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
July 31, 2016April 30, 2017
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 | (I.R.S. Employer | |||
of incorporation or organization) | Identification No.) |
28202 Cabot Road, Suite 300, Laguna Niguel, Suite 300, California 92677
(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.
Yes | √ | No |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes | √ | No |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | √ | ||||||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes | No | √ |
The registrant had 14,644,16514,614,165 shares of common stock outstanding as of September 15, 2016.June 14, 2017.
COMARCO, INC. AND SUBSIDIARY
QUARTERLY REPORT ON FORM 10-Q
FOR THE SIXTHREE MONTHS ENDEDJULY 31, 2016 APRIL 30, 2017
TABLE OF CONTENTS
Page
PART I — FINANCIAL INFORMATION | ||
ITEM 1. | FINANCIAL STATEMENTS (Unaudited) | |
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Consolidated Balance Sheets as of | 3 | |
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Consolidated Statements of Operations for the Three | 4 | |
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Consolidated Statements of Cash Flows for the | 5 | |
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Notes to | 6 | |
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 14 |
ITEM 4. | CONTROLS AND PROCEDURES | 19 |
PART II — OTHER INFORMATION | ||
ITEM 1. | LEGAL PROCEEDINGS | 20 |
ITEM 1A. | RISK FACTORS | 20 |
ITEM 6. | EXHIBITS | 20 |
SIGNATURES | 22 |
PART I — FINANCIAL INFORMATION
ITEM 1. |
|
COMARCO, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In (In thousands, except share and par value amounts)
(Unaudited) | ||||||||
July 31, | January 31, | |||||||
2016 | 2016 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 1,134 | $ | 680 | ||||
Accounts receivable due from suppliers, net of reserves of $0 | - | 122 | ||||||
Other current assets | 63 | 41 | ||||||
Total current assets | 1,197 | 843 | ||||||
Property and equipment, net | - | 2 | ||||||
Restricted cash | 77 | 77 | ||||||
Total assets | $ | 1,274 | $ | 922 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 127 | $ | 883 | ||||
Accrued liabilities | 325 | 687 | ||||||
Total current liabilities | 452 | 1,570 | ||||||
Total liabilities | 452 | 1,570 | ||||||
Commitments and Contingencies | ||||||||
Stockholders' Equity (Deficit): | ||||||||
Preferred stock, no par value, 10,000,000 shares authorized; no shares issued or outstanding | - | - | ||||||
Common stock, $0.10 par value, 50,625,000 shares authorized; 14,644,165shares issued and outstanding at July 31, 2016 and January 31, 2016 | 1,464 | 1,464 | ||||||
Additional paid-in capital | 18,385 | 18,367 | ||||||
Accumulated deficit | (19,027 | ) | (20,479 | ) | ||||
Total stockholders' equity (deficit) | 822 | (648 | ) | |||||
Total liabilities and stockholders' equity (deficit) | $ | 1,274 | $ | 922 |
(Unaudited) | ||||||||
April 30, | January 31, | |||||||
2017 | 2017 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 377 | $ | 618 | ||||
Other current assets | 44 | 14 | ||||||
Total current assets | 421 | 632 | ||||||
Total assets | $ | 421 | $ | 632 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 9 | $ | 6 | ||||
Accrued liabilities | 387 | 384 | ||||||
Income taxes payable | 5 | 5 | ||||||
Total current liabilities | 401 | 395 | ||||||
Total liabilities | 401 | 395 | ||||||
Commitments and Contingencies (Note 8) | ||||||||
Stockholders' Equity: | ||||||||
Preferred stock, no par value, 10,000,000 shares authorized; no shares issued or outstanding | - | - | ||||||
Common stock, $0.10 par value, 50,625,000 shares authorized; 14,614,165 shares issued and outstanding at April 30, 2017 and January 31, 2017 | 1,461 | 1,461 | ||||||
Additional paid-in capital | 18,415 | 18,410 | ||||||
Accumulated deficit | (19,856 | ) | (19,634 | ) | ||||
Total stockholders' equity | 20 | 237 | ||||||
Total liabilities and stockholders' equity | $ | 421 | $ | 632 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
COMARCO, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended | Six Months Ended | |||||||||||||||
July 31, | July 31, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Revenue | $ | - | $ | - | $ | - | $ | - | ||||||||
Cost of revenue | (472 | ) | - | (472 | ) | - | ||||||||||
Gross profit | 472 | - | 472 | - | ||||||||||||
Selling, general and administrative expenses | 280 | 242 | 464 | 553 | ||||||||||||
Engineering and support expenses | 80 | 48 | 260 | 48 | ||||||||||||
360 | 290 | 724 | 601 | |||||||||||||
Operating income (loss) | 112 | (290 | ) | (252 | ) | (601 | ) | |||||||||
Other income, net | 16 | 25 | 1,704 | 25 | ||||||||||||
Income (loss) from operations before income taxes | 128 | (265 | ) | 1,452 | (576 | ) | ||||||||||
Income tax expense | - | - | - | - | ||||||||||||
Net income (loss) | $ | 128 | $ | (265 | ) | $ | 1,452 | $ | (576 | ) | ||||||
Basic income (loss) per share: | $ | 0.01 | $ | (0.02 | ) | $ | 0.10 | $ | (0.04 | ) | ||||||
Diluted income (loss) per share: | $ | 0.01 | $ | (0.02 | ) | $ | 0.10 | $ | (0.04 | ) | ||||||
Weighted-average shares outstanding: | ||||||||||||||||
Basic | 14,644 | 14,644 | 14,644 | 14,659 | ||||||||||||
Diluted | 14,644 | 14,644 | 14,644 | 14,659 |
Three Months Ended | ||||||||
April 30, | ||||||||
2017 | 2016 | |||||||
Revenue | $ | - | $ | - | ||||
Cost of revenue | - | - | ||||||
Gross profit | - | - | ||||||
Selling, general and administrative expenses | 222 | 364 | ||||||
222 | 364 | |||||||
Operating loss | (222 | ) | (364 | ) | ||||
Other income, net | - | 1,688 | ||||||
(Loss) income from operations before income taxes | (222 | ) | 1,324 | |||||
Income tax expense | - | - | ||||||
Net (loss) income | $ | (222 | ) | $ | 1,324 | |||
Basic (loss) income per share: | $ | (0.02 | ) | $ | 0.09 | |||
Diluted (loss) income per share: | $ | (0.02 | ) | $ | 0.09 | |||
Weighted-average shares outstanding: | ||||||||
Basic | 14,615 | 14,644 | ||||||
Diluted | 14,615 | 14,644 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
COMARCO, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended | ||||||||
July 31, | ||||||||
2016 | 2015 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | 1,452 | $ | (576 | ) | |||
Adjustments to reconcile net income (loss)net cash used in operating activities: | ||||||||
Depreciation and amortization | 2 | 3 | ||||||
Stock-based compensation expense | 18 | 16 | ||||||
Accounts receivable due from suppliers | 122 | - | ||||||
Other assets | (22 | ) | (64 | ) | ||||
Accounts payable | (756 | ) | (3 | ) | ||||
Accrued liabilities | (362 | ) | (101 | ) | ||||
Income taxes payable | - | (40 | ) | |||||
Net cash provided by (used in) operating activities | 454 | (765 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Restricted cash | - | (77 | ) | |||||
Net cash used in investing activites | - | (77 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Net cash used in financing activities | - | - | ||||||
Net increase (decrease) in cash and cash equivalents | 454 | (842 | ) | |||||
Cash and cash equivalents, beginning of period | 680 | 2,140 | ||||||
Cash and cash equivalents, end of period | $ | 1,134 | $ | 1,298 | ||||
Supplementary disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | - | $ | - | ||||
Cash paid for income taxes, net of refunds | $ | - | $ | 40 |
Three Months Ended | ||||||||
April 30, | ||||||||
2017 | 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | (222 | ) | $ | 1,324 | |||
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization | - | 1 | ||||||
Stock-based compensation expense | 5 | 13 | ||||||
Changes in operating assets and liabilities | ||||||||
Other assets | (30 | ) | (35 | ) | ||||
Accounts payable | 3 | (504 | ) | |||||
Accrued liabilities | 3 | (32 | ) | |||||
Net cash (used in) provided by operating activities | (241 | ) | 767 | |||||
Net (decrease) increase in cash and cash equivalents | (241 | ) | 767 | |||||
Cash and cash equivalents, beginning of period | 618 | 680 | ||||||
Cash and cash equivalents, end of period | $ | 377 | $ | 1,447 | ||||
Supplementary disclosures of cash flow information: | ||||||||
Cash paid for income taxes, net of refunds | $ | - | $ | - |
The accompanying notes are an integral part of these condensed consolidated financial statements.
COMARCO, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. | Organization |
Comarco, Inc. was incorporated in California in 1960 and its common stock has been publicly traded since 1971, when it was spun-off from Genge Industries, Inc. Comarco, Inc.’s wholly-owned subsidiary, Comarco Wireless Technologies, Inc. (“CWT”), was incorporated in the state of Delaware in September 1993. Comarco and CWT are collectively referred to as “we,” “us,” “our,” “Comarco,” or the “Company”.
2. |
|
The condensedunaudited consolidated financial statements have been prepared assuming that we will continue to operate as a going concern, which contemplates that we will realize returns on our assets and satisfy our liabilities and commitments in the ordinary course of business. Our condensed consolidated financial statements doAs of April 30, 2017, we had working capital of $20,000, which is not reflect any adjustments relatedsufficient to fund our operations over the uncertainty of this outcome. As discussed elsewhere in this report, wenext twelve months. We have ceased traditional operations and are currently generating no revenues and have ceased traditional operations.revenues. Our futureability to continue to operate as a going concern is highly dependent on our ability to successfully resolve our current and future litigation, monetize our portfolio of patents, generate positive cash flowsflow and/or obtain borrowings or raise capital to meet our liquidity needs. However, there are no assurances that sufficient cash flows can be generated through our patent monetization efforts, and we currently have no commitments for additional financing, and there can be no assurance that we will be able to obtain requisite financing on acceptable terms, if at all. These factors raise substantial doubt regarding the Company’s ability to continue to operate as a going concern. The accompanying unaudited consolidated financial statements do not include any adjustments relating to this uncertainty.
We are primarilyOur business is currently focused on potentially realizing value from our ongoing or future IP enforcement actions and other litigation as well as further exploring opportunities to further expand, protect, and monetize our patent portfolio, including through the potential sale or licensing of some or all of our patent portfolio.
On March 10, 2014, we filed a lawsuit in federal court against Targus Group International, Inc. (“Targus”) for patent infringement, breach of contract, intentional interference with contract, violation of business and professional codes, misrepresentation and fraudulent concealment. On March 26, 2016, we entered into a confidential settlement and license agreement with Targus that resolved all claims arising from the aforementioned litigation.
Pursuant to the terms of the settlement agreement, we granted Targus a world-wide license to make, use, sell and distribute Licensed Products (as defined below), as well as a sublicense to have Licensed Products manufactured by third parties solely for the benefit of and sale to Targus. In addition, we granted Targus, for a limited number of units, the right to make, use, sell and distribute Licensed Products for third-party original equipment manufacturers (“OEMs”). “Licensed Products” means any power adaptor or power supply incorporating patents or other intellectual property owned or licensed by us.
In exchange for the license granted under the settlement agreement, Targus paid us a one-time, lump-sum payment on April 1, 2016, plus the possibility of future per-unit royalty payments if Targus exceeds the limit on Licensed Products that Targus may sell to OEMs under the settlement agreement. We have been granted confidential treatment from the Securities and Exchange Commission (“SEC”) related to the one-time payment, the calculation of royalty payments and the OEM unit limit pursuant to aconfidential treatment request filed by us with the SEC.
Two of our other recent litigation matters have also concluded. In the Chicony Power Technology, Co. Ltd., (“Chicony”) matter, effective as of May 15, 2014, Chicony entered into a settlement agreement with us that dismissed all claims between us and Chicony arising from the litigation. Pursuant to the terms of the settlement agreement, Chicony agreed to pay us $7.6 million, which was paid in May 2014. Of the $7.6 million, we retained $6.5 million, after distributing $1.1 million in attorneys’ fees and other costs. In connection with the settlement, certain contract manufacturer costs payable to Chicony totaling $1.1 million were discharged and reflected as a reduction of cost of revenues. In our litigation with ACCO Brands USA LLC and its Kensington Computer Products Group division (collectively “Kensington”), on February 4, 2014, we entered into a confidential settlement and licensing agreement with an effective date of February 1, 2014 that established a forward royalty program and dismissed all claims between the two parties arising from this matter.
COMARCO, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On February 3, 2015, we filed a lawsuit against Apple, Inc. (“Apple”) for patent infringement. The complaint alleges that Apple products sold in the United States utilizing the Apple Lightning® power supply adapter system, including most iPad®, iPhone®, and iPod® products, infringe ourthe Company’s patented intellectual property. This lawsuit represents our most significant enforcement effort to date, and, together with the Targus and Best Buy lawsuits described elsewhere in this document, demonstrates our ongoing and accelerated efforts to methodically pursue those companies that we believe have infringed on the intellectual property estate that we have developed over the last 20 years. We intend to vigorously pursue our rights in this case, althoughIn September of 2015, Apple filed a petition with the outcome of this matter is not determinable asPatent Trial and Appeal Board (the “PTAB”) of the dateUnited States Patent and Trademark Office requesting Inter Partes Review of this report.our U.S. Patent No. 8,492,933 B2 (the “933 Patent”). On February 22, 2017, the PTAB issued its finding, ruling in Apple’s favor. We believe the PTAB erred in its ruling, and we are appealing the ruling to the Court of Appeals for the Federal Circuit. We estimate that the appeals process will require approximately 12 months to run its course and that we may require incremental financing in order to pursue the appeal to conclusion. We currently have no commitments for any additional financing and there can be no assurance that we will be able to obtain requisite financing on acceptable terms, if at all.
On February 13, 2015, we filed a lawsuit against Best Buy Co., Inc. (“Best Buy”) for patent infringement under the patent laws of the United States. The complaint alleges that certain Best Buy power charging products sold in the United States under the Rocketfish brand infringe ourthe Company’s patented intellectual property. We intend to vigorously pursue our rightsBest Buy’s supplier Battery Biz filed a petition with the PTAB requesting aninter partes review. Their request was granted. The parties subsequently settled resulting in this case, although the outcome of this matter is not determinable asa dismissal of the dateaction against Best Buy and termination of this report.
We believe that our patent portfolio covering key technical aspects of our products could potentially generate a future revenue stream based upon royalties paid to us by others for the use of some or all of our patents in third party products. We continue to explore opportunities to expand, protect, and monetize our patent portfolio, including through the sale or licensing of our patent portfolio. We may or may not resume our traditional activities of producing innovative charging solutions for battery powered devices. There are no assurances that any of these potential opportunities or activities will occur or be successful.
We had working capital of approximately $0.7 million as of July 31, 2016, which includes liabilities related to the remaining balance owed to our former counsel Pillsbury Winthrop Shaw Pittman, LLP (“Pillsbury”). The $0.1 million remaining balance due to Pillsbury will be paid, if at all, in the event we obtain any monetary recovery, whether through settlement, judgment or otherwise, from or as a result of any of our current or future lawsuits related to our intellectual property (see Note 6). During the quarter ended April 30, 2016, we paid Pillsbury approximately $0.4 million as a result of the Settlement Agreement with Targus and owe a balance of approximately $0.1 million. During the quarter ended July 31, 2016, we wrote off receivables of $0.1 million from and liabilties of $0.6 million to Zheng Ge as the statute of limitation on the related contracts has lapsed. Because of the contingent nature of our liability to Pillsbury, we believe that our working capital will allow us to discharge non-contingent liability in the normal course of business over the next twelve months.
We are currently generating no revenues and have ceased traditional operations. Our future is highly dependent on our ability to successfully resolve our current litigation, capitalize on our portfolio of patents, generate positive cash flows and/or obtain borrowings or raise capital to meet our future liquidity needs.inter partes review.
We have and will continue to analyze alternatives to build and/or preserve value for our stakeholders, including, but not limited to, exploring additional investment and incremental financing from current and/or new investors, the engagement of advisors to assist in exploring strategic options for us as well as identifying potential partnerships for the purpose of monetizing some or all of the our patent portfolio and past, present, and future infringement claims. However, there can be no assurances that we will be successful in identifying and/or implementing any of these alternatives, or if implemented, that any of these alternatives will successfully preserve or increase shareholder value.
COMARCO, INC. AND SUBSIDIARY
3. Summary of Significant Accounting PoliciesNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. | Current Developments, Future Operations, Liquidity and Capital Resources (continued) |
We believe that our patent portfolio covering key technical aspects of our products could potentially generate a future revenue stream based upon royalties paid to us by others for the use of some or all of our patented technology in third-party products. We continue to explore opportunities to expand, protect, and monetize our patent portfolio, including through the sale or licensing of our patent portfolio. We may or may not resume our traditional activities of producing innovative charging solutions for battery powered devices. There are no assurances that any of these potential opportunities or activities will occur or be successful.
3. | Summary of Significant Accounting Policies |
The summary of our significant accounting policies presented below is designed to assist the reader in understanding our condensed consolidated financial statements.
COMARCO, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) Such financial statements and related notes are the representations of our management, who are responsible for their integrity and objectivity.
Basis of Presentation
The accompanying condensed consolidated balance sheet as of JulyJanuary 31, 2016,2017, which has been derived from our audited financial statements, and our unaudited interim condensed consolidated financial statements as of, July 31, 2016and for the three months ended April 30, 2017 included herein have been prepared without audit in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim information and with the instructions for Form 10-Q and Article 108 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP 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 its fiscal year ended January 31, 20162017 (the “2016 Form 10-K”), which was filed with the SEC on April 30, 2016.May 1, 2017. The accounting policies followed by the Company are set forth in Note 23 to the Company’s audited financial statements included in the 20162017 Form 10-K. The unaudited interim condensed consolidated 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 consolidated results for the interim periods presented. The consolidated results for the three and six months ended July 31, 2016April 30, 2017 are not necessarily indicative of the results to be expected for the fiscal year ending January 31, 2017.2018.
Reclassification
Certain prior year and prior period amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.
Principles of Consolidation
The unaudited interim condensed consolidated financial statements of the Company include the accounts of Comarco, Inc. and CWT, its wholly owned subsidiary. All material intercompany balances, transactions, and profits and losses have been eliminated.
Cash and Cash EquivalentsCOMARCO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
All highly liquid investments with original maturity dates of three months or less when acquired are classified as cash and cash equivalents. The fair value of cash and cash equivalents approximates the amounts shown in the consolidated financial statements. Cash and cash equivalents are generally maintained in uninsured accounts, which are subject to investment risk including possible loss ofprincipal invested.
3. Summary of Significant Accounting Policies(continued) Use of Estimates The preparation of 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 Cash and Cash Equivalents All highly liquid investments with original maturity dates of three months or less when acquired are classified as cash and cash equivalents. The fair value of cash and cash equivalents approximates the amounts shown in the consolidated financial statements. Fair Value of Financial Instruments Our financial instruments include cash and cash equivalents, Legal expense classification Our legal expenses are classified in either selling, general, and administrative Income tax expense Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any required valuation allowance. We continue to maintain a full valuation allowance on the entire deferred tax asset balance. This valuation allowance was established based on management’s overall assessment of risks and uncertainties related to our future ability to realize, and hence, utilize certain deferred tax assets, primarily consisting of net operating loss carry forwards and temporary differences. Due to the current and prior years’ operating losses, the adjusted net deferred tax assets remained fully reserved as Net Income (Loss) Per Common Share Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period excluding the dilutive effect of potential common stock, which for us consists solely of stock awards. Diluted earnings per share reflects the dilution that would result from the exercise of all dilutive stock awards outstanding during the period. The effect of such potential common stock is computed using the treasury stock method (see Note 5). COMARCO, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Summary of Significant Accounting Policies(continued) Recent Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which is intended to improve financial reporting about leasing transactions. The new guidance will require lessees to recognize on their balance sheets the assets and liabilities for the rights and obligations created by leases and to disclose key information about the leasing arrangements. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. ASU 2016-02 is effective for us in the first quarter of fiscal 2020. As we do not have any long-term leases, we do not expect the adoption of this updated authoritative guidance to have a significant impact on our consolidated financial statements. In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, issued as a new Topic, ASC Topic 606 (ASU 2014-09). The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The premise of the guidance is that a Company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 can be adopted by the Company either retrospectively or as a cumulative-effect adjustment as of the date of adoption. On April 1, 2015, the FASB decided to defer the effective date of the new revenue standard by one year. For public entities, the update is effective for financial statements issued for fiscal years beginning after December 15, 2018. ASU 2014-09 is effective for us in the first quarter of fiscal 2020. As we are not generating any revenue and do not foresee generating revenue in the near future, we do not expect the adoption of this updated authoritative guidance to have a significant impact on our consolidated financial statements. We do not believe that any other recently issued, but not yet effective accounting standards, if adopted, would have a material impact on our consolidated financial statements. Subsequent Events Management has evaluated events subsequent to April 30, 2017 through the date the accompanying consolidated financial statements were filed with the Securities and Exchange Commission for transactions and other events that may require adjustment of and/or disclosure in such financial statements. As of April 1, 2017, the Company’s independent directors elected to defer cash compensation as follows: the Chairman’s cash compensation was reduced from $4,500 per month to $3,000 per month with $1,500 deferred; the other independent directors’ cash compensation was reduced from $1,250 per month to $0 per month with $1,250 deferred. Cash compensation will continue to be deferred on a monthly basis as described above until such time as the Company files a 10Q disclosing cash net of liabilities in excess of $3.0 million, provided that the directors continue to serve the Company through the filing date. 4. Stock-Based Compensation We grant stock awards for a fixed number of shares to employees, consultants, and directors pursuant to COMARCO, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4. Stock-Based Compensation (continued) We account for stock-based compensation using the modified prospective method, which requires measurement of compensation cost for all stock awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options is determined using a Lattice Binomial model for options with performance-based vesting tied to our stock price and the Black-Scholes valuation model for options with ratable term vesting. Both the Lattice Binomial and Black-Scholes valuation models require the input of subjective assumptions. These assumptions include estimating the length of time optionees will retain their vested stock options before exercising them (the “expected term”), the estimated volatility of our common stock price over the expected term, and the number of awards that will ultimately not complete their vesting requirements (“forfeitures”). Changes in these subjective assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related amount recognized as an expense on the consolidated statements of operations. As required under applicable accounting rules, we review our valuation assumptions at each grant date and, as a result, we are likely to change our valuation assumptions used to value stock-based awards granted in future periods. The values derived from using either the Lattice Binomial or the Black-Scholes model are recognized as an expense over the vesting period, net of estimated forfeitures. The estimation of stock awards that will ultimately vest requires significant judgment. Actual results, and future changes in estimates, may differ from our current estimates. The compensation expense recognized is summarized in the table below (in thousands except per share amounts): Three Months Ended Six Months Ended Three Months Ended July 31, July 31, April 30, 2016 2015 2016 2015 2017 2016 Stock-based compensation expense Impact on basic and diluted earnings per share recognized as compensation expense by the third quarter of fiscal year 2018. During the three Transactions and other information related to stock options granted under these plans for the Outstanding Options Weighted-Ave. Number of Exercise Shares Price Balance, January 31, 2017 Options granted Options canceled or expired Options exercise Balance, April 30, 2017 Stock Options Exercisable at April 30, 2017 Outstanding Options Weighted-Ave. Number of Exercise Shares Price Balance, January 31, 2016 Options granted Options canceled or expired Options exercise Balance, July 31, 2016 Stock Options Exercisable at July 31, 2016 COMARCO, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4. Stock-Based Compensation (continued) As of Awards Outstanding Options Exercisable Weighted-Ave. Range of Number Remaining Weighted-Ave. Number Weighted-Ave. Exercise/Grant Prices Outstanding Contractual Life Exercise/Grant Price Exercisable Exercise Price Awards Outstanding Options Exercisable Weighted-Ave. Range of Number Remaining Weighted-Ave. Number Weighted-Ave. Exercise/Grant Prices Outstanding Contractual Life Exercise/Grant Price Exercisable Exercise Price Shares available under the plans for future grants at 5. We calculate basic (loss) income Potential common shares of The following table presents reconciliations of the numerators and denominators of the basic and diluted loss per share computations for net Three Months Ended April 30, 2017 2016 Net (loss) income Basic net income (loss) per share: Weighted-average shares outstanding-Basic Basic net (loss) income per share Diluted net (loss) income per share: Weighted average shares outstanding - basic Effect of potentially dilutive securities Weighted average shares outstanding - diluted Diluted net (loss) income per share Three Months Ended July 31, Six Months Ended July 31, 2016 2015 2016 2015 Net income (loss) Basic net income (loss) per share: Weighted-average shares outstanding-Basic Basic net income (loss) per share Diluted net (loss) income per share: Weighted average shares outstanding - basic Effect of potentially dilutive securities Weighted average shares outstanding - diluted Diluted net income (loss) per share As of July 31, As of January 31, 2016 2016 Total gross accounts payable Supplier concentration: Pillsbury Winthrop Shaw Pittman, LLP COMARCO, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 6. Concentrations As of April 30, As of January 31, 2017 2017 Total gross accounts payable Vendor concentration: Fuan Gee Mechanical Industrial Co. RentShare CNA Insurance Computershare, Inc. Fuan Gee was an audio plug supplier that we previously sourced. RentShare is a third-party leasing company to which the Company pays month-to-month rent. CNA insurance provides the Company with umbrella and property insurance, and Computershare, Inc. is the Company’s transfer agent. 7. Accrued Liabilities Accrued liabilities consist of the following as of April 30, 2017 and January 31 2017 (in thousands): April 30, January 31, 2017 2017 Accrued legal and professional fees Accrued payroll and related expenses Accrued consulting Other July 31, January 31, 2016 2016 Uninvoiced materials and services received Accrued legal and professional fees Accrued payroll and related expenses Consulting Other COMARCO, INC. AND SUBSIDIARY (UNAUDITED) 8. Commitments and Contingencies Executive Severance Commitments We have a severance compensation agreement with our Chief Executive Officer, Thomas Lanni. This agreement requires us to pay Mr. Lanni, in the event of a termination of employment following a change of control of the Company or certain other circumstances, the amount of his then current annual base salary and the amount of any bonus amount hewould have achieved for the year in which the termination occurs plus the acceleration of unvested options. We have not recorded any liability in the condensed consolidated financial statements for this agreement. Executive and Board of Directors Compensation On November 2, 2013, the Company approved a deferred compensation plan for its Chief Executive Officer and Board of Directors. As Legal Contingencies On February 13, 2015, we filed a lawsuit against Best Buy for patent infringement under the patent laws of the United States. The complaint alleges that certain Best Buy power charging products sold in the United States under the Rocketfish brand infringe the Company’s patented intellectual property. On February 3, 2015, we In addition to the pending matters described above, we are, from time to time, involved in various legal proceedings incidental to the conduct of our business. We are unable to predict the ultimate outcome of these matters. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our unaudited interim Forward-Looking Statements This report on Form 10-Q contains statements relating to our future plans and developments, financial goals and operating performance that are based on our current beliefs and assumptions. These statements constitute “forward-looking statements” within the meaning of federal securities laws. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “could,” “may,” “should,” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements. Although forward-looking statements in this report reflect the good faith judgment of our management, such statements are only based on facts and factors known by us as of the date of this report. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, whether as a result of new information, future events or otherwise, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations, and prospects. In addition to the risks, uncertainties, and other factors discussed above or elsewhere in this report, additional risks, uncertainties, and other factors that could cause or contribute to actual results differing materially from those expressed or implied in any forward-looking statements include, without limitation, those set forth under Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, Going Concern The On February 3, 2015, we filed a lawsuit against Apple, Inc. (“Apple”) for patent infringement. The complaint alleges that Apple products sold in the United States utilizing the Apple Lightning® power supply adapter system,including most iPad®, iPhone®, and iPod® products, infringe We have and will continue to analyze alternatives to build and/or preserve value for our stakeholders, including, but not limited to, exploring additional investment and incremental financing from current and/or new investors, the engagement of advisors to assist in exploring strategic options for us as well as identifying potential partnerships for the purpose of monetizing some or all of Basis of Presentation The Executive Summary Comarco, Inc. was incorporated in California in 1960 and its common stock has been publicly traded since 1971, when it was spun-off from Genge Industries, Inc. Comarco Inc.’s wholly-owned subsidiary Comarco Wireless Technologies, Inc. (“CWT”) was incorporated in the state of Delaware in September 1993. Comarco and CWT are collectively referred to as “we,” “us,” “our,” “Comarco,” or the “Company”. We are primarily focused on potentially realizing value from our ongoing IP enforcement actions and other litigation as well as exploring opportunities to further expand, protect, and monetize our patent portfolio, including through the potential sale or licensing of our patent portfolio. In addition to the risks, uncertainties and factors discussed elsewhere in this quarterly report on Form 10-Q and in the Company’s other filings with the SEC, management currently considers the following additional trends, events, and uncertainties to be important to understanding our results of operations for the three ● We generated no revenue for three ● On March 26, 2016, we entered into a confidential settlement and license agreement with Targus that resolves all claims arising from our litigation with Targus. Pursuant to the terms of the settlement agreement, we granted Targus a world-wide license to make, use, sell and distribute Licensed Products (as defined by the agreements), as well as a sublicense to have Licensed Products manufactured by third parties solely for the benefit of and sale to Targus. In addition, we granted Targus, for a limited number of units, the right to make, use, sell and distribute Licensed Products for third-party OEMs. In exchange for the license granted under the settlement agreement, Targus paid us a one-time, lump-sum payment on April 1, 2016, plus ● On February 13, 2015, we filed a lawsuit against Best Buy for patent infringement under the patent laws of the United States. The complaint alleges that certain Best Buy power charging products sold in the United States under the Rocketfish brand infringe our patented intellectual property. ● On February 3, 2015, we filed a lawsuit against Apple for patent infringement. The complaint alleges that Apple products sold in the United States utilizing the Apple Lightning® power supply adapter system, including most iPad®, iPhone®, and iPod® products, infringe our patented intellectual property. This lawsuit represents our most significant enforcement effort to date, and, together with the Targus and Best Buy lawsuits described Critical Accounting Policies Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our unaudited interim An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimate that are reasonably likely to occur could materially change the financial statements. Management believes there have been no significant changes during the three Results of Operations The following tables set forth certain items as a percentage of revenue from our unaudited interim (in thousands) (in thousands) Three Months Ended July 31, Six Months Ended July 31, Year over Year 2016 2015 2016 2015 Three Months Six Months Revenue Operating income (loss) Net income (loss) (in thousands) Three Months Ended April 31, 2017 2016 % Change Revenue Operating loss Net (loss) income (in thousands) (in thousands) Three Months Ended July 31, Six Months Ended July 31, 2016 2015 2016 2015 Year over Year % of Total % of Total % of Total % of Total Three Months Six Months Cost of Revenue: Product costs Supplier Settlement Supply chain overhead Inventory reserve and scrap charges Operating Costs and Expenses (in thousands) (in thousands) Three Months Ended July 31, Six Months Ended July 31, 2016 2015 2016 2015 Year over Year % of Rev % of Rev % of Rev % of Rev Three Months Six Months Operating expenses: Selling, general and administrativeexpenses, excluding corporate overhead Engineering and support expenses (in thousands) Three Months Ended April 30, 2017 2016 % of Rev % of Rev % Change Operating expenses: Selling, general and administrative expenses Selling, general, and administrative (“SG&A”) expenses for the three Other Income, net During the Income Tax Expense Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any required valuation allowance. We continue to maintain a full valuation allowance on the entire deferred tax asset balance. This valuation allowance was established based on management’s overall assessment of risks and uncertainties related to our future ability to realize, and hence, utilize certain deferred tax assets, primarily consisting of net operating loss carry forwards and temporary differences. Due to the current and prior years’ operating losses, the adjusted net deferred tax assets remained fully reserved as Liquidity and Capital Resources Cash and cash equivalents (in thousands) (in thousands) Six Months Ended July 31, Three Months Ended April 30, 2016 2015 2017 2016 Cash provided by (used in): Operating activities Investing activites Financing activities Operating Activities Cash used in operating activities was approximately $241,000 for the three months ended April 30, 2017 and was primarily used to pay off the Company’s accounts payable. Cash provided by operating activities was Investing Activities We had no Financing Activities We had no financing activities during the three Uncertainties Regarding Future Operations and Liquidity Requirements for the Next 12 Months ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer (Principal Executive Officer) and Chief Accounting Officer (Principal Financial Officer), to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognized that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In accordance with SEC rules, an evaluation was performed under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer of the effectiveness, as of (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements. In connection with its evaluation, our management has concluded that, as Internal Control over Financial Reporting There was no change in our internal control over financial reporting that occurred during the quarter ended PART II — OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Comarco, Inc. vs. Apple Inc., Case No. 8:15-cv-00145, United States District Court for the Central District of California. On February 3, 2015, we filed a lawsuit against Apple for patent infringement. The complaint alleges that Apple products sold in the United States utilizing the Apple Lightning® power supply adapter system, including most iPad®, iPhone®, and iPod® products, infringe our patented intellectual property. Comarco, Inc. vs. Best Buy Co. Inc., Case No. 8:15-cv-00256, United States District Court for the Central District of California. On February 13, 2015, we filed a lawsuit against Best Buy for patent infringement under the patent laws of the United States. The complaint alleges that certain Best Buy power charging products sold in the United States under the Rocketfish brand infringe our patented intellectual property. In addition to the matters described above, we are from time to time involved in various legal proceedings incidental to the conduct of our business. The legal proceedings potentially cover a variety of allegations spanning our entire business. We are unable to predict the ultimate outcome of all such matters. ITEM 1A. RISK FACTORS Our business, financial condition and operations are subject to a number of factors, risks and uncertainties, including those previously disclosed under Part I. Item 1A “Risk Factors” of our annual report on ITEM 6. EXHIBITS 31.1 * Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 * Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 * Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 * Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS* XBRL Instance Document 101.SCH* XBRL Taxonomy Extension Schema Document 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* XBRL Taxonomy Definition Linkbase Document 101.LAB* XBRL Taxonomy Extension Label Linkbase Document 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document ______________ * Filed herewith. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. COMARCO, INC. Date: June 14, 2017 /s/ THOMAS W. LANNI Thomas W. Lanni President and Chief Executive Officer Date: June 14, 2017 /s/ JANET N. GUTKIN Janet N. Gutkin Chief Accounting Officer EXHIBIT INDEX Exhibit Description 31.1 * Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 * Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 * Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 * Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS* XBRL Instance Document 101.SCH* XBRL Taxonomy Extension Schema Document 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* XBRL Taxonomy Definition Linkbase Document 101.LAB* XBRL Taxonomy Extension Label Linkbase Document 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document ______________ * Filed herewith. 23Restricted CashOur restricted cash balances are secured by separate bank accounts and represent a $77,000 letter of credit that serves as the security deposit for our corporate office lease that was our previous headquarters, which weare subletting to a third party. The lease for the former headquarter facility, as well as our sublease to the third party expired on August 31, 2016. condensed consolidated financial statements in conformity with GAAP 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 periods reported. Actual results could materially differ from those estimates.assessment of the impairment of long-lived assets, valuation allowances for deferred tax assets valuation of derivative liabilities and determination of stock-based compensation. accounts receivable due from customers and suppliers, accounts payable and accrued liabilities. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments.COMARCO, INC. AND SUBSIDIARYNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)expenses or engineering and support expenses depending on the nature of the legal expense.expenses. All legal expenses incurred related to our intellectual property, including associated litigation expense and maintenance of our patent portfolio, are included in engineeringpublic company legal expense, and support expenses in our consolidated statement of operations. All other legal expenses, including all other litigation expense and public company legal expense are included in selling, general, and administrative expenses in our condensed consolidated statement of operations.ofJuly 31, 2016.of April 30, 2017.4. (UNAUDITED)the our shareholder-approved equity incentive plans. $ 5 $ 9 $ 18 $ 16 $ 7 $ 13 $ (0.00 ) $ (0.00 ) $ (0.00 ) $ (0.00 ) $ (0.00 ) $ (0.00 ) There is noThe total compensation cost related to nonvestedunvested awards not yet recognized is approximately $13,500 and is expected to fully vest and be recognized.COMARCO, INC. AND SUBSIDIARYNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)and six months ended July 31,April 30, 2017 and 2016, no stock options and no restricted stock units were granted.During the three and six months ended July 31, 2015, 350,000 stock options were granted and no restricted stock units were granted. The fair value of the 350,000 options granted under our stock option plans during the six ended July 31, 2015 was estimated on the date of grant using the following weighted average assumptions:Six Months Ended July 31, 2015Weighted average risk-free interest rate2%Expected life (in years)10Expected stock volatility152%Dividend yield-Expected forfeitures-sixthree months ended July 31, 2016April 30, 2017 are summarized below: 1,100,000 $ 0.37 - - - - - - 1,100,000 $ 0.37 760,000 $ 0.44 950,000 $ 0.96 - - (246,192 ) 1.06 - - 703,808 $ 0.51 663,808 $ 0.48 July 31, 2016,April 30, 2017, the stock awards outstanding have an aggregate intrinsic value of $0, based on a closing market price of $0.08$0.06 per share on July 31, 2016.April 30, 2017. The following table summarizes information about the Company’s stock awards outstanding at July 31, 2016:April 30, 2017: $0.14 - $0.16 203,808 8.88 $ 0.15 203,808 $ 0.15 $0.40 385,000 6.01 $ 0.40 385,000 $ 0.40 $1.09 100,000 2.28 $ 1.09 60,000 $ 1.09 $4.53 15,000 1.58 $ 4.53 15,000 $ 4.53 703,808 $ 0.51 663,808 $ 0.48 $0.09 300,000 9.50 $ 0.09 - $ 0.09 $0.14 - $0.16 300,000 8.14 $ 0.15 300,000 $ 0.15 $0.40 385,000 5.26 $ 0.40 385,000 $ 0.40 $1.09 100,000 1.53 $ 1.09 60,000 $ 1.09 $4.53 15,000 0.84 $ 4.53 15,000 $ 4.53 1,100,000 760,000 July 31, 2016April 30, 2017 totaled 219,724.323,535.5. Net (Loss) Income (Loss) Per Share (loss) per share by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted (loss) income (loss) per share reflects the effects of potentially dilutive securities.potential common shares. Because we incurred a net loss for the three and six months ended July 31, 2015,April 30, 2017, basic and diluted loss per share for this period waswere the same because the inclusion of dilutive potential common shares related to outstanding stock awards in the calculation would have been dilutive. For the three months ended April 30, 2016, basic and diluted income per share was the same as all potential common shares were antidilutive.785,8703,190,000 and 3,044,4753,073,736 relating to outstanding warrants and to stock awards to directors and our employee as well as stock purchase warrant to Broadwood, respectively have been excluded from diluted weighted average common shares for the three and six months ended July 31, 2015,April 30, 2017 and 2016, respectively, as the effect would have been antidilutive.COMARCO, INC. AND SUBSIDIARYNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)Potential common shares of 3,007,226 and 2,948,613 relating to outstanding stock awards to directors and our employee as well as stock purchase warrant to Broadwood, respectively, have been excluded from diluted weighted average common shares for the three and six months endedJuly 31, 2016, as the effect would have been antidilutive.income (loss). income. In the tables below, “Net income (loss)” income” represents the numerator and “shares” represents the denominator (in thousands, except per share amounts): $ (222 ) $ 1,324 14,615 14,644 $ (0.02 ) $ 0.09 14,615 14,644 - - 14,615 14,644 $ (0.02 ) $ 0.09 $ 128 $ (265 ) $ 1,452 $ (576 ) 14,644 14,644 14,644 14,659 $ 0.01 $ (0.02 ) $ 0.10 $ (0.04 ) 14,644 14,644 14,644 14,659 - - - - 14,644 14,644 14,644 14,659 $ 0.01 $ (0.02 ) $ 0.10 $ (0.04 ) 6. Supplier ConcentrationsThere was no supplier concentration from gross accounts receivables due from suppliers as of July 31, 2016. During Q2 fiscal 2017, we wrote off receivables of $0.1 million from and liabilties of $0.6 million to Zheng Ge as the statute of limitation on the related contracts has lapsed.The companies comprising 10 percent or more of our gross accounts payable at either July 31, 2016 and January 31, 2016 are listed below (in thousands, except percentages). $ 127 100 % $ 883 100 % 62 49 % 432 49 % $ 62 49 % $ 432 49 % Pillsbury was our former legal counsel for the Kensington litigation as well as other patent and intellectual property matters (see Note 9). On May 28, 2014, we entered into an agreement with Pillsbury in which we paid Pillsbury a lump sum of $1.5 million with the remaining balance of $0.4 million (the “Balance”) to be paid, if at all, in the event we obtain any monetary recovery, whether through settlement, judgment or otherwise, after May 28, 2014 from or as a result of any of our current or future lawsuits related to our intellectual property. The amount payable was equal to the Balance plus 20% per annum, compounded annually from May 28, 2014. In connection with the $1.5 million lump-sum partial repayment, no gain was recognized. In April 2016, we paid Pillsbury approximately $0.4 million as a result of the settlement agreement with Targus. The remaining balance is approximately $0.1 million.7. Accrued LiabilitiesThe companies that comprise 10 percent or more of our gross accounts payable at either April 30, 2017 and January 31, 2017 are listed below (in thousands, except percentages): $ 9 100 % $ 6 100 % 3 34 % 3 50 % 2 22 % 2 33 % 2 22 % 1 17 % 2 22 % - 0 % $ 9 100 % $ 6 100 % $ 124 $ 94 9 21 71 80 183 189 $ 387 $ 384 $ 7 $ 331 71 169 36 33 65 16 146 138 $ 325 $ 687 During the second quarter of fiscal 2017, we wrote off $0.3 million of uninvoiced materials and services received liabilities to Zheng Ge as the statute of limitation on the related contracts has lapsed.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Commitments and ContingenciesofJuly 31, 2016of April 30, 2017, no compensation expense has been accrued under this deferred compensation plan as its goal has not yet been attained.On February 3, 2015, we filed a lawsuit against Apple for patent infringement. The complaint alleges that Apple products sold in the United States utilizing the Apple Lightning® power supply adapter system, including most iPad®, iPhone®, and iPod® products, infringe our patented intellectual property. This lawsuit represents our most significant enforcement effort to date, and, together with the Best Buy and Targus lawsuits,demonstrates the our ongoing and accelerated efforts to methodically pursue those companies that we believe have infringed on the intellectual property estate that we have developed over the last 20 years. Although we intend to vigorously pursue our rights in this case, the outcome of this matter is not determinable as of the date of this report.AlthoughBest Buy’s supplier Battery Biz filed a petition with the PTAB requesting an Inter Partes Review. Their request was granted. The parties subsequently settled resulting in a dismissal of the action against Best Buy and termination of the Inter Partes Review.intendfiled a lawsuit against Apple, Inc. for patent infringement. The complaint alleges that Apple products sold in the United States utilizing the Apple Lightning® power supply adapter system, including most iPad®, iPhone®, and iPod® products, infringe the Company’s patented intellectual property.This lawsuit represents our most significant enforcement effort to vigorously pursue our rightsdate, and, together with the Targus and Best Buy lawsuits described elsewhere in this case,document, demonstrates our ongoing and accelerated efforts to methodically pursue those companies that we believe have infringed on the outcomeintellectual property estate that we have developed over the last 20 years. In September of this matter is not determinable as2015, Apple filed a petition with the PTAB requestinginter partes review of our 933 Patent. On February 22, 2017, the datePTAB issued its finding,ruling in Apple’s favor. We believe the PTAB erred in its ruling, and we are appealing the ruling to the Court of this report.COMARCO, INC. AND SUBSIDIARYNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)Appeals for the Federal Circuit. We estimate that the appeals process will require approximately 12 months to run its course and that we may require incremental financing in order to pursue the appeal to conclusion. We currently have no commitments for any additional financing and there can be no assurance that we will be able to obtain requisite financing on acceptable terms, if at all.9. Legal SettlementOn March 10, 2014, we filed a lawsuit in federal court against Targus for patent infringement, breach of contract, intentional interference with contract, violation of business and professional codes, misrepresentation and fraudulent concealment. On March 26, 2016, we entered into a confidential settlement and license agreement with Targus that resolves all claims arising from the aforementioned litigation.Pursuant to the terms of the settlement agreement, we granted Targus a world-wide license to make, use, sell and distribute Licensed Products (as defined below), as well as a sublicense to have Licensed Products manufactured by third parties solely for the benefit of and sale to Targus. In addition, we granted Targus, for a limited number of units, the right to make, use, sell and distribute Licensed Products for third-party original equipment manufacturers (“OEMs”). “Licensed Products” means any power adaptor or power supply incorporating patents or other intellectual property owned or licensed by us.In exchange for the license granted under the settlement agreement, Targus paid us a one-time, lump-sum payment on April 1, 2016, plus the possibility of future per-unit royalty payments if Targus exceeds the limit on Licensed Products that Targus may sell to OEMs under the settlement agreement. We have been granted confidential treatment from the SEC related to the one-time payment, the calculation of royalty payments and the OEM unit limit pursuant to the confidential treatment request filed by us with the SEC.On April 26, 2011, Chicony, the contract manufacturer of the Bronx product that was the subject of a product recall, filed a complaint against us for breach of contract, seeking payment of $1.2 million for the alleged non-payment by us of amounts alleged by Chicony to be due it for products purchased from it by the Company. We denied liability and filed a cross-complaint on May 13, 2011 seeking the recovery of damages of $4.9 million caused by Chicony's failure to adhere to our technical specifications when manufacturing the Bronx product, which we believe resulted in the recall of the product. On April 16, 2013, the court approved our first-amended cross-complaint, which added intentional interference to our complaint and increased the damages we were seeking to at least $15.0 million. On February 4, 2014, a jury returned a verdict in our favor and awarded us damages of approximately $10.8 million, offset by previously accrued liabilities of $1.1 million for a net award of approximately $9.7 million. Effective as of May 15, 2014, Chicony entered into a settlement agreement with us that dismissed all claims between the parties arising from the litigation referenced above. Pursuant to the terms of the settlement agreement, Chicony agreed to pay us $7.6 million in lieu of the jury’s net award of $9.7 million or any other related costs or fees. $4.0 million of the settlement amount was paid to us on May 16, 2014, with the balance of $3.6 million paid to us on May 30, 2014. We recorded a gain of $7.6 million associated with this settlement in the quarter ended July 31, 2014. As a result of the settlement agreement, the $1.1 million payable to Chicony for contract manufacturing costs has been legally dismissed and discharged and recorded as an offset to Cost of Revenues in the quarter ended July 31, 2014.Further pursuant to the settlement agreement, each party released the other and its affiliates from any and all claims related to the subject matter of the litigation and we covenanted not to sue Chicony on the next 500,000 power adapters sold by Chicony after May 15, 2014 that we allege infringe on our intellectual property rights. The settlement agreement also contains other representations, warranties and covenants of both parties that are customary for an agreement of this type.On September 1, 2011, subsequent to receiving an infringement notification from us, Kensington filed a lawsuit against us alleging that five of our patents relating to power technology are invalid and/or not infringed by products made and/or sold by Kensington. On February 29, 2012, we denied these claims and filed a cross-complaint alleging infringement by Kensington of each of these five patents. On February 4, 2014, Kensington entered into a settlement and licensing agreement with the Company with an effective date of February 1, 2014 that dismissed all claims between the two parties arising from the litigation referenced above.condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this quarterly report on Form 10-Q.addressedreferenced under the section below entitled “Risk Factors,” as well as those discussed elsewhere in this report and in our other filings” with the Securities and Exchange Commission or the SEC.(“SEC”). Readers are urged not to place undue reliance on these forward-looking statements, which speak onlyreflect information as of the date of this report.20162017 (the “2016“2017 Form 10-K”) filed with the SEC and those contained in the Company’s other filings with the SEC. Readers of this report are urged to review the descriptions of the risks, uncertainties and other factors contained in those other reports. Qualificationcondensedunaudited consolidated financial statements have been prepared assuming that we will continue to operate as a going concern, which contemplates that we will realize value fromreturns on our assets and satisfy our liabilities and commitments in the ordinary course of business. As of April 30, 2017, we had a working capital of $20,000, which is not sufficient to fund our operations over the next twelve months. We have ceased traditional operations and our currently generating no revenue. Our consolidated financial statements do not reflect any adjustments relatedability to the outcome of this uncertainty. Our futurecontinue to operate as a going concern is highly dependent on our ability to successfully resolve our current litigation, capitalize onmonetize our portfolio of patents, generate positive cash flows andflow and/or obtain borrowings or raise capital to meet our liquidity needs. However, there are no assurances that sufficient cash flows can be generated through our patent monetization efforts, we currently have no commitments for additional financing, and there can be no assurance that we will be able to obtain requisite financing on acceptable terms, if at all. These factors raise substantial doubt regarding the Company’s ability to continue to operate as a going concern. The accompanying unaudited consolidated financial statements do not include any adjustments relating to this uncertainty.We are primarilyOur business is currently focused on potentially realizing value from our ongoing or future IP enforcement actions and other litigation as well as further exploring opportunities to further expand, protect, and monetize our patent portfolio, including through the potential sale or licensing of some of all of our patent portfolio.Three of our recent litigation matters have concluded. On March 10, 2014, we filed a lawsuit in federal court against Targus Group International, Inc. (“Targus”) for patent infringement, breach of contract, intentional interference with contract, violation of business and professional codes, misrepresentation and fraudulent concealment. On March 26, 2016, we entered into a confidential settlement and license agreement with Targus that resolves all claims arising from the aforementioned litigation.Pursuant to the terms of the settlement agreement, we granted Targus a world-wide license to make, use, sell and distribute Licensed Products (as defined below), as well as a sublicense to have Licensed Products manufactured by third parties solely for the benefit of and sale to Targus. In addition, we granted Targus, for a limited number of units, the right to make, use, sell and distribute Licensed Products for third-party original equipment manufacturers (“OEMs”). “Licensed Products” means any power adaptor or power supply incorporating patents or other intellectual property owned or licensed by us.In exchange for the license granted under the settlement agreement, Targus paid us a one-time, lump-sum payment on April 1, 2016, plus the possibility of future per-unit royalty payments if Targus exceeds the limit on Licensed Products that Targus may sell to OEMs under the settlement agreement. We have been granted confidential treatment from the SEC related to the one-time payment, the calculation of royalty payments and the OEM unit limit pursuant to a confidential treatment request filed by us with the SEC.In the Chicony Power Technology, Co. Ltd., (“Chicony”) matter, effective as of May 15, 2014, Chicony entered into a settlement agreement with us that dismissed all claims between the two parties arising from the litigation. Pursuant to the terms of the settlement agreement, Chicony agreed to pay us $7.6 million. Settlement amounts of $4.0 million and $3.6 million were paid on May 16, 2014 and May 30, 2014, respectively. Of the $7.6 million, we retained $6.5 million, after distributing $1.1 million in attorneys’ fees and other costs. In connection with the settlement, certain contract manufacturer costs payable to Chicony totaling $1.1 million were discharged and reflected as a reduction of cost of revenues. In our litigation with ACCO Brands USA LLC and its Kensington Computer Products Group division (collectively “Kensington”), on February 4, 2014, we entered into a confidential settlement and licensing agreement with an effective date of February 1, 2014 that establishes a forward royalty program and dismissed all claims between the two parties arising from this matter.On February 13, 2015, we filed a lawsuit against Best Buy Co., Inc. (“Best Buy”) for patent infringement under the patent laws of the United States. The complaint alleges that certain Best Buy power charging products sold in the United States under the Rocketfish brand infringe our patented intellectual property. Although we intend to vigorously pursue our rights in this case, the outcome of this matter is not determinable as of the date of this report.ourthe Company’s patented intellectual property. This lawsuit represents our most significant enforcement effort to date, and, together with the Targus and Best Buy lawsuits described above,elsewhere in this document, demonstrates our ongoing and accelerated efforts to methodically pursue those companies that we believe have infringed on the intellectual property estate that we have developed over the last 20 years. Although we intend to vigorously pursue our rights in this case,In September of 2015, Apple filed a petition with the outcome of this matter is not determinable asPatent Trial and Appeal Board (the “PTAB”) of the dateUnited States Patent and Trademark Office requesting Inter Partes Review of this report.our U.S. Patent No. 8,492,933 B2 (the “933 Patent”). On February 22, 2017, the PTAB issued its finding, ruling in Apple’s favor. We believe the PTAB erred in its ruling, and we are appealing the ruling to the Court of Appeals for the Federal Circuit. We estimate that the appeals process will require approximately 12 months to run its course and that we may require incremental financing in order to pursue the appeal to conclusion. We currently have no commitments for any additional financing and there can be no assurance that we will be able to obtain requisite financing on acceptable terms, if at all.We believe that ourOn February 13, 2015, we filed a lawsuit against Best Buy for patent portfolio covering key technical aspects of our products could potentially generate a future revenue stream based upon royalties paid to us by others forinfringement under the use of some or all of our patents in third party products. We continue to explore opportunities to expand, protect, and monetize our patent portfolio, including through the sale or licensing of our patent portfolio. In the future, we may resume our traditional activities, if and when possible. However, there are no assurances that anylaws of the foregoing possible opportunities or activities will occur or be successful.We had working capital of approximately $0.7 million as of July 31, 2016, which includes liabilities related to the remaining balance owed to our former counsel Pillsbury Winthrop Shaw Pittman, LLP (“Pillsbury”).United States. The $0.1 million remaining balance to Pillsbury will be paid, if at all,complaint alleges that certain Best Buy power charging products sold in the event we obtain any monetary recovery, whether through settlement, judgment or otherwise, from or asUnited States under the Rocketfish brand infringe the Company’s patented intellectual property. Best Buy’s supplier Battery Biz filed a result of any of our current or future lawsuits related to our intellectual property (see Note 6). Duringpetition with the first quarter of fiscal 2017, we paid Pillsbury $0.4 million asPTAB requesting aninter partes review. Their request was granted. The parties subsequently settled resulting in a resultdismissal of the Settlement Agreement with Targusaction against Best Buy and we owe a balancetermination of approximately $0.1 million. During the second quarter of fiscal 2017, we wrote off receivables of $0.1 million from and liabilties of $0.6 million to Zheng Ge as the statute of limitation on the related contracts has lapsed. Because of the contingent nature of our liability to Pillsbury, we believe that our working capital, will allow us to discharge non-contingent in the normal course of business over the next twelve months.inter partes review.We are currently generating no revenues and have ceased traditional operations. Our future is highly dependent on our ability to successfully resolve our current litigation, capitalize on our portfolio of patents, generate positive cash flows and/or obtain borrowings or raise capital to meet our future liquidity needs.the our patent portfolio and past, present, and future infringement claims. However, there can be no assurances that we will be successful in identifying and/or implementing any of these alternatives, or if implemented, that any of these alternatives will successfully preserve or increase shareholder value. condensed consolidated results of our operations presented in this report are not audited and are not necessarily indicative of the results to be expected for the entirety of the fiscal year ending January 31, 20172018 or any other interim period during such year. Our fiscal year ends on January 31 and our fiscal quarters end on April 30, July 31, and October 31. Unless otherwise stated, all dates refer to our fiscal year and those fiscal quarters.and six months ended July 31,April 30, 2017 and 2016:●and six months ended July 31, 2016April 30, 2017 and 2015.2016. We anticipate that we will generate no future revenue from the development, design, distribution or sale of any products.●During the six months ended July 31, 2016, we determined that the statuteof limitation on the Zheng Ge contracts has lapsed. As a direct result, we wrote off receivables of $0.1 million from and liabilties of $0.6 million to Zheng Ge.the possibility of future per-unit royalty payments if Targus exceeds the limit on Licensed Products that Targus may sell to OEMs under the settlement agreement. We have been granted confidential treatment from the SEC related to the one-time payment, the calculation of royalty payments and the OEM unit limit pursuant to a confidential treatment request filed by the SEC.Although we intend to vigorously pursue our rightsBest Buy’s supplier Battery Biz filed a petition with the PTAB requesting aninter partes review. Their request was granted. The parties subsequently settled resulting in this case, the outcome of this matter is not determinable asa dismissal of the dateaction against Best Buy and termination of this report.theinter partes review.●above,elsewhere in this document, demonstrates our ongoing and accelerated efforts to methodically pursue those companies that we believe have infringed on the intellectual property estate that we have developed over the last 20 years. AlthoughIn September of 2015, Apple filed a petition with PTAB requesting inter partes review of our 933 Patent. On February 22, 2017, the PTAB issued its finding, ruling in Apple’s favor. We believe the PTAB erred in its ruling, and we intend to vigorously pursue our rights in this case,are appealing the outcome of this matter is not determinable as of the date of this report.●Effective as of May 15, 2014, Chicony entered into a settlement agreement with us that dismissed all claims between the parties arising from the litigation referenced above. Pursuantruling to the termsCourt of Appeals for the settlement agreement, Chicony agreedFederal Circuit. We estimate that the appeals process will require approximately 12 months to pay us $7.6 million, which was paid in May 2014. Of the $7.6 million,run its course and that we retained $6.5 million, after distributing $1.1 million in attorneys’ fees and other costs. In connection with the settlement, certain contract manufacturer costs payable to Chicony totaling $1.1 million were discharged and reflected as a reduction of cost of revenues. We are currently analyzing and will continue to analyze a range of alternatives to preserve and/or build value for our stakeholders, including, but not limited to, exploring additional investment andmay require incremental financing from current and/or new investors,in order to pursue the engagement of advisorsappeal to assist in exploring strategic optionsconclusion. We currently have no commitments for us as well as identifying potential partnerships for the purpose of monetizing some or all of our patent portfolioany additional financing and past, present, and future infringement claims. Therethere can be no assurancesassurance that we will be successful in implementing any of these alternatives, orable to obtain requisite financing on acceptable terms, if implemented, that any of these alternatives will successfully preserve or increase shareholder value.at all.●We were previously party to litigation with Kensington. On February 4, 2014, Kensington entered into a settlement and licensing agreement with us with an effective date of February 1, 2014 that dismisses all claims between the two parties arising from this matter.●On August 6, 2013, we changed our legal representation with respect to our ongoing intellectual infringement and enforcement litigation and entered an alternative fee arrangement in order to reduce our legal expenses. condensed consolidated financial statements appearing elsewhere in this report, which have been prepared in accordance with GAAP. The preparation of these unaudited interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from our estimates.and six months ended July 31, 2016April 30, 2017 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for the fiscal year ended January 31, 2016.2017.condensed consolidated statements of operations for the three months ended April 30, 2017 and six months endedJuly 31, 2016 and 2015:2016: $ - $ - $ - $ - 0 % 0 % $ 112 $ (290 ) $ (252 ) $ (601 ) 139 % 58 % $ 128 $ (265 ) $ 1,452 $ (576 ) 148 % 352 % $ - $ - 0 % $ (222 ) $ (364 ) 39 % $ (222 ) $ 1,324 -117 % Cost of Sales $ - 0 % $ - 0 % $ - 0 % $ - 0 % 0 % 0 % (472 ) 0 % - 0 % (472 ) 0 % - 0 % 100 % 100 % - 0 % - 0 % - 0 % - 0 % 0 % 0 % - 0 % - 0 % - 0 % - 0 % 0 % 0 % $ (472 ) 0 % $ - 0 % $ (472 ) 0 % $ - 0 % 100 % 100 % During the six months ended July 31, 2016, we determined that the statuteof limitation on the Zheng Ge contracts has lapsed. As a direct result, we wrote off receivables of $0.1 million from and liabilties of $0.6 million to Zheng Ge. $ 280 0 % $ 242 0 % $ 464 0 % $ 553 0 % 16 % -16 % 80 0 % 48 0 % 260 0 % 48 0 % 67 % 442 % $ 360 0 % $ 290 0 % $ 724 0 % $ 601 0 % 24 % 20 % $ 222 0 % $ 364 0 % -39 % $ 222 0 % $ 364 0 % -39 % and six months ended July 31, 2016 decreased $0.1 million, respectivelyApril 30, 2017 increased approximately $142,000 compared to the corresponding periodsperiod of fiscal 2016.April 30, 2016 incurred related to our intellectual property and maintenance of our patent portfolio, litigation expenses, and other professional fees. We had no employees in our sales and marketing department during the three and six months ended July 31, 2016April 30, 2017 and 2015.Corporate overhead consists2016. General and administrative related expenses consist of the salary of our only employee, our Chief Executive Officer and President, as well as professional fees, directors’ fees, and other costs and expenses attributable to being a public company.For the three and six months ended July 31, 2016 and 2015, engineering and support expenses consisted of legal expenses incurred related to our intellectual property, including associated litigation expense and maintenance of our patent portfolio.sixthree months ended July 31,April 30, 2017 and 2016, other income, net, was $0 and approximately $1.7 million, respectively. Other income net for the three months ended April 30, 2016 was related to ourthe Company’s settlement with Targus.ofJuly 31, 2016.of April 30, 2017.at July 31, 2016 increased $1.1 milliondecreased approximately from $618,000 from January 31, 2016 to $1.4 million.$377,000 at April 30, 2017. The following table is a summary of our Condensed Consolidated Statements of Cash Flows. $ 454 $ (765 ) $ (241 ) $ 767 $ - $ (77 ) $ - $ - $ - $ - $ - $ - $0.5 millionapproximately $767,000 for the sixthree months ended July 31,April 30, 2016 and was primarily driven by ourthe Company’s net income of $1.5 million primarily resulting from the $1.7 million settlement received from Targus.Cash used by operating activities was $0.8 million for the six months ended July 31, 2015 and was primarily driven by our net loss of $0.6approximately $1.3 million.investingfinancing activities during the sixthree months ended July 31,April 30, 2017 and 2016.During the six months ended July 31, 2015, our security deposit of $77,000 for our corporate lease became collateralized by cash in a separate bank account.and six months ended July 31, 2016April 30, 2017 and 2015.2016. WeAs of April 30, 2017, we had a working capital of approximately $0.7 million as of July 31, 2016,$20,000, which includes liabilities relatedis not sufficient to the remaining balance owed tofund our former counsel Pillsbury Winthrop Shaw Pittman, LLP (“Pillsbury”). The $0.1 million remaing balance to Pillsbury will be paid, if at all, in the event we obtain any monetary recovery, whether through settlement, judgment or otherwise, from or as a result of any of our current or future lawsuits related to our intellectual property (see Note 6). During the first quarter of fiscal 2017, we paid Pillsbury $0.4 million as a result of the Settlement Agreement with Targus and we owe a remaining balance of approximately $0.1 million. During the six months ended July 31, 2016, we deterimined that the statuteof limitation on the Zheng Ge contracts has lapsed. As a direct result, we wrote off receivables of $0.1 million from and liabilties of $0.6 million to Zheng Ge.Because of the contingent nature of our liability to Pillsbury, we believe that our working capital, will allow us to discharge non-contingent in the normal course of businessoperations over the next twelve months. We arehave ceased traditional operations and our currently generating no revenues and have ceased traditional operations.revenues. Our futureability to continue to operate as a going concern is highly dependent on our ability to successfully resolve our current litigation, capitalize onmonetize our portfolio of patents, generate positive cash flows and/or obtain borrowings or raise capital to meet our future liquidity needs. However, there are no assurances that sufficient cash flows can be generated through our patent monetization efforts, we currently have no commitments for additional financing, and there can be no assurance that we will be able to obtain requisite financing on acceptable terms, if at all.As discussed elsewhere in this report, we are currently generating no revenues and have ceased traditional operations. Our future is highly dependent on our ability to successfully resolve our current litigation, capitalize on our portfolio of patents, generate positive cash flows and obtain borrowings or raise capital to meet our future liquidity needs.July 31, 2016,April 30, 2017, of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). “Internal control over financial reporting” includes those policies and procedures that: ofJuly 31, 2016,of April 30, 2017, our internal control over financial reporting is not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP due to lack of segregation of duties. Our management’s finding of ineffective internal control over financial reporting results primarily from a lack of sufficient accounting and information technology staff which results in a lack of segregation of duties necessary for an appropriate system of internal controls. While management believes that the lack of effective internal control over financial reporting during the fiscal quarter endedJuly 31, 2016ended April 30, 2017 did not result in any particular deficiency in our financial reporting for the fiscal quarter then ended, management believes that the lack of effectiveness of our internal control over financial reporting could result in a failure to provide reliable financial reporting in the future. In order to remedy our existing internal control deficiency, we will need to raise additional capital or improve our working capital position to allow us to hire additional staff. July 31, 2016April 30, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.Comarco, Inc. vs. Targus Group International, Inc., Case No. 8:14-cv-00361, Superior Court of California County of Orange – Central Justice Center. On March 10, 2014, we filed a lawsuit in federal court against Targus for patent infringement, breach of contract, intentional interference with contract, violation of business and professional codes, misrepresentation and fraudulent concealment. On March 26, 2016, we entered into a confidential settlement and license agreement with Targus that resolves all claims arising from the aforementioned litigation.Pursuant to the terms of the settlement agreement, we granted Targus a world-wide license to make, use, sell and distribute Licensed Products (as defined below), as well as a sublicense to have Licensed Products manufactured by third parties solely for the benefit of and sale to Targus. In addition, we granted Targus, for a limited number of units, the right to make, use, sell and distribute Licensed Products for third-party original equipment manufacturers (“OEMs”). “Licensed Products” means any power adaptor or power supply incorporating patents or other intellectual property owned or licensed by us.In exchange for the license granted under the settlement agreement, Targus paid us a one-time, lump-sum payment on April 1, 2016, plus the possibility of future per-unit royalty payments if Targus exceeds the limit on Licensed Products that Targus may sell to OEMs under the settlement agreement. We have been granted confidential treatment from the SEC related to the one-time payment, the calculation of royalty payments and the OEM unit limit pursuant to a confidential treatment request filed by us with the SEC.This lawsuit representsIn September of 2015, Apple filed a petition with PTAB requesting inter partes review of our most significant enforcement effort933 Patent. On February 22, 2017, the PTAB issued its finding, ruling in Apple’s favor. We believe the PTAB erred in its ruling, and we are appealing the ruling to date,the Court of Appeals for the Federal Circuit. We estimate that the appeals process will require approximately 12 months to run its course and together with the Targus and Best Buy lawsuits described above, demonstrates our ongoing and accelerated efforts to methodically pursue those companies that we believemay require incremental financing in order to pursue the appeal to conclusion. We currently have infringed on the intellectual property estateno commitments for any additional financing and there can be no assurance that we have developed over the last 20 years. Although we intendwill be able to vigorously pursue our rights in this case, the outcome of this matter is not determinable as of the date of this report.obtain requisite financing on acceptable terms, if at all.Although we intend to vigorously pursue our rightsBest Buy’s supplier Battery Biz filed a petition with the PTAB requesting aninter partes review. Their request was granted. The parties subsequently settled resulting in this case, the outcome of this matter is not determinable asa dismissal of the dateaction against Best Buy and termination of this report.theinter partes review. 20162017 Form 10-K as well as any amendments thereto or additions and changes thereto contained in any subsequent filings of quarterly reports on Form 10-Q or current reports on Form 8-K. The disclosures in our annual report on Form 10-K and our subsequent reports and filings are not necessarily a definitive list of all factors that may affect our business, financial condition and future results of operations. There have been no material changes to the risk factors as disclosed in 20162017 Form 10-K.
(Principal Executive Officer)
(Principal Financial and Accounting Officer)********XBRL (Extension Business Reporting Language) information is furnished and filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.COMARCO, INC.Date: September 14, 2016 /s/ THOMAS W. LANNI Thomas W. LanniPresident and Chief Executive Officer(Principal Executive Officer)Date: September 14, 2016 /s/ JANET N. GUTKIN Janet N. GutkinChief Accounting Officer(Principal Financial and Accounting Officer)EXHIBIT INDEXExhibitDescription31.1 *Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2 *Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1 *Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2 *Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002101.INS**XBRL Instance Document101.SCH**XBRL Taxonomy Extension Schema Document101.CAL**XBRL Taxonomy Extension Calculation Linkbase Document101.DEF**XBRL Taxonomy Definition Linkbase Document101.LAB**XBRL Taxonomy Extension Label Linkbase Document101.PRE**XBRL Taxonomy Extension Presentation Linkbase Document*Filed herewith.**XBRL (Extension Business Reporting Language) information is furnished and filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. 24