þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
California (State or other jurisdiction of incorporation or organization) |
95-2088894 (I.R.S. Employer Identification No.) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ |
2
July 31, | January 31, | |||||||
2011 | 2011(A) | |||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 1,556 | $ | 6,381 | ||||
Accounts receivable due from customers, net of reserves of
$64 and $53, respectively |
2,091 | 3,550 | ||||||
Accounts receivable due from suppliers, net of reserves
of $55 and $67, respectively |
764 | 724 | ||||||
Inventory, net of reserves of $1,397 and $1,650, respectively |
1,737 | 1,521 | ||||||
Other current assets |
360 | 165 | ||||||
Total current assets |
6,508 | 12,341 | ||||||
Property and equipment, net |
197 | 420 | ||||||
Total assets |
$ | 6,705 | $ | 12,761 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current Liabilities: |
||||||||
Accounts payable |
$ | 3,682 | $ | 5,180 | ||||
Accrued liabilities |
2,264 | 2,762 | ||||||
Line of credit |
| 1,000 | ||||||
Total current liabilities |
5,946 | 8,942 | ||||||
Deferred rent, net of current portion |
39 | | ||||||
Total liabilities |
$ | 5,985 | $ | 8,942 | ||||
Commitments, Contingencies and Subsequent Events |
||||||||
Stockholders Equity: |
||||||||
Preferred stock, no par value, 10,000,000 shares authorized;
no shares issued or outstanding at July 31, 2011 and
January 31, 2011, respectively |
| | ||||||
Common stock, $0.10 par value, 50,625,000 shares
authorized; 7,343,869 shares issued and outstanding at July
31, 2011 and January 31, 2011 |
733 | 733 | ||||||
Additional paid-in capital |
15,394 | 15,299 | ||||||
Accumulated deficit |
(15,407 | ) | (12,213 | ) | ||||
Total stockholders equity |
720 | 3,819 | ||||||
Total liabilities and stockholders equity |
$ | 6,705 | $ | 12,761 | ||||
(A) | Derived from the audited consolidated financial statements as of January 31, 2011. |
3
Three Months Ended | Six Months Ended | |||||||||||||||
July 31, | July 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue |
$ | 1,926 | $ | 12,783 | $ | 4,876 | $ | 20,297 | ||||||||
Cost of revenue |
2,232 | 10,645 | 5,006 | 16,557 | ||||||||||||
Gross profit (loss) |
(306 | ) | 2,138 | (130 | ) | 3,740 | ||||||||||
Selling, general, and administrative expenses |
1,114 | 1,210 | 2,065 | 2,617 | ||||||||||||
Engineering and support expenses |
475 | 886 | 974 | 1,788 | ||||||||||||
1,589 | 2,096 | 3,039 | 4,405 | |||||||||||||
Operating income (loss) |
(1,895 | ) | 42 | (3,169 | ) | (665 | ) | |||||||||
Other loss, net |
(13 | ) | (23 | ) | (2 | ) | (42 | ) | ||||||||
Income (loss) from continuing operations
before income taxes |
(1,908 | ) | 19 | (3,171 | ) | (707 | ) | |||||||||
Income tax expense |
2 | | 2 | | ||||||||||||
Net income (loss) from continuing operations |
(1,910 | ) | 19 | (3,173 | ) | (707 | ) | |||||||||
Loss from discontinued operations,
net of income taxes |
(21 | ) | (594 | ) | (21 | ) | (601 | ) | ||||||||
Net loss |
$ | (1,931 | ) | $ | (575 | ) | $ | (3,194 | ) | $ | (1,308 | ) | ||||
Basic and diluted loss per share: |
||||||||||||||||
Net loss from continuing operations |
$ | (0.26 | ) | $ | | $ | (0.43 | ) | $ | (0.10 | ) | |||||
Net loss from discontinued operations |
| (0.08 | ) | | (0.08 | ) | ||||||||||
$ | (0.26 | ) | $ | (0.08 | ) | $ | (0.43 | ) | $ | (0.18 | ) | |||||
Weighted average common shares outstanding: |
||||||||||||||||
Basic |
7,344 | 7,327 | 7,344 | 7,327 | ||||||||||||
Diluted |
7,344 | 7,327 | 7,344 | 7,327 | ||||||||||||
Common shares outstanding |
7,344 | 7,327 | 7,344 | 7,327 | ||||||||||||
4
Six Months Ended | ||||||||
July 31, | ||||||||
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net loss |
$ | (3,194 | ) | $ | (1,308 | ) | ||
Loss from discontinued operations |
$ | 21 | $ | 601 | ||||
Adjustments to reconcile net loss from continuing operations to
net cash used in operating activities: |
||||||||
Depreciation |
271 | 380 | ||||||
Loan origination fees |
53 | 56 | ||||||
Stock-based compensation |
95 | 143 | ||||||
Recovery from doubtful accounts receivable |
| (104 | ) | |||||
Provision for obsolete inventory |
(185 | ) | (152 | ) | ||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable due from customers |
1,470 | (3,357 | ) | |||||
Accounts receivable due from suppliers |
(51 | ) | (338 | ) | ||||
Inventory |
(31 | ) | (179 | ) | ||||
Other assets |
(195 | ) | (146 | ) | ||||
Accounts payable |
(1,498 | ) | 3,276 | |||||
Accrued liabilities |
(498 | ) | (2,546 | ) | ||||
Deferred rent |
39 | (63 | ) | |||||
Net cash used in continuing operating activities |
(3,703 | ) | (3,737 | ) | ||||
Net cash (used in) provided by discontinued operating activities |
(21 | ) | (601 | ) | ||||
Net cash used in operating activities |
(3,724 | ) | (4,338 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Purchases of property and equipment |
(48 | ) | (240 | ) | ||||
Net cash used in investing activities |
(48 | ) | (240 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Line of credit |
(1,000 | ) | | |||||
Loan origination fees |
(53 | ) | (56 | ) | ||||
Net cash used in financing activities |
(1,053 | ) | (56 | ) | ||||
Net decrease in cash and cash equivalents |
(4,825 | ) | (4,634 | ) | ||||
Cash and cash equivalents, beginning of period |
6,381 | 10,127 | ||||||
Cash and cash equivalents, end of period |
$ | 1,556 | $ | 5,493 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid for interest |
$ | 12 | $ | 28 | ||||
Cash paid for income taxes, net of refunds |
$ | 2 | $ | | ||||
5
6
7
8
Three Months Ended | Six Months Ended | |||||||||||||||
July 31, | July 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues |
$ | | $ | | $ | | $ | | ||||||||
Income (loss) from discontinued operations: |
||||||||||||||||
Gain on sale, net of taxes of $0 |
$ | | $ | | $ | | $ | | ||||||||
Loss from discontinued operations, before taxes |
(21 | ) | (594 | ) | (21 | ) | (601 | ) | ||||||||
Income tax expense |
| | | | ||||||||||||
Total Loss from discontinued operations |
$ | (21 | ) | $ | (594 | ) | $ | (21 | ) | $ | (601 | ) | ||||
9
Three Months Ended | Six Months Ended | |||||||||||||||
July 31, | July 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Total stock-based compensation expense |
$ | 24 | $ | 88 | $ | 95 | $ | 143 | ||||||||
Impact on basic and diluted earnings per share |
$ | 0.00 | $ | 0.01 | $ | 0.01 | $ | 0.02 |
Weighted average risk-free interest rate |
0.98 | % | ||
Expected life (in years) |
3.2 | |||
Expected stock volatility |
62.2 | % | ||
Dividend yield |
None | |||
Expected forfeitures |
10.6 | % |
10
Outstanding Options | ||||||||
Weighted-Average | ||||||||
Number of Shares | Exercise Price | |||||||
Balance, January 31, 2011 |
1,022,500 | $ | 2.81 | |||||
Options granted |
| | ||||||
Options canceled or expired |
(407,500 | ) | 1.85 | |||||
Options exercised |
| | ||||||
Balance, July 31, 2011 |
615,000 | $ | 3.46 | |||||
Stock Options Exercisable at July 31, 2011 |
322,050 | $ | 5.63 | |||||
Outstanding Restricted Stock Units | ||||||||
Weighted-Average | ||||||||
Stock Price | ||||||||
Number of Shares | On Grant Date | |||||||
Balance, January 31, 2011 |
98,928 | $ | 2.56 | |||||
RSUs granted |
295,000 | 0.30 | ||||||
RSUs canceled or expired |
(45,952 | ) | 2.65 | |||||
Common Stock Issued |
| | ||||||
Balance, July 31, 2011 |
347,976 | $ | 0.61 | |||||
Awards Outstanding | Awards Exercisable | |||||||||
Weighted-Avg. | Weighted-Avg. | Weighted-Avg. | ||||||||
Range of | Number | Remaining | Exercise/Grant | Number | Exercise/Grant | |||||
Exercise/Grant Prices | Outstanding | Contractual Life | Price | Exercisable | Price | |||||
$0.26 to 4.90
|
781,476 | 4.03 | $0.96 | 180,550 | $1.69 | |||||
6.29 to 9.89 | 121,500 | 2.82 | 7.89 | 121,500 | 7.89 | |||||
10.43 to 11.60 | 60,000 | 3.77 | 10.72 | 60,000 | 10.72 | |||||
962,976 | 3.86 years | 2.45 | 362,050 | 5.27 | ||||||
11
Three Months Ended July 31, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
(In thousands) | ||||||||||||||||
Total revenue |
$ | 1,926 | 100 | % | $ | 12,783 | 100 | % | ||||||||
Customer concentration: |
||||||||||||||||
Dell Inc. and affiliates |
$ | 314 | 16 | % | $ | 278 | 2 | % | ||||||||
Targus Group International, Inc. |
| | 10,016 | 78 | % | |||||||||||
Lenovo Information Products Co., Ltd. |
1,593 | 83 | % | 2,446 | 19 | % | ||||||||||
$ | 1,907 | 99 | % | $ | 12,740 | 99 | % | |||||||||
Three Months Ended July 31, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
(In thousands) | ||||||||||||||||
Total revenue |
$ | 4,876 | 100 | % | $ | 20,297 | 100 | % | ||||||||
Customer concentration: |
||||||||||||||||
Dell Inc. and affiliates |
$ | 685 | 14 | % | $ | 278 | 1 | % | ||||||||
Targus Group International, Inc. |
1,174 | 24 | % | 15,654 | 77 | % | ||||||||||
Lenovo Information Products Co., Ltd. |
2,947 | 60 | % | 4,251 | 21 | % | ||||||||||
$ | 4,806 | 98 | % | $ | 20,183 | 99 | % | |||||||||
12
July 31, 2011 | January 31, 2011 | |||||||||||||||
Total gross accounts receivable due
from customers |
$ | 2,155 | 100 | % | $ | 3,603 | 100 | % | ||||||||
Customer concentration: |
||||||||||||||||
Dell Inc and affiliates |
329 | 15 | % | 434 | 12 | % | ||||||||||
Targus Group International, Inc. |
119 | 6 | % | 471 | 13 | % | ||||||||||
Lenovo Information Products Co., Ltd. |
1,696 | 79 | % | 2,683 | 74 | % | ||||||||||
$ | 2,144 | 100 | % | $ | 3,588 | 99 | % | |||||||||
July 31, 2011 | January 31, 2011 | |||||||||||||||
Total gross accounts receivable
due from suppliers |
$ | 819 | 100 | % | $ | 791 | 100 | % | ||||||||
Customer concentration: |
||||||||||||||||
Edac Power
Electronics Co.Ltd. |
$ | 532 | 65 | % | $ | 532 | 67 | % | ||||||||
Flextronics Electronics |
125 | 15 | % | 99 | 13 | % | ||||||||||
Zheng Ge Electrical Co., Ltd. |
122 | 15 | % | 122 | 15 | % | ||||||||||
$ | 779 | 95 | % | $ | 753 | 95 | % | |||||||||
13
July 31, | January 31, | |||||||
2011 | 2011 | |||||||
Raw materials |
$ | 1,145 | $ | 875 | ||||
Finished goods |
592 | 646 | ||||||
$ | 1,737 | $ | 1,521 | |||||
As of And For the | ||||||||
Six Months Ended | ||||||||
July 31, | ||||||||
2011 | 2010 | |||||||
Beginning balance |
$ | 310 | $ | 4,759 | ||||
Accruals for warranties issued during the period |
399 | 203 | ||||||
Utilization |
(679 | ) | (3,513 | ) | ||||
$ | 30 | $ | 1,449 | |||||
14
15
16
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
17
| On August 5, 2011, the Company and Targus entered into a Release and Settlement Agreement (the Settlement Agreement) with respect to all matters concerning the previously announced Recall. In the third quarter, as part of the Settlement Agreement, Targus paid Comarco approximately $290,000 which represents a refund of previous amounts withheld from payment in the first quarter of fiscal 2012. The Company believes that it has accrued and paid for substantially all of its material financial obligations with respect to the Recall. | ||
| On August 3, 2011, the Company received a letter from Silicon Valley Bank (SVB) indicating that an event of default had occurred under the Loan and Security Agreement entered into by and between the Company and SVB on February 11, 2009 (as amended, the Loan Agreement). The event of default relates to the Companys failure to meet the minimum quick ratio financial covenant of 1.25 to 1.00 for each of the periods ending February 28, 2011, March 31, 2011, April 30, 2011, May 31, 2011 and June 30, 2011. The Companys ability to borrow under the Loan Agreement may continue to be suspended based upon our failure to comply with the quick ratio covenant in the future. Although the Company is currently seeking other forms of financing, we cannot be certain we will be able to secure additional financing on terms acceptable to us, or at all. | ||
| On January 25, 2011, the Company received written notification from Targus Group International, Inc. (Targus) of its non-renewal of the Strategic Product Development and Supply Agreement (the Targus Agreement). Although Targus confirmed its desire to continue a business relationship with Comarco in its written notification, the nature of our future business relationship remains unclear. At this time, future sales to Targus are uncertain. Sales to Targus accounted for approximately 79 percent of our revenue for the second quarter of fiscal 2011. | ||
| Revenue for the second quarter of fiscal 2012 decreased to $1.9 million compared to $12.8 million for the second quarter of fiscal 2011. The decrease is primarily attributable to the loss of sales to Targus. | ||
| On June 30, 2009, we announced that we were selected by Dell Inc. to provide an innovative 90 watt DC adapter for use in automobiles and airplanes. We began shipping this product in the latter part of May 2010 and revenue from sales to Dell totaled $0.4 million during the first quarter of fiscal 2012. | ||
| We are focused on preserving our cash balances by monitoring expenses, identifying costs savings, and investing only in those development programs and products that we believe will most likely contribute to our profitability. |
18
Three Months Ended | Six Months Ended | Year over Year | ||||||||||||||||||||||
July 31, | July 31, | % Change | ||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | Three Months | Six Months | |||||||||||||||||||
Revenue |
$ | 1,926 | $ | 12,783 | $ | 4,876 | $ | 20,297 | (85 | %) | (76 | %) | ||||||||||||
Operating income (loss) |
$ | (1,895 | ) | $ | 42 | $ | (3,169 | ) | $ | (665 | ) | |||||||||||||
Net income (loss) from
continuing operations |
$ | (1,908 | ) | $ | 19 | $ | (3,173 | ) | $ | (707 | ) | |||||||||||||
Three Months Ended | Six Months Ended | Year over Year | ||||||||||||||||||||||
July 31, | July 31, | % Change | ||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | Three Months | Six Months | |||||||||||||||||||
Revenue: |
||||||||||||||||||||||||
North America |
$ | 303 | $ | 10,331 | $ | 1,715 | $ | 15,929 | (97 | %) | (89 | %) | ||||||||||||
Europe |
4 | 19 | 14 | 73 | (79 | %) | (81 | %) | ||||||||||||||||
Asia |
1,619 | 2,433 | 3,147 | 4,295 | (33 | %) | (27 | %) | ||||||||||||||||
$ | 1,926 | $ | 12,783 | $ | 4,876 | $ | 20,297 | |||||||||||||||||
19
Three Months Ended | Six Months Ended | Year over Year | ||||||||||||||||||||||||||||||||||||||
July 31, | July 31, | % Change | ||||||||||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | Three Months | Six Months | |||||||||||||||||||||||||||||||||||
% of | % of | % of | % of | |||||||||||||||||||||||||||||||||||||
Revenue | Revenue | Revenue | Revenue | |||||||||||||||||||||||||||||||||||||
Revenue: |
||||||||||||||||||||||||||||||||||||||||
Dell |
314 | 16 | % | 278 | 2 | % | 685 | 14 | % | 278 | 1 | % | 13 | % | 146 | % | ||||||||||||||||||||||||
Lenovo |
1,593 | 83 | % | 2,446 | 19 | % | 2,947 | 61 | % | 4,251 | 21 | % | (35 | %) | (31 | %) | ||||||||||||||||||||||||
Targus |
| | 10,016 | 79 | % | 1,174 | 24 | % | 15,654 | 77 | % | (100 | %) | (93 | %) | |||||||||||||||||||||||||
Other |
19 | 1 | % | 43 | | 70 | 1 | % | 114 | 1 | % | (56 | %) | (38 | %) | |||||||||||||||||||||||||
$ | 1,926 | 100 | % | $ | 12,783 | 100 | % | $ | 4,876 | 100 | % | $ | 20,297 | 100 | % | (85 | %) | (76 | %) | |||||||||||||||||||||
20
Three Months Ended | Six Months Ended | Year over Year | ||||||||||||||||||||||||||||||||||||||
July 31, | July 31, | % Change | ||||||||||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | Three Months | Six Months | |||||||||||||||||||||||||||||||||||
% of | % of | % of | % of | |||||||||||||||||||||||||||||||||||||
Total | Total | Total | Total | |||||||||||||||||||||||||||||||||||||
Cost of revenue: |
||||||||||||||||||||||||||||||||||||||||
Product cost |
$ | 1,187 | 53 | % | $ | 9,001 | 85 | % | $ | 2,667 | 53 | % | $ | 14,003 | 85 | % | (87 | %) | (81 | %) | ||||||||||||||||||||
Accrued product
recall costs |
| | | | 350 | 7 | % | | | | | |||||||||||||||||||||||||||||
Supplier Settlement |
383 | 17 | % | | | 383 | 8 | % | | | | | ||||||||||||||||||||||||||||
Fixed supply
chain overhead |
608 | 27 | % | 943 | 9 | % | 1,031 | 21 | % | 1,739 | 10 | % | (36 | %) | (41 | %) | ||||||||||||||||||||||||
Inventory reserve
and scrap charges |
54 | 3 | % | 109 | 1 | % | 575 | 11 | % | 109 | 1 | % | (50 | %) | 428 | % | ||||||||||||||||||||||||
Freight, expedite,
and other charges |
| | 592 | 5 | % | | | 706 | 4 | % | (100 | %) | (100 | %) | ||||||||||||||||||||||||||
$ | 2,232 | 100 | % | $ | 10,645 | 100 | % | $ | 5,006 | 100 | % | $ | 16,557 | 100 | % | (79 | %) | (70 | %) | |||||||||||||||||||||
Three Months Ended | Six Months Ended | Year over Year | ||||||||||||||||||||||
July 31, | July 31, | ppt Change | ||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | Three Months | Six Months | |||||||||||||||||||
Gross margin (loss) |
(16 | %) | 17 | % | (3 | %) | 18 | % | (33 | ) | (21 | ) |
21
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||||||||
July 31, | July 31, | Year over Year % Change | ||||||||||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | Three Months | Six Months | |||||||||||||||||||||||||||||||||||
% of | % of | % of | % of | |||||||||||||||||||||||||||||||||||||
Revenue | Revenue | Revenue | Revenue | |||||||||||||||||||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||||||||||
SG&A expenses,
excluding
corporate
overhead |
$ | 289 | 15 | % | $ | 258 | 2 | % | $ | 462 | 9 | % | $ | 662 | 3 | % | 12 | % | (30 | %) | ||||||||||||||||||||
Corporate overhead |
825 | 43 | % | 952 | 7 | % | 1,603 | 33 | % | 1,955 | 10 | % | (13 | %) | (18 | %) | ||||||||||||||||||||||||
Engineering and
support expenses |
475 | 25 | % | 886 | 7 | % | 974 | 20 | % | 1,788 | 9 | % | (46 | %) | (46 | %) | ||||||||||||||||||||||||
$ | 1,589 | 83 | % | $ | 2,096 | 16 | % | $ | 3,039 | 62 | % | $ | 4,405 | 22 | % | (24 | %) | (31 | %) | |||||||||||||||||||||
22
Three Months Ended | Six Months Ended | |||||||||||||||
July 31, | July 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Gain on sale, net
of income taxes of $0 |
$ | | $ | | $ | | $ | | ||||||||
Loss from
discontinued
operations, before
taxes |
(21 | ) | (594 | ) | (21 | ) | (601 | ) | ||||||||
Income tax expense |
| | | | ||||||||||||
Loss from
discontinued
operations |
$ | (21 | ) | $ | (594 | ) | $ | (21 | ) | $ | (601 | ) | ||||
Six Months Ended July 31, | ||||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Cash used in: |
||||||||
Operating activities |
$ | (3,724 | ) | $ | (4,338 | ) | ||
Investing activities |
(48 | ) | (240 | ) | ||||
Financing activities |
(1,053 | ) | (56 | ) |
23
24
| The ability of our contract manufacturers of our ChargeSource® products to manufacture our products at the level currently anticipated, and the ability of our ChargeSource® products to meet any required specifications. | ||
| The timing of the development, delivery or release of our ChargeSource® products. | ||
| Our ability to execute our current strategy of direct sales of our products to consumers. | ||
| Our ability to raise additional funds, through either debt and/or equity financing. |
25
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 4. | CONTROLS AND PROCEDURES |
(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 issuers assets that could have a material effect on the financial statements. |
26
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
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.LAB**
|
XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE**
|
XBRL Taxonomy Extension Presentation Linkbase Document |
** | XBRL (Extensible 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. |
27
COMARCO, INC. |
||||
Date: September 14, 2011 | /s/ THOMAS W. LANNI | |||
Thomas W. Lanni | ||||
President and Chief Executive Officer (Principal Executive Officer) |
||||
Date: September 14, 2011 | /s/ ALISHA K. CHARLTON | |||
Alisha K. Charlton | ||||
Vice President and Chief Accounting Officer (Principal Financial and Accounting Officer) |
28
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.LAB**
|
XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE**
|
XBRL Taxonomy Extension Presentation Linkbase Document |
** | XBRL (Extensible 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. |
29
1. | I have reviewed this quarterly report on Form 10-Q of Comarco, Inc.; | ||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: September 14, 2011 | /s/ Thomas W. Lanni | |||
Thomas W. Lanni | ||||
President and Chief Executive Officer (Principal Executive Officer) |
30
1. | I have reviewed this quarterly report on Form 10-Q of Comarco, Inc.; | ||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and | ||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: September 14, 2011 | /s/ Alisha K. Charlton | |||
Alisha K. Charlton | ||||
Vice President and Chief Accounting Officer (Principal Financial Officer) |
31
1. | The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | ||
2. | The information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Comarco, Inc. |
Date: September 14, 2011 | /s/ Thomas W. Lanni | |||
Thomas W. Lanni | ||||
President and Chief Executive Officer (Principal Executive Officer) | ||||
32
1. | The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | ||
2. | The information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Comarco, Inc. |
Date: September 14, 2011 | /s/ Alisha K. Charlton | |||
Alisha K. Charlton | ||||
Vice President and Chief Accounting Officer (Principal Financial Officer) | ||||
33
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)
In Thousands, except Share data |
Jul. 31, 2011
|
Jan. 31, 2011
|
|||
---|---|---|---|---|---|
Current Assets: | Â | Â | |||
Accounts receivable due from customers, net of reserves | $ 64 | $ 53 | [1] | ||
Accounts receivable due from suppliers, net of reserves | 55 | 67 | [1] | ||
Inventory, net of reserves | $ 1,397 | $ 1,650 | [1] | ||
Stockholders' Equity: | Â | Â | |||
Preferred stock, no par value | [1] | ||||
Preferred stock, shares authorized | 10,000,000 | 10,000,000 | [1] | ||
Preferred stock, shares issued | [1] | ||||
Preferred stock, shares outstanding | [1] | ||||
Common stock, par value | $ 0.10 | $ 0.10 | [1] | ||
Common stock, shares authorized | 50,625,000 | 50,625,000 | [1] | ||
Common stock, shares issued | 7,343,869 | 7,343,869 | [1] | ||
Common stock, shares outstanding | 7,343,869 | 7,343,869 | [1] | ||
|
Condensed Consolidated Statements of Operations (Unaudited) (USD $)
In Thousands, except Per Share data |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 31, 2011
|
Jul. 31, 2010
|
Jul. 31, 2011
|
Jul. 31, 2010
|
|
Condensed Consolidated Statements Of Operations [Abstract] | Â | Â | Â | Â |
Revenue | $ 1,926 | $ 12,783 | $ 4,876 | $ 20,297 |
Cost of revenue | 2,232 | 10,645 | 5,006 | 16,557 |
Gross profit (loss) | (306) | 2,138 | (130) | 3,740 |
Selling, general, and administrative expenses | 1,114 | 1,210 | 2,065 | 2,617 |
Engineering and support expenses | 475 | 886 | 974 | 1,788 |
Total operating expenses | 1,589 | 2,096 | 3,039 | 4,405 |
Operating income (loss) | (1,895) | 42 | (3,169) | (665) |
Other loss, net | (13) | (23) | (2) | (42) |
Income (loss) from continuing operations before income taxes | (1,908) | 19 | (3,171) | (707) |
Income tax expense | 2 | Â | 2 | Â |
Net income (loss) from continuing operations | (1,910) | 19 | (3,173) | (707) |
Loss from discontinued operations, net of income taxes | (21) | (594) | (21) | (601) |
Net loss | $ (1,931) | $ (575) | $ (3,194) | $ (1,308) |
Basic and diluted loss per share: | Â | Â | Â | Â |
Net loss from continuing operations | $ (0.26) | Â | $ (0.43) | $ (0.10) |
Net loss from discontinued operations | Â | $ (0.08) | Â | $ (0.08) |
Total basic and diluted loss per share | $ (0.26) | $ (0.08) | $ (0.43) | $ (0.18) |
Weighted average common shares outstanding: | Â | Â | Â | Â |
Basic | 7,344 | 7,327 | 7,344 | 7,327 |
Diluted | 7,344 | 7,327 | 7,344 | 7,327 |
Common shares outstanding | 7,344 | 7,327 | 7,344 | 7,327 |
Document and Entity Information (USD $)
In Millions, except Share data |
6 Months Ended | ||
---|---|---|---|
Jul. 31, 2011
|
Sep. 12, 2011
|
Jul. 31, 2010
|
|
Document and Entity Information [Abstract] | Â | Â | Â |
Entity Registrant Name | COMARCO INC | Â | Â |
Entity Central Index Key | 0000022252 | Â | Â |
Document Type | 10-Q | Â | Â |
Document Period End Date | Jul. 31, 2011 | ||
Amendment Flag | false | Â | Â |
Document Fiscal Year Focus | 2012 | Â | Â |
Document Fiscal Period Focus | Q2 | Â | Â |
Current Fiscal Year End Date | --01-31 | Â | Â |
Entity Well-known Seasoned Issuer | No | Â | Â |
Entity Voluntary Filers | No | Â | Â |
Entity Current Reporting Status | Yes | Â | Â |
Entity Filer Category | Smaller Reporting Company | Â | Â |
Entity Public Float | Â | Â | $ 18 |
Entity Common Stock, Shares Outstanding | Â | 7,383,869 | Â |
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Customer and Supplier Concentrations
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2011
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Customer and Supplier Concentrations [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Customer and Supplier Concentrations |
7. Customer and Supplier Concentrations
A significant portion of the Company’s revenue is derived from a limited number of customers.
The customers providing 10 percent or more of the Company’s revenue for the periods presented below
are listed here:
In March 2009, the Company entered into the Targus Agreement with Targus. The Company began
shipments to Targus under the Targus Agreement during the second quarter of fiscal 2010. On January
25, 2011,
Targus provided the Company with written notification of non-renewal of the Targus Agreement.
As such, there is no revenue from Targus in the second quarter of fiscal 2012 and there can be no
assurance that any revenue will be generated from Targus in the future.
The customers comprising 10 percent or more of the Company’s gross accounts receivable due
from customers at either July 31, 2011 or January 31, 2011 are listed below (in thousands):
The suppliers comprising 10 percent or more of the Company’s gross accounts receivable due
from suppliers at either July 31, 2011 or January 31, 2011 are listed below (in thousands).
A significant portion of our inventory purchases is derived from a limited number of contract
manufacturers (“CM’s”) and other suppliers. The loss of one or more of our significant CM’s or
suppliers could materially adversely affect our operations. For the three and six months ended July
31, 2011 two of our CM’s provided an aggregate of 50 and 88 percent, respectively, of total
product costs. For the three months ended July 31, 2010 three of our CM’s provided an aggregate of
95 percent of total product costs. For the six months ended July 31, 2010 two of our CM’s provided
an aggregate of 88 percent of total product costs.
At July 31, 2011, approximately $3.5 million or 94 percent, of the Company’s accounts payable
of $3.7 million was payable to three contract manufacturers, only one of which provided the
majority of the product costs for the three and six months ended July 31, 2011. At July 31, 2011
and January 31, 2011, approximately $1.1 million or 30 percent and 21 percent, respectively, of the
Company’s accounts payable was payable to Chicony Power Technology Co., Ltd., (“Chicony”) the
manufacturer of the Bronx product which was subject to the Recall. At present we are in litigation
with Chicony (see Note 11). At July 31, 2011 and January 31, 2011, approximately $2.0 million and
$2.6 million or 53 percent and 51 percent, respectively, of the Company’s accounts payable was
payable to Edac Power Electronics Co. Ltd., the manufacturer of the Manhattan product sold to
Targus. At the present time we are in negotiations with this supplier to create a long-term
payment plan.
Additionally, at July 31, 2011, approximately $0.7 million or 70 percent of total uninvoiced
materials and services of $1.0 million, included in accrued liabilities were payable to three of
our contract manufacturers. At January 31, 2011 approximately $729,000, or 45 percent, of total
uninvoiced materials and services of $1.6 million, included in accrued liabilities were payable to
Flextronics Electronics and Zheng Ge Electrical Co., Ltd.
|
Subsequent Events
|
6 Months Ended |
---|---|
Jul. 31, 2011
|
|
Subsequent Events [Abstract] | Â |
Subsequent Events |
12. Subsequent Events
Management has evaluated events subsequent to July 31, 2011 through the date that the
accompanying condensed consolidated financial statements were filed with the Securities and
Exchange Commission for transactions and other events which may require adjustment of and/or
disclosure in such financial statements.
On August 5, 2011 Targus and Comarco entered into a Release and Settlement Agreement (the
“Settlement Agreement”) with respect to all matters concerning the Recall. In the third quarter,
as part of the Settlement Agreement, Targus paid Comarco $290,000 which represents a refund of
amounts withheld from payment in the first quarter of fiscal 2012 and charged to cost of revenue.
During the third quarter Comarco will record the payment recived from Targus and it will reduce
previously recorded accruals for the Recall to the extent the refund represents amounts in excess
of Recall warranty costs.
On August 15, 2011, the Board of Directors terminated the employment of Fredrik Torstensson as
interim President and Chief Executive Officer and simultaneously appointed Thomas W. Lanni as
President and Chief Executive Officer. The Board of Directors also elected Mr. Lanni as a
Director.
On August 17, 2011, Comarco entered into a Settlement
Agreement with a supplier to settle commitments made through Comarco purchase orders that had been placed for
Manhattan product that was intended to be sold to Targus. Comarco accrued $380,000 to cost of
revenue during the second quarter which represents the amount that was unpaid as of July 31, 2011.
On September 9, 2011 the Company entered into a Settlement and Amended Cross-License Agreement
(the “Agreement”) with iGo, Inc. (formerly Mobility Electronics, Inc.) (“iGo”). The Agreement
fully settles previous litigation relating to various patent infringement causes of action that was
dismissed without prejudice on May 26, 2009. Additionally the Agreement amends the Compromise
Settlement Agreement and Release entered into by the parties on July 12, 2003.
|
Discontinued Operations
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Jul. 31, 2011
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Discontinued Operations [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations |
3. Discontinued Operations
The Company entered into an Asset Purchase Agreement on September 26, 2008 with Ascom Holding
AG and its subsidiary Ascom Inc., (collectively, “Ascom”) to sell the Wireless Test Solutions
(“WTS”) business and related assets. Comarco’s shareholders approved the transaction on November
26, 2008 which closed on January 6, 2009.
The aggregate purchase price paid to Comarco in connection with the transaction was
$12,750,000 in cash, with $1,275,000 of the proceeds placed in escrow for one year from the closing
date as security for general indemnification rights. The proceeds placed in escrow were released in
January 2010.
Operating results of the WTS discontinued operations are as follows (in thousands):
The fiscal 2012 year to date loss from WTS discontinued operations of $21,000 relates to a
sales tax audit performed by the California State Board of Equalization during the second quarter
of fiscal 2012. The expensed amount represents the portion of the assessment that is to be borne
by Comarco for the sale of the WTS business to Ascom.
The fiscal 2011 year to date loss from WTS discontinued operations of $601,000 relates to a
settlement with a former officer and employee of the WTS business, whereby Comarco agreed to pay
the former employee $508,000 which amount included reimbursement for attorney and professional
fees. The remaining loss relates primarily to Comarco’s legal fees incurred relating to the
matter.
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Warranty Arrangements
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2011
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Warranty Arrangements [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warranty Arrangements |
9. Warranty Arrangements
The Company records an accrual for estimated warranty costs as products are sold. Warranty
costs are estimated based on periodic analysis of historical experience. These amounts are recorded
in accrued liabilities in the unaudited interim condensed consolidated balance sheets. Changes in
the estimated warranty accruals are recorded when the change in estimate is identified. During the
fourth quarter of fiscal 2010, the Company recorded an accrual of $4.6 million related to the
Recall announced on April 30, 2010. Approximately 500,000 Targus branded 90-watt universal AC power
adapters for laptops are affected by the Recall. A summary of the warranty accrual activity is
shown in the table below (in thousands):
The Company believes that the balance remaining as of July 31, 2011 is adequate to cover our
standard warranty costs. As discussed in Note 2 (Summary of Significant Accounting Policies — Use
of Estimates) and Note 12 (Subsequent Events), Targus and Comarco entered into a Release and
Settlement Agreement (the “Settlement Agreement”) with respect to all matters concerning the Recall
in August 2011. In the third quarter, as part of the Settlement Agreement, Targus paid Comarco
approximately $290,000 which represents a refund of previous amounts withheld from payment in the
first quarter of fiscal 2012 and charged to cost of revenue. During the third quarter Comarco will
record the payment received from Targus and it will reduce previously recorded accruals for the
Recall to the extent the refund represents amounts in excess of Recall warranty costs.
|
Line of Credit
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6 Months Ended |
---|---|
Jul. 31, 2011
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|
Line of Credit [Abstract] | Â |
Line of Credit |
10. Line of Credit
On February 11, 2009, the Company entered into a Loan and Security Agreement (the “Loan
Agreement”) with Silicon Valley Bank (“SVB”). The Loan Agreement was renewed on February 8, 2010
and again on February 9, 2011 and matures, on February 9, 2012, at which time, any outstanding
principal balance is payable in full.
On August 3, 2011 we received a letter from SVB indicating that the Company’s failure to meet
the minimum quick ratio of 1.25 to 1.00 for each of the periods ended February 28, 2011, March 31,
2011, April 30, 201l, May 31, 2011 and June 30, 2011 constituted an event of default.
As of the date of this filing, the Company remains in default of the quick ratio financial covenant.
We
currently have no borrowings outstanding under the Loan Agreement and
the Company’s future ability to borrow under the Loan Agreement may continue to be suspended based upon our
failure to comply with the quick ratio covenant in the future. The Company is currently seeking
other forms of financing, however, we cannot be certain we will be able to secure additional
financing on terms acceptable to us, or at all.
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Inventory
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2011
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Inventory [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory |
8. Inventory
Inventory, net of reserves, consists of the following (in thousands):
As of July 31, 2011, approximately $313,000 of total inventory was located at our corporate
headquarters. The remaining balance is located at various contract manufacturer locations primarily
in China.
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Organization
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6 Months Ended |
---|---|
Jul. 31, 2011
|
|
Organization [Abstract] | Â |
Organization |
1. Organization
Comarco, Inc., through its wholly-owned subsidiary Comarco Wireless Technologies, Inc.
(collectively, “we,” “us,” “our,” “Comarco,” or the “Company”), is a leading developer and designer
of mobile power adapters used to simultaneously power and charge notebook computers, mobile phones,
BlackBerry® smartphones, iPods®, and many other portable, rechargeable handheld devices. Our
operations consist solely of the operations of Comarco Wireless Technologies, Inc. (“CWT”), which
was incorporated in the State of Delaware in September 1993. 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.
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Stock-Based Compensation
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Jul. 31, 2011
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Stock-Based Compensation [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation |
4. Stock-Based Compensation
The Company grants stock awards for a fixed number of shares to employees, consultants, and
directors with an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts 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 the Company’s 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 the accounting rules, the Company reviews its valuation assumptions
at each grant date and, as a result, is likely to change its 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 the
Company’s current estimates.
The compensation expense recognized is summarized in the table below (in thousands except per
share amounts):
The total compensation cost related to nonvested awards not yet recognized is approximately
$315,000, which will be expensed over a weighted average remaining life of 18 months.
During the three and six months ended July 31, 2011, 220,000 and 295,000 restricted stock
units were granted. During the three and six months ended July 31, 2011, no stock options were
granted. During the three months ended July 31, 2010, 80,000 restricted stock units were granted
and 10,000 stock options were granted. No restricted stock units or stock options were granted in
the first quarter of fiscal 2010. The fair value of the restricted stock units granted during the
three months ended July 31, 2010 was estimated using the stock price on the date of the grant of
$2.35 and a forfeiture rate of 8.2 percent. The fair value of the 10,000 options granted under the
Company’s stock option plans during the three months ended July 31, 2010 was estimated on the date
of grant using the Black-Scholes option-pricing model utilizing the following weighted average
assumptions:
Comarco has stock-based compensation plans under which outside directors, consultants, and
employees are eligible to receive stock options and other equity-based awards. The stock option
plans and a director stock option plan provide that officers, key employees, directors and
consultants may be granted options to purchase up to 3,312,500 shares of common stock of the
Company at not less than 100 percent of the fair market value at the date of grant, unless the
grantee is a 10 percent shareholder of the Company, in which case the price must not be less than
110 percent of the fair market value. Figures for these plans reflect a 3-for-2 stock split
declared during the year ended January 31, 2001.
The Company’s Director Stock Option Plan (the “Director Plan”) expired in December 2010, and
the Company’s former employee stock option plan (the “Employee Plan”) expired during May 2005.
These plans provided for 637,500 and 825,000 shares issuable, respectively. During December 2005,
the Board of Directors approved and adopted the Company’s 2005 Equity Incentive Plan (the “2005
Plan”) covering 450,000 shares of common stock. The 2005 Plan was approved by the Company’s
shareholders at its annual shareholders’ meeting in June 2006, and subsequently amended at its
annual shareholders meeting in June 2008 to increase the number of shares issuable under the plan
from 450,000 to 1,100,000 shares. In July 2011, the Company’s shareholders approved the 2011
Equity Incentive Plan (the “2011” Plan) covering 750,000 shares of common stock.
Under both the 2011 and 2005 Plan, the Company may grant stock options, stock appreciation
rights, restricted stock, restricted stock units, and performance based awards to employees,
consultants and directors. Under all plans, awards vest or become exercisable in installments
determined by the compensation committee of the
Company’s Board of Directors; however, under the 2005 Plan no option may be exercised prior to
one year following the grant of the option. The options granted under the Director Plan and the
Employee Plan expire as determined by the committee, but no later than ten years and one week after
the date of grant (five years for 10 percent shareholders). The options granted under the 2011 and
2005 Plan expire as determined by the committee, but no later than ten years after the date of
grant (five years for 10 percent shareholders).
Transactions and other information related to stock options granted under these plans for the
six months ended July 31, 2011 are summarized below:
Transactions and other information related to restricted stock units (“RSU’s”) granted under
these plans for the six months ended July 31, 2011 are summarized below:
As of July 31, 2011 40,000 restricted stock units had vested. The shares were issued to the
recipients in August 2011.
As of July 31, 2011, the stock awards outstanding have an intrinsic value of $1,000, based on
a closing market price of $0.27 per share on July 31, 2011. The following table summarizes
information about the Company’s stock awards outstanding at July 31, 2011:
At July 31, 2011, shares available for future grants were 995,224.
|
Recent Accounting Pronouncements
|
6 Months Ended |
---|---|
Jul. 31, 2011
|
|
Recent Accounting Pronouncements [Abstract] | Â |
Recent Accounting Pronouncements |
5. Recent Accounting Pronouncements
In February 2011, the FASB issued amended guidance on subsequent events. Under this amended
guidance, SEC filers are no longer required to disclose the date through which subsequent events
have been evaluated in originally issued and revised financial statements. This guidance was
effective immediately and we adopted these new requirements upon issuance of this guidance.
|
Earnings (Loss) Per Share
|
6 Months Ended |
---|---|
Jul. 31, 2011
|
|
Earnings Per Share [Abstract] | Â |
Earnings (Loss) Per Share |
6. Earnings (Loss) Per Share
The Company calculates basic earnings (loss) per share by dividing net income (loss) by the
weighted-average number of common shares outstanding during the reporting period. Diluted earnings
(loss) per share reflects the effects of potentially dilutive securities. Since the Company
incurred a net loss for the three and six months ended July 31, 2011 and 2010, basic and diluted
loss per share were the same because the inclusion of potential common shares related to
outstanding stock options in the calculation would have been antidilutive.
Potential common shares of 10,275 and 4,288 have been excluded from diluted weighted average
common shares for the three and six months ended July 31, 2011, as the effect would have been
antidilutive. Similarly, potential common shares of 260,153 and 276,587 have been excluded from
diluted weighted average common shares for the three and six months ended July 31, 2010, as the
effect would have been antidilutive.
|
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Summary of Significant Accounting Policies
|
6 Months Ended |
---|---|
Jul. 31, 2011
|
|
Summary of Significant Accounting Policies [Abstract] | Â |
Summary of Significant Accounting Policies |
2. 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. Such financial statements
and related notes are the representations of our management, who are responsible for their
integrity and objectivity. In the opinion of management, these accounting policies conform to
accounting principles generally accepted in the United States of America in all material respects,
and have been consistently applied in preparing the accompanying condensed consolidated financial
statements.
Future Operations, Change in Strategy, Liquidity and Capital Resources:
The Company has experienced substantial pre-tax losses from continuing operations for the six
months ended July 31, 2011 and 2010 totaling $3.2 million and $0.7 million, respectively. In
addition, the Company experienced pre-tax losses from operations for fiscal 2011 totaling $5.4
million. The condensed consolidated financial statements have been prepared assuming that the
Company will continue to operate as a going concern, which contemplates that the Company will
realize its assets and satisfy its liabilities and commitments in the ordinary course of business.
The Company’s condensed consolidated financial statements do not reflect any adjustments related to
the outcome of this uncertainty. The Company’s future is highly dependent on its ability to sell
its products at a profit, obtain liquidity, and its ultimate return to overall profitability. During the second quarter of fiscal 2012, the Company had two customers, Lenovo and Dell, both of which are original equipment
manufacturers, or “OEM’s.”
During the second quarter of fiscal 2012 the Company decided to change its sales strategy to
sell its products directly to consumers. Although we plan to continue to sell select products in
the OEM channel, we believe that we can increase sales and margins by also selling our products
direct to consumers. To implement this strategy, during the latter part of the third quarter, we
plan to launch our website to sell our newest generation of AC adapter. However, there can be no
assurance that the Company will be able to successfully achieve its sales volume initiatives
through the launch of its new website and the failure to achieve such initiatives could have a
material adverse effect on the Company’s operations and financial condition.
The Company had working capital totaling approximately $0.6 million at July 31, 2011. In
order for us to conduct our business for the next twelve months and to continue operations
thereafter and be able to discharge our liabilities and commitments in the normal course of
business, we must increase sales, reduce operating expenses, and potentially raise additional
funds, through either debt and/or equity financing to meet our working capital needs. On August 3,
2011, the Company received a letter from Silicon Valley Bank (“SVB”) indicating that an event of
default had occurred under the Loan and Security Agreement entered into by and between the Company
and SVB on February 11, 2009 (as amended, the “Loan Agreement”). The event of default relates to
the Company’s failure to meet the minimum quick ratio financial covenant of “1.25 to 1.00” for
each of the periods ending February 28, 2011, March 31, 2011, April 30, 2011, May 31, 2011 and June
30, 2011. The Company remains in default of the quick ratio financial covenant as of the date of this filing. The Company’s ability to borrow under the Loan Agreement may continue to be suspended
based upon our failure to comply with the quick ratio covenant in the future. Although the Company
is currently seeking other forms of financing, we cannot be certain we will be able to secure
additional financing on terms acceptable to us, or at all.
Basis of Presentation:
The interim condensed consolidated financial statements of Comarco included herein have been
prepared without audit in accordance with accounting principles generally accepted in the United
States of America for interim information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. The Company believes
that the disclosures are adequate to make the information presented not misleading when read in
conjunction with the audited consolidated financial statements included in the Company’s annual
report on Form 10-K for the year ended January 31, 2011. 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, 2011 are not necessarily indicative of the
results to be expected for the fiscal year ending January 31, 2012.
Cash and Cash Equivalents
All highly liquid investments with remaining 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 unaudited interim condensed consolidated financial
statements. Cash and cash equivalents are generally maintained in uninsured accounts, typically
Eurodollar deposits with daily liquidity, which are subject to investment risk including possible
loss of principal invested.
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.
Accounts Receivable Due from Customers
The Company offers unsecured credit terms to customers and performs ongoing credit evaluations
of its customers. Accounts receivable balances result primarily from the timing of remittance
payments by these customers to the Company. Accounts receivable are stated net of an allowance for
doubtful accounts. Management develops its estimate of this reserve based upon specific
identification of account balances that have indications of uncertainty of collection. Indications
of uncertainty of collections may include the customer’s inability to pay, customer
dissatisfaction, or other factors. Significant management judgments and estimates must be made and
used in connection with establishing the allowance for doubtful accounts in any accounting period.
Material differences may result in the amount and timing of our losses for any period if management
made different judgments or utilized different estimates. Historically, such losses have been
within management’s expectations and the reserves established.
Accounts Receivable Due from Suppliers
Oftentimes the Company is able to source components locally that it later sells to its
contract manufacturers, who build the finished goods, and other suppliers. This is especially the
case when new products are initially introduced into production. Sales to the Company’s contract
manufacturers and other suppliers are excluded from revenue and are recorded as a reduction to cost
of revenue.
Use of Estimates
The preparation of unaudited interim condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the unaudited interim condensed
consolidated financial statements and the reported amounts of revenue and expenses during the
period reported. Actual results could materially differ from those estimates.
Certain accounting principles require subjective and complex judgments to be used in the
preparation of financial statements. Accordingly, a different financial presentation could result
depending on the judgments, estimates, or assumptions that are used. Such estimates and assumptions
include, but are not specifically limited to, those required in the valuation of long-lived assets,
allowance for doubtful accounts, reserves for inventory obsolescence, reserves for estimated
warranty costs, including product recall costs, valuation allowances for deferred tax assets, and
determination of stock based compensation.
On April 30, 2010, the United States Consumer Product Safety Commission (“CPSC”) announced a
product safety recall (the “Recall”) concerning approximately 500,000 units of our ChargeSource
90-watt universal AC power adapter sold to our distributer, Targus from June 2009 through March
2010. During the fourth quarter of fiscal 2010, the Company recorded an accrual of $4.6 million
related to the Recall. The Company’s methodology for estimating the costs for the Recall involved
estimating future costs to be incurred to replace the recalled adapters based on expected returns
and the costs to conduct the Recall, particularly communication, replacement, and transportations
costs. Another aspect of the estimate involves Comarco’s assessment of Targus’ and Comarco’s
respective obligations regarding returned product. During the fourth quarter of fiscal 2011 and the
first quarter of fiscal 2012, the Company recorded additional accruals of $0.3 million and $0.4
million, respectively, related to the Recall. During the third quarter of fiscal 2012, Targus and
Comarco entered into a Release and Settlement Agreement (the “Settlement Agreement”) with respect
to all matters concerning the Recall. In the third quarter, as part of the Settlement Agreement,
Targus paid Comarco approximately $290,000 which represents a refund of previous amounts withheld
from payment in the first quarter of fiscal 2012. The Company believes that it has accrued and
paid for substantially all of its material financial obligations with respect to the Recall.
Reclassifications:
Certain prior period balances have been reclassified to conform to the current period
presentation. The reclassifications have no effect on previously reported results of operations or
accumulated deficit.
Impairment or Disposal of Long-lived Assets:
We review our long-lived assets for impairment whenever events or changes in circumstances
indicate that their carrying amounts may not be recoverable. If the cost basis of a long-lived
asset is greater than the projected future undiscounted net cash flows from such asset (excluding
interest), an impairment loss is recognized. Impairment losses are calculated as the difference
between the cost basis of an asset and its estimated fair value. We did not recognize any impairment
charges during the three or six months ended July 31, 2011.
Fair Value of Financial Instruments:
The Company’s financial instruments include cash and cash equivalents, accounts receivable due
from customers and suppliers, accounts payable, accrued liabilities, and a line of credit. The
carrying amount of cash and cash equivalents, accounts receivable due from customers and suppliers,
accounts payable, and accrued liabilities are considered to be representative of their respective
fair values because of the short-term nature of those instruments. The carrying amount of the
Company’s line of credit approximates fair value since the interest rate approximates the market
rate for debt securities with similar terms and risk characteristics.
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Commitments and Contingencies
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6 Months Ended |
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Jul. 31, 2011
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Commitments and Contingencies [Abstract] | Â |
Commitments and Contingencies |
11. Commitments and Contingencies
Purchase Commitments with Suppliers
The Company generally issues purchase orders to its suppliers with delivery dates from four to
six weeks from the purchase order date. In addition, the Company regularly provides significant
suppliers with rolling six-month forecasts of material and finished goods requirements for planning
and long-lead time parts procurement purposes only. The Company is committed to accepting delivery
of materials pursuant to its purchase orders subject to various contract provisions that allow it
to delay receipt of such order or allow it to cancel orders beyond certain agreed lead times. Such
cancellations may or may not include cancellation costs payable by the Company. In the past, the
Company has been required to take delivery of materials from its suppliers that were in excess of
its requirements and the Company has previously recognized charges and expenses related to such
excess material. During the second quarter of fiscal 2012 we accrued a charge of $380,000 relating
to such excess material relating to purchase commitments made to support the Targus business.
If the Company is unable to adequately manage its suppliers and adjust such commitments for
changes in demand, it may incur additional inventory expenses related to excess and obsolete
inventory. Such expenses could have a material adverse effect on the Company’s business, results of
operations, and financial position.
Executive Severance Commitments
The Company has severance compensation agreements with certain key executives. These
agreements require the Company to pay these executives, in the event of certain terminations of
employment following a change of control of the Company, up to the amount of their then current
annual base salary and the amount of any bonus amount the executive would have achieved for the
year in which the termination occurs plus the acceleration of unvested options. The exact amount of
this contingent obligation is not known and accordingly has not been recorded in the unaudited
interim condensed consolidated financial statements.
Letter of Credit
During the first quarter of fiscal 2010, the Company obtained a $77,000 letter of credit from
SVB to allow for continuous and unlapsed compliance with a lease provision for the Company’s
corporate offices. The letter of credit expires on October 26, 2011.
Legal Contingencies
On April 26, 2011, Chicony, the contract manufacturer of the Bronx product that is the subject
of the Recall, filed a complaint against the Company for breach of contract seeking payment of $1.2
million for the alleged non-payment by us of products manufactured by Chicony. The Company denies
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 the Company believes resulted in the Recall of the product. The outcome
of this matter is not determinable as of the date of the filing of this report.
In addition to the pending matter described above, the Company is, from time to time, involved
in various legal proceedings incidental to the conduct of its business. The Company believes that
the outcome of all such legal
proceedings will not, in the aggregate, have a material adverse effect on its consolidated
results of operations and financial position.
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Condensed Consolidated Balance Sheets (Unaudited) (USD $)
In Thousands |
Jul. 31, 2011
|
Jan. 31, 2011
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Current Assets: | Â | Â | |||
Cash and cash equivalents | $ 1,556 | $ 6,381 | [1] | ||
Accounts receivable due from customers, net of reserves of $64 and $53, respectively | 2,091 | 3,550 | [1] | ||
Accounts receivable due from suppliers, net of reserves of $55 and $67, respectively | 764 | 724 | [1] | ||
Inventory, net of reserves of $1,397 and $1,650, respectively | 1,737 | 1,521 | [1] | ||
Other current assets | 360 | 165 | [1] | ||
Total current assets | 6,508 | 12,341 | [1] | ||
Property and equipment, net | 197 | 420 | [1] | ||
Total assets | 6,705 | 12,761 | [1] | ||
Current Liabilities: | Â | Â | |||
Accounts payable | 3,682 | 5,180 | [1] | ||
Accrued liabilities | 2,264 | 2,762 | [1] | ||
Line of credit | 0 | 1,000 | [1] | ||
Total current liabilities | 5,946 | 8,942 | [1] | ||
Deferred rent, net of current portion | 39 | 0 | [1] | ||
Total liabilities | 5,985 | 8,942 | [1] | ||
Commitments, Contingencies and Subsequent Events | [1] | ||||
Stockholders' Equity: | Â | Â | |||
Preferred stock, no par value, 10,000,000 shares authorized; no shares issued or outstanding at July 31, 2011 and January 31, 2011, respectively | [1] | ||||
Common stock, $0.10 par value, 50,625,000 shares authorized; 7,343,869 shares issued and outstanding at July 31, 2011 and January 31, 2011 | 733 | 733 | [1] | ||
Additional paid-in capital | 15,394 | 15,299 | [1] | ||
Accumulated deficit | (15,407) | (12,213) | [1] | ||
Total stockholders' equity | 720 | 3,819 | [1] | ||
Total liabilities and stockholders' equity | $ 6,705 | $ 12,761 | [1] | ||
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