004 andcompared to $2.8 million for the first half of fiscal 2003. In both periods, capital expenditures for property and equipment and software development constituted substantially all of our cash used in investing activities. The development of software is critical to our products currently under development.
Cash Flows from Financing Activities
Net cash used in financing activities for the first quartersix months of fiscal 2004 consisted of $168,000$195,000 that was used to repurchase 22,20025,640 shares of the Company’s common stock in the open market for an average purchase price of $7.65.$7.61. From program inception in 1992 through April 30,July 31, 2003, the Company has repurchased approximately 2.6 million shares for an average price of $8.22 per share. The cash used was offset by $89,000 from the sale of common stock issued through the Company’s subsidiary option plan. Net cash used in financing activities for the first quarter of fiscal 2003six months ended July 31, 2002 consisted of $278,000$353,000 that was used to repurchase 26,20035,905 shares of the Company’s common stock in the open market for an average price of $10.62$9.84 per share under our share repurchase program. ProceedsThe cash used was offset by proceeds of $78,000 received from the sales of common stock issued through the Company’s subsidiary stock option plan and proceeds from the sale of common stock issued through employee and director stock option plans generated $121,000 during the first quarter of fiscal 2003.$121,000.
We believe that our existing cash and cash equivalent balances and cash from operations will provide us sufficient funds to satisfy our cash requirements for at least the next twelve months. In addition to our cash and cash equivalent balances, we derive a portion of our liquidity from our cash flows from operations.
Critical Accounting Policies
We have identified the following critical accounting policies as critical policies tothe most significant for purposes of fully understanding and evaluating our company:reported financial results: revenue recognition, capitalized software development costs, accounts receivable, inventory, income taxes, valuation of goodwill, and valuation of long-lived assets. These critical accounting policies have been applied during the first quarterand second quarters of fiscal 2004 consistent with the prior periods and the year ended January 31, 2003.
For further information, refer to the discussion of critical accounting policies included in Management’s Discussion and Analysis in the Company’s annual report on Form 10-K for the year ended January 31, 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Currency Risk
The Company is exposed to the risk of changes in currency exchange rates. As of April 30,July 31, 2003, we had no material accounts receivable denominated in foreign currencies. Our standard terms require customers to pay for our products and services in U.S. dollars. For those orders denominated in foreign currencies, we may limit our exposure
to losses from foreign currency transactions through forward foreign exchange contracts. To date, sales denominated in foreign currencies have not been significant and we have not entered into any foreign exchange contracts.
Interest Rate Sensitivity
The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. Some of the securities that we have invested in may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the principal amount of our investment will probably decline in value. To minimize this risk, we maintain a significant portion of our cash balances in money market funds. In general, money market funds are not subject to interest rate risk because the interest paid on such funds fluctuates with the prevailing interest rate.
We do not hold any derivative financial instruments.
Our cash and cash equivalents have maturities dates of three months or less and the fair value approximates the carrying value in our financial statements.
Equity Price Risk
Our short-term investments consist primarily of balances maintained in a non-qualified deferred compensation plan funded by our executives and directors. We value these investments using the closing market value for the last day of each month. These investments are subject to market price volatility. We reflect these investments on our balance sheet at their market value, with the unrealized gains and losses excluded from reported operations. We have also invested in equity instruments of SwissQual, a privately held company. We evaluate whether any decline in value of certain public and non-public equity investments is other than temporary.
Due to the inherent risk associated with some of our investments, and in light of current stock market conditions, we may incur future losses on the sales, write-downs, or write-offs of our investments. We do not currently hedge against equity price changes.
ITEM 4. CONTROLS AND PROCEDURES
(a) | Evaluation of disclosure controls and procedures |
Within
As of the 90 days prior toend of the date ofperiod covered by this report, an evaluation was performed, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to the Securities Exchange Act of 1934, as amended, Rule 13a-14c. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date the evaluation was performed.
(b) | Changes in internal controls |
There have been no significant changes in internal controls or in other factors that could significantly affect these internal controls subsequent to the date of our most recent evaluation.
PART II — OTHER INFORMATION
1. | Mobility Electronics, Inc. v. Comarco, Inc. and Comarco Wireless Technologies, Inc., |
Mobility Electronics, Inc. v. Comarco, Inc. and Comarco Wireless Technologies, Inc.,
Case No. CIV-01-1489-PHX-MHM, U.S. District Court for the District of Arizona (“Mobility Arizona Action”);
Comarco Wireless Technologies, Inc. vs. Xtend Micro Products, Inc. and iGo Corporation,
Case No. SACV 02-640 AHS (ANx), U.S. District Court for the Central District of California, Southern Division (“Comarco California Action”);
Comarco Wireless Technologies, Inc. v. Mobility Electronics, Inc., Hipro Electronics Company, Ltd., and iGo Direct Corporation,
Case No. CIV-03-0202 PHX-MHM, U.S. District Court for the District of Arizona (“Comarco Arizona Action”):
In August 2001, Mobility Electronics, Inc. (“Mobility”) commenced proceedings as to U. S. Patent No. 5,347,211 (“initiated the ‘211 Patent”) for patent infringementMobility Arizona Action against the Company and Comarco Wireless Technologies, Inc. (“CWT”) with respect toalleging that CWT’s ChargeSource power supply products. The Company was first served with Mobility’s amended complaint filed August 10, 2001.products infringed U.S. Patent No. 5,347,211 (“the ‘211 Patent”). In addition, to asserting that the Company and CWT have infringed the ‘211 patent, the amended complaint seeksMobility sought a declaratory judgment that three of CWT’s power supply related patents are either invalid or not infringed by power supplies produced or to be produced by Mobility. The three CWT patents are U. S.U.S. Patent Nos. 6,091,611 (“the ‘611 Patent”), 6,172,884 (“the ‘884 patent”), and 5,838,554 (“the ‘554 patent”). The Company and CWT believe that they have meritorious defenses with respect to the ‘211 patent and Mobility’s declaratory judgment causes of actions.
A Scheduling ConferenceComarco’s customer, Targus Group International, Inc. (“Targus”) was held on December 18, 2002. Following that Conference, the Court entered its Scheduling Order granting the parties until June 15, 2004 to conduct discovery, and until June 30, 2004 to file dispositive motions. Following resolution of any dispositive motions, or following the deadline for filing if no such motions are filed, the Court will holdlater added as a status hearing for purposes of selecting a firm trial date and related pre-trial deadlines.defendant.
On October 28, 2002, the California District Court hearing the matter ofComarco Wireless Technologies, Inc. v. Xtend Micro Products, Inc. and iGo Corporation, former Case No. SACV 02-640 AHS (ANx) (discussed below), ordered the California Action transferred to the District of Arizona. The Arizona Court on January 31, 2003, further ordered the action consolidated with the Mobility Arizona Action for purposes of discovery.
Also, as discussed below, CWT recently filed a separate suit in Arizona against Mobility and two affiliated entities alleging infringement of Comarco’s ‘611 and ‘884 Patents (“CWT Arizona Action”). The CWT Arizona Action has been consolidated for purposes of discovery with the Mobility Arizona Action.
Comarco Wireless Technologies, Inc. v. Xtend Micro Products, Inc. and iGo Corporation,
Case No. 02:2201 PHX MHM, U.S. District Court for the District of Arizona (formerly, SACV 02-640 AHS (ANx), U.S. District Court for the Central District of California, Southern Division):
OnIn June 21, 2002, CWT filed this action for patent infringementinitiated the Comarco California Action against Xtend Micro Products, Inc. (“Xtend”) and its parent entity, iGo Corporation (“iGo”). CWT alleges, alleging that its ‘611 and ‘884 patents are infringed by Xtend’s PowerXtender™ and AC Adapter power supply products as well as other power supply and power adapter products and related accessories. On July 15, 2002,iGo acquired Xtend, and then iGo answeredmerged into a newly formed subsidiary of Mobility named iGo Direct Corporation (“iGo Direct”). The Comarco California Action was transferred to and consolidated with the complaint denying the allegations in CWT’s complaint and asserting a number of affirmative defenses.Mobility Arizona Action.
In September, 2002, Defendants moved to transfer this action toJanuary 2003, CWT initiated the Comarco Arizona District CourtAction against Mobility, iGo Direct, and Hipro Electronics Company, Ltd. (“Hipro”), alleging that the Juice™ power supply products and related accessories made by Hipro for purpose of consolidationMobility and sold through iGo Direct, infringed Comarco’s ‘611 and ‘884 patents. The Comarco Arizona Action was consolidated with the Mobility Arizona Action because this case involved two overlapping patents, and because defendants iGo/Xtend were acquired by and mergedthe Comarco California Action.
Effective July 12, 2003, all the parties to all three actions entered into a wholly-owned subsidiary of Mobility. On October 28, 2002Settlement Agreement. All three actions are being dismissed. Under the California District Court granted the Motion and Ordered that the case be transferred to the District of Arizona.
On January 31, 2003, the Arizona Court adopted its Scheduling Order for the case and separately ordered that the case be consolidated for purposes of discovery with the Mobility Arizona Action. Pursuant to the Scheduling Order, the parties have until June 15, 2004 to conduct discovery, and dispositive motions are to be filed by June 30, 2004. The Court will hold a status conference following resolution of any dispositive motions or, if none are filed, following the passingterms of the June 30, 2004 deadline. At that time,Settlement Agreement, neither the Court will adopt a firm trial dateCompany nor CWT was required to make any payment. Mobility and setCWT cross-licensed certain patent rights related pre-trial deadlines.to powering electronic devices, including certain patent rights relating to automatic programmability and combination AC/DC capability.
Comarco Wireless Technologies, Inc. v. Mobility Electronics, Inc., Hipro Electronics Co., Ltd., and iGo Corporation,
Case No. 03:202 PHX MHM, United States District Court, District of Arizona
On January 31, 2003, CWT filed this action for infringement of its ‘611 and ‘884 Patents with regard to a universal power adapter, called “Juice.” Defendant Hipro manufactures Juice for Mobility, which in turn offers it for sale through its wholly owned subsidiary, iGo Corp. On February 27, 2003, Mobility and iGo answered the complaint while Hipro filed a motion to dismiss based on lack of personal jurisdiction and improper service.
On March 4, 2003, CWT filed a Motion for Preliminary Injunction seeking to enjoin Mobility, Hipro, and iGo from making, using, selling or offering for sale the “Juice” product. The Court has set a June 11, 2003 hearing date for both CWT’s Motion for Preliminary Injunction and Hipro’s Motion to Dismiss. The parties participated in a settlement conference before a United States Magistrate Judge on May 20, 2003 without reaching a settlement.
CWT believes that its case against Mobility, Hipro and iGo Corp is meritorious. As described above, this action has been consolidated for purposes of discovery with the Mobility Arizona Action.
Los Angeles County Service Authority for Freeway Emergencies v. Comarco Wireless Technologies, Inc.,
2. | Los Angeles County Service Authority for Freeway Emergencies v. Comarco Wireless Technologies, Inc., |
Case No. SACV 02-567 AHS (ANx), U.S. District Court for the Central District of California, Southern Division:
Los Angeles County Service Authority for Freeway Emergencies (“LASAFE”) filed this action against CWT on June 10, 2002, relating to two contracts between LASAFE and CWT concerning Call Box Systemscall box systems manufactured by CWT, upgraded by CWT to comply with the Americans with Disabilities Act (“ADA”) and maintained by CWT until its contractual obligations to provide maintenance expired. On August 2, 2002, LASAFE filed a first amended complaint (hereafter, “the complaint”). The complaint includes eight counts. In the first five counts LASAFE alleges CWT breached its contractual obligations and implied warranties by failing to properly maintain and repair the call box system and failing to provide certain deliverables to LASAFE. In the last three counts LASAFE alleges that U.S. Patent No. 6,035,187 owned by CWT and entitled “Apparatus and Method for
Improved Emergency Call Box” (“the ‘187 Patent”) should be assigned to LASAFE, and CWT should compensate LASAFE, because an LASAFE employee is the true inventor of the invention claimed in the ‘187 Patent. The complaint seeks an unspecified amount of actual and punitive damages, ownership of the ‘187 patent, an order that CWT specifically perform its obligations under the contracts, recovery of attorneys fees, and an audit to determine the number of allegedly infringing call boxes.
On August 16,In October 2002, CWT filed an answer and a motion to dismissthe Court dismissed the first five counts foundedof LASAFE’s complain without prejudice finding that the claims properly belonged in state contract and warranty law on the grounds that the Federal District Court lacks jurisdiction over the state law claims, which was subsequently granted. The Court has set a scheduling order and has set a trial date of February 3, 2004. CWT believes that it has meritorious defenses with respect to all of LASAFE’s claims.court, not federal court.
On November 7, 2002, LASAFE filed an action in California Superior Court for the County of Los Angeles, Case No.BC 248897 styled Los Angeles County Service Authority for Freeway Emergencies v. Comarco Wireless Technologies Inc.,
Case No. No. BC 284897, California Superior Court for the County of Los Angeles:
On November 7, 2002, LASAFE filed a complaint in state court alleging the same facts and legal theories set forth in its first five causescounts of actionthe federal case that were dismissed in the federaal court action referenced in the above paragraph. Specifically, LASAFE alleges that CWT
breached its contractual obligations and implied warranties by failing to properly maintain and repair the call box systems and failing to provide certain deliverables to LASAFE, and seeks over $1 million in damages.discussed. On January 9, 2003, CWT filed itsan answer and a cross-complaint asserting causes of actionseeking payment for breach of contract and breachits services under one of the implied covenant of good faithcontracts.
On June 3, 2003, the parties mediated the disputes involved in the federal and fair dealing basedthe state actions and reached a tentative settlement agreement. The LASAFE board has since approved such a settlement, and the parties are currently working on LASAFE’s failuredrafting the formal settlement agreement. The federal and state cases have been stayed.
3. | Stephen C. Dixon et al. v. Circuit City Stores, Inc. et al., Case No. 1:03CV173, U.S.D.C. E.D.Va.: |
In February 2003, Plaintiffs filed suit against Circuit City Stores, Inc.; Belkin Corporation; Targus, Inc.; and Tecnozone Enterprises, LLC. The complaint alleged that power supply products supplied to payCircuit City for resale by Belkin, Targus, and Tecnozone infringed United States Patent No. 6,064,177 (the ‘177 patent). ChargeSource power supply products supplied to Targus by CWT all monies due under a contract with LASAFE and LASAFE’s conduct duringwere among the course ofproducts at issue. In June 2003, the contract. LASAFE has not yet respondedentire case as it related to CWT’s cross-complaint. The Court has set a trial date of April 5, 2004. CWT believes that it has meritorious defenses to LASAFE’s claims and believes that LASAFE will have significant difficulties proving causation and damages on its claims for breach of implied warranties.products was dismissed with prejudice.
We are from time to time involved in various legal proceedings incidental to the conduct of our business. We believe that the outcome of all other such pending legal proceedings will not in the aggregate have a material adverse effect on our financial condition and operating results.
ITEM 2. | CHANGES IN SECURITIES AND USE OF PROCEEDS |
None. |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None. |
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
The Annual Meeting of Shareholders of Comarco was held on June 24, 2003. The holders of Comarco’s stock were entitled to elect five directors to serve until 2004.
The following table sets forth the names of the five persons elected at the Annual Meeting to serve as directors until 2004 and the number of votes cast for or against with respect to each person.
None.
For | Withheld | |||
Don M. Bailey | 5,507,785 | 1,163,387 | ||
Thomas A. Franza | 5,587,983 | 1,083,189 | ||
Gerald D. Griffin | 5,776,342 | 894,830 | ||
Jeffrey R. Hultman | 6,136,171 | 535,001 | ||
Erik van der Kaay | 6,136,146 | 535,026 |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 5. | OTHER INFORMATION |
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
None.
None. |
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(a) | Exhibits: |
11 | Schedule of Computation of Net Loss Per Share | |
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes–Oxley Act of 2002 | |
31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes–Oxley Act of 2002 | |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes–Oxley Act of 2002 |
(b) Report on Form 8-K:
(b) | Reports on Form 8-K: |
The Registrant furnished a Current Report to the SEC on Form 8-K on May 30, 2003 under Item 12, Results of Operations and Financial Condition, the announcement of financial results for the fiscal quarter ended April 30, 2003. |
None.
The Registrant furnished a Current Report to the SEC on Form 8-K on June 2, 2003, under Item 12, Results of Operations and Financial Condition, to provide a transcript of a conference call and simultaneous web-cast presentation on May 28, 2003, relating to the Company’s financial results for the first quarter ended April 30, 2003. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
COMARCO, INC. | ||||||||
Date: | /s/ Thomas A. Franza | |||||||
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Certification of Chief Executive Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
In connection with this quarterly report on Form 10-Q of Comarco, Inc. I, Thomas A. Franza, Chief Executive Officer of Comarco, Inc., certify, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, that:
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Thomas A. Franza
|
Certification of Chief Executive Officer
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with this quarterly report on Form 10-Q of Comarco, Inc. I, Thomas A. Franza, Chief Executive Officer of Comarco, Inc., certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
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President and Chief Executive Officer |
Certification of Chief Financial Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
In connection with this quarterly report on Form 10-Q of Comarco, Inc. I, Daniel R. Lutz, Chief Financial Officer of Comarco, Inc., certify, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, that:
Date: | /s/ Daniel R. Lutz | |||
Daniel R. Lutz
|
Certification of Chief Financial Officer
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with this quarterly report on Form 10-Q of Comarco, Inc. I, Daniel R. Lutz, Chief Financial Officer of Comarco, Inc., certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
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Vice President and Chief Financial Officer |
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