10-Q

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, 2016

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, 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. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company √

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 14,644,165 shares of common stock outstanding as of September 15, 2016.

COMARCO, INC. AND SUBSIDIARY

QUARTERLY REPORT ON FORM 10-Q

FOR THE SIX MONTHS ENDED JULY 31, 2016

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS (Unaudited)
	Condensed Consolidated Balance Sheets as of July 31, 2016 and January 31, 2016	3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended July 31, 2016 and 2015	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2016 and 2015	5
	Notes to Condensed Consolidated Financial Statements	6
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	14
ITEM 4.	CONTROLS AND PROCEDURES	20
PART II — OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	21
ITEM 1A.	RISK FACTORS	22
ITEM 6.	EXHIBITS	22
SIGNATURES		23

2

PART I — FINANCIAL INFORMATION

ITEM 1.       FINANCIAL STATEMENTS

COMARCO, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(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; 14,644,165 shares 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

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

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

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

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

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

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.             Current Developments, Future Operations, Liquidity and Capital Resources

 The condensed 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 do not reflect any adjustments related to the uncertainty of this outcome. 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 and future litigation, monetize our portfolio of patents, generate positive cash flows and/or obtain borrowings or raise capital to meet our liquidity needs.

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 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.

6

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 our patented intellectual property. This lawsuit represents our most significant enforcement effort to date, and 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, although the outcome of this matter is not determinable as of the date of this report.

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. We intend to vigorously pursue our rights in this case, although the outcome of this matter is not determinable as of the date 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.

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. 

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.

7

COMARCO, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Basis of Presentation

The accompanying condensed consolidated balance sheet as of July 31, 2016, which has been derived from our audited financial statements, and our unaudited interim condensed consolidated financial statements as of July 31, 2016 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 10 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, 2016 (the “2016 Form 10-K”), which was filed with the SEC on April 30, 2016. The accounting policies followed by the Company are set forth in Note 2 to the Company’s audited financial statements included in the 2016 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, 2016 are not necessarily indicative of the results to be expected for the fiscal year ending January 31, 2017.

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 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. Cash and cash equivalents are generally maintained in uninsured accounts, which are subject to investment risk including possible loss of principal invested.

Restricted Cash

Our 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 we are 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.

Use of Estimates

The preparation of 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.

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 assessment of the impairment of long-lived assets, valuation allowances for deferred tax assets, valuation of derivative liabilities and determination of stock-based compensation.

Fair Value of Financial Instruments

Our financial instruments include cash and cash equivalents, 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.

8

COMARCO, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Legal expense classification

Our legal expenses are classified in either selling, general, and administrative expenses or engineering and support expenses depending on the nature of the legal expense. All legal expenses incurred related to our intellectual property, including associated litigation expense and maintenance of our patent portfolio, are included in engineering 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.

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 of July 31, 2016.

4.            Stock-Based Compensation

We grant stock awards for a fixed number of shares to employees, consultants, and directors pursuant to the our shareholder-approved equity incentive plans.

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
	July 31,						July 31,
	2016			2015			2016			2015
Stock-based compensation expense	$	5		$	9		$	18		$	16
Impact on basic and diluted earnings per share	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)

There is no compensation cost related to nonvested awards yet to be recognized.

9

COMARCO, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

During the three and six months ended July 31, 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, 2015
Weighted average risk-free interest rate		2	%
Expected life (in years)		10
Expected stock volatility		152	%
Dividend yield		-
Expected forfeitures		-

Transactions and other information related to stock options granted under these plans for the six months ended July 31, 2016 are summarized below:

	Outstanding Options
				Weighted-Ave.
	Number of			Exercise
	Shares			Price
Balance, January 31, 2016		950,000		$	0.96
Options granted		-			-
Options canceled or expired		(246,192	)		1.06
Options exercise		-			-
Balance, July 31, 2016		703,808		$	0.51
Stock Options Exercisable at July 31, 2016		663,808		$	0.48

As of July 31, 2016, the stock awards outstanding have an aggregate intrinsic value of $0, based on a closing market price of $0.08 per share on July 31, 2016. The following table summarizes information about the Company’s stock awards outstanding at July 31, 2016:

			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
$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

Shares available under the plans for future grants at July 31, 2016 totaled 219,724.

5.            Net Income (Loss) Per Share

We calculate basic income (loss) per share by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted income (loss) per share reflects the effects of potentially dilutive securities. Because we incurred a net loss for the three and six months ended July 31, 2015, basic and diluted loss per share for this period was the same because the inclusion of dilutive potential common shares related to outstanding stock awards in the calculation would have been antidilutive.

Potential common shares of 785,870 and 3,044,475 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 ended July 31, 2015, respectively, as the effect would have been antidilutive.

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COMARCO, INC. AND SUBSIDIARY

NOTES 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 ended July 31, 2016, as the effect would have been antidilutive.

The following table presents reconciliations of the numerators and denominators of the basic and diluted loss per share computations for net income (loss). In the tables below, “Net income (loss)” represents the numerator and “shares” represents the denominator (in thousands, except per share amounts):

	Three Months Ended July 31,					Six Months Ended July 31,
	2016		2015			2016		2015
Net income (loss)	$	128	$	(265	)	$	1,452	$	(576	)
Basic net income (loss) per share:
Weighted-average shares outstanding-Basic		14,644		14,644			14,644		14,659
Basic net income (loss) per share	$	0.01	$	(0.02	)	$	0.10	$	(0.04	)
Diluted net (loss) income per share:
Weighted average shares outstanding - basic		14,644		14,644			14,644		14,659
Effect of potentially dilutive securities		-		-			-		-
Weighted average shares outstanding - diluted		14,644		14,644			14,644		14,659
Diluted net income (loss) per share	$	0.01	$	(0.02	)	$	0.10	$	(0.04	)

6.            Supplier Concentrations

There 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).

	As of July 31,				As of January 31,
	2016				2016
Total gross accounts payable	$	127	100	%	$	883	100	%
Supplier concentration:
Pillsbury Winthrop Shaw Pittman, LLP		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.

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COMARCO, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

7.               Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	July 31,		January 31,
	2016		2016
Uninvoiced materials and services received	$	7	$	331
Accrued legal and professional fees		71		169
Accrued payroll and related expenses		36		33
Consulting		65		16
Other		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.   

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 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 of July 31, 2016 no compensation expense has been accrued under this deferred compensation plan as its goal has not yet been attained.

Legal Contingencies

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.

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. 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.

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COMARCO, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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.

9.            Legal Settlement

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 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.

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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 condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this quarterly report on Form 10-Q.

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 addressed 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. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.

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, 2016 (the “2016 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.

Going Concern Qualification

The condensed financial statements have been prepared assuming that we will continue to operate as a going concern, which contemplates that we will realize value from our assets and satisfy our liabilities and commitments in the ordinary course of business. Our consolidated financial statements do not reflect any adjustments related to the outcome of this uncertainty. 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 liquidity needs.

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.

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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.

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 our patented intellectual property. This lawsuit represents our most significant enforcement effort to date, and, together with the Targus and Best Buy lawsuits described above, 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, the outcome of this matter is not determinable as of the date 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. In the future, we may resume our traditional activities, if and when possible. However, there are no assurances that any of the foregoing possible opportunities or activities will occur or be successful.

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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 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 balance 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.

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.

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. 

Basis of Presentation

The 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, 2017 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.

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 and six months ended July 31, 2016:

● We generated no revenue for three and six months ended July 31, 2016 and 2015. 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 statute of 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.

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● 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 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 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.

● 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. 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.

● 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 above, 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, 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. 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. 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 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 our patent portfolio and past, present, and future infringement claims. There can be no assurances that we will be successful in implementing any of these alternatives, or if implemented, that any of these alternatives will successfully preserve or increase shareholder value.

● 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.

Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our unaudited interim 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.

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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 and six months ended July 31, 2016 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.

Results of Operations

The following tables set forth certain items as a percentage of revenue from our unaudited interim condensed consolidated statements of operations for the three and six months ended July 31, 2016 and 2015:

	(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	$	-	$	-		$	-		$	-			0	%		0	%
Operating income (loss)	$	112	$	(290	)	$	(252	)	$	(601	)		139	%		58	%
Net income (loss)	$	128	$	(265	)	$	1,452		$	(576	)		148	%		352	%

Cost of Sales

	(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	$	-			0	%	$	-		0	%	$	-			0	%	$	-		0	%		0	%		0	%
Supplier Settlement		(472	)		0	%		-		0	%		(472	)		0	%		-		0	%		100	%		100	%
Supply chain overhead		-			0	%		-		0	%		-			0	%		-		0	%		0	%		0	%
Inventory reserve and scrap charges		-			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 statute of 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.

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 administrative expenses, excluding corporate overhead	$	280		0	%	$	242		0	%	$	464		0	%	$	553		0	%		16	%		-16	%
Engineering and support expenses		80		0	%		48		0	%		260		0	%		48		0	%		67	%		442	%
	$	360		0	%	$	290		0	%	$	724		0	%	$	601		0	%		24	%		20	%

Selling, general, and administrative (“SG&A”) expenses for the three and six months ended July 31, 2016 decreased $0.1 million, respectively compared to the corresponding periods of fiscal 2016. We had no employees in our sales and marketing department during the three and six months ended July 31, 2016 and 2015.

Corporate overhead consists 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.

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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.

Other Income, net

During the six months ended July 31, 2016, other income, net, was $1.7 million related to our settlement with Targus.

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 of July 31, 2016.

Liquidity and Capital Resources

Cash and cash equivalents at July 31, 2016 increased $1.1 million from January 31, 2016 to $1.4 million. The following table is a summary of our Condensed Consolidated Statements of Cash Flows.

	(in thousands)
	Six Months Ended July 31,
	2016		2015
Cash provided by (used in):
Operating activities	$	454	$	(765	)
Investing activites	$	-	$	(77	)
Financing activities	$	-	$	-

Operating Activities

Cash provided by operating activities was $0.5 million for the six months ended July 31, 2016 and was primarily driven by our 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 $0.6 million.

Investing Activities

We had no investing activities during the six months ended July 31, 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.

Financing Activities

We had no financing activities during the three and six months ended July 31, 2016 and 2015.

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Uncertainties Regarding Future Operations and Liquidity Requirements for the Next 12 Months

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 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 statute of 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 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.

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.

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 July 31, 2016, 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: 

(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.  

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In connection with its evaluation, our management has concluded that, as of July 31, 2016, 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 ended July 31, 2016 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.

 Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarter ended July 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.

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. This lawsuit represents our most significant enforcement effort to date, and, together with the Targus and Best Buy lawsuits described above, 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, the outcome of this matter is not determinable as of the date of this report.

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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. 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.

       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 2016 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 2016 Form 10-K.

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.

** 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.

22

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: September 14, 2016	/s/ THOMAS W. LANNI
	Thomas W. Lanni
	President and Chief Executive Officer
	(Principal Executive Officer)

Date: September 14, 2016	/s/ JANET N. GUTKIN
	Janet N. Gutkin
	Chief Accounting Officer
	(Principal Financial and Accounting Officer)

23

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.

** 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

EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer

Pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

I, Thomas W. Lanni, President and Chief Executive Officer of Comarco, Inc., certify that:

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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

Date: September 14, 2016	/s/ Thomas W. Lanni
	Thomas W. Lanni
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer

Pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

I, Janet Gutkin, Chief Accounting Officer of Comarco, Inc., certify that:

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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

Date: September 14, 2016	/s/ Janet N. Gutkin
	Janet N. Gutkin
	Chief Accounting Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

Certification of Principal Executive Officer

Pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

In connection with this quarterly report on Form 10-Q of Comarco, Inc., I, Thomas W. Lanni, President and Chief Executive Officer of Comarco, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

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, 2016	/s/ Thomas W. Lanni
	Thomas W. Lanni
	President and Chief Executive Officer
	(Principal Executive Officer)

This certification accompanies the Report pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section. This certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference.

EX-32.2

Exhibit 32.2

Certification of Principal Financial Officer

Pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

In connection with this quarterly report on Form 10-Q of Comarco, Inc., I, Janet N. Gutkin, Chief Accounting Officer of Comarco, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

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, 2016	/s/ Janet N. Gutkin
	Janet N. Gutkin
	Chief Accounting Officer
	(Principal Financial Officer)

This certification accompanies the Report pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section. This certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference.

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Document And Entity Information - shares	6 Months Ended
	Jul. 31, 2016	Sep. 15, 2016
Document Information [Line Items]
Entity Registrant Name	Comarco Inc
Entity Central Index Key	0000022252
Trading Symbol	cmro
Current Fiscal Year End Date	--01-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		14,644,165
Document Type	10-Q
Document Period End Date	Jul. 31, 2016
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Amendment Flag	false

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Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Jul. 31, 2016	Jan. 31, 2016
ASSETS
Cash and cash equivalents	$ 1,134,000	$ 680,000
Accounts receivable due from suppliers, net of reserves of $0		122,000
Other current assets	63,000	41,000
Total current assets	1,197,000	843,000
Property and equipment, net		2,000
Restricted cash	77,000	77,000
Total assets	1,274,000	922,000
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable	127,000	883,000
Accrued liabilities	325,000	687,000
Total current liabilities	452,000	1,570,000
Total liabilities	452,000	1,570,000
Commitments and Contingencies
Stockholders' Equity (Deficit):
Preferred stock, no par value, 10,000,000 shares authorized; no shares issued or outstanding	0	0
Common stock, $0.10 par value, 50,625,000 shares authorized; 14,644,165 shares issued and outstanding at July 31, 2016 and January 31, 2016	1,464,000	1,464,000
Additional paid-in capital	18,385,000	18,367,000
Accumulated deficit	(19,027,000)	(20,479,000)
Total stockholders' equity (deficit)	822,000	(648,000)
Total liabilities and stockholders' equity (deficit)	$ 1,274,000	$ 922,000

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Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Jul. 31, 2016	Jan. 31, 2016
Accounts receivable due from suppliers, net of reserves		$ 0
Preferred Stock, Par Value (in dollars per share)	$ 0	$ 0
Preferred Stock Shares Authorized (in shares)	10,000,000	10,000,000
Preferred stock, Shares Issued (in shares)	0	0
Preferred Stock, Shares Outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.10	$ 0.10
Common stock, shares authorized (in shares)	50,625,000	50,625,000
Common stock, shares issued (in shares)	14,644,165	14,644,165
Common stock, shares outstanding (in shares)	14,644,165	14,644,165

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Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 31, 2016	Jul. 31, 2015	Jul. 31, 2016	Jul. 31, 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 net income (loss) per share (in dollars per share)	$ 0.01	$ (0.02)	$ 0.10	$ (0.04)
Diluted net income (loss) per share (in dollars per share)	$ 0.01	$ (0.02)	$ 0.10	$ (0.04)
Weighted-average shares outstanding:
Weighted-average shares outstanding-Basic (in shares)	14,644	14,644	14,644	14,659
Diluted (in shares)	14,644	14,644	14,644	14,659

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jul. 31, 2016	Jul. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ 1,452,000	$ (576,000)
Adjustments to reconcile net income (loss) net cash used in operating activities:
Depreciation and amortization	2,000	3,000
Stock-based compensation expense	18,000	16,000
Accounts receivable due from suppliers	122,000
Other assets	(22,000)	(64,000)
Increase (Decrease) in Accounts Payable	(756,000)	(3,000)
Accrued liabilities	(362,000)	(101,000)
Income taxes payable		(40,000)
Net cash provided by (used in) operating activities	454,000	(765,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash		(77,000)
Net cash used in investing activites		(77,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents	454,000	(842,000)
Cash and cash equivalents, beginning of period	680,000	2,140,000
Cash and cash equivalents, end of period	1,134,000	1,298,000
Supplementary disclosures of cash flow information:
Cash paid for interest
Cash paid for income taxes, net of refunds		$ 40,000

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Note 1 - Organization

6 Months Ended

Jul. 31, 2016

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

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”.

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Note 2 - Current Developments, Future Operations, Liquidity and Capital Resources

6 Months Ended

Jul. 31, 2016

Notes to Financial Statements

Going Concern [Text Block]

2.             Current Developments, Future Operations, Liquidity and Capital Resources

 The condensed 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 do not reflect any adjustments related to the uncertainty of this outcome. 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 and future litigation, monetize our portfolio of patents, generate positive cash flows and/or obtain borrowings or raise capital to meet our liquidity needs.

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 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.

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 our patented intellectual property. This lawsuit represents our most significant enforcement effort to date, and 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, although the outcome of this matter is not determinable as of the date of this report.

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. We intend to vigorously pursue our rights in this case, although the outcome of this matter is not determinable as of the date 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.

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. 

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Note 3 - Summary of Significant Accounting Policies

6 Months Ended

Jul. 31, 2016

Notes to Financial Statements

Significant Accounting Policies [Text Block]

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.

Basis of Presentation

The accompanying condensed consolidated balance sheet as of July 31, 2016, which has been derived from our audited financial statements, and our unaudited interim condensed consolidated financial statements as of July 31, 2016 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 10 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, 2016 (the “2016 Form 10-K”), which was filed with the SEC on April 30, 2016. The accounting policies followed by the Company are set forth in Note 2 to the Company’s audited financial statements included in the 2016 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, 2016 are not necessarily indicative of the results to be expected for the fiscal year ending January 31, 2017.

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 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. Cash and cash equivalents are generally maintained in uninsured accounts, which are subject to investment risk including possible loss ofprincipal invested.

Restricted Cash

Our 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 we

are 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.

Use of Estimates

The preparation of 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.

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 assessment of the impairment of long-lived assets, valuation allowances for deferred tax assets, valuation of derivative liabilities and determination of stock-based compensation.

Fair Value of Financial Instruments

Our financial instruments include cash and cash equivalents, 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.

Legal expense classification

Our legal expenses are classified in either selling, general, and administrative expenses or engineering and support expenses depending on the nature of the legal expense. All legal expenses incurred related to our intellectual property, including associated litigation expense and maintenance of our patent portfolio, are included in engineering 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.

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 of

July 31, 2016.

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Note 4 - Stock-based Compensation

6 Months Ended

Jul. 31, 2016

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

4.            Stock-Based Compensation

We grant stock awards for a fixed number of shares to employees, consultants, and directors pursuant to the our shareholder-approved equity incentive plans.

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
	July 31,						July 31,
	2016			2015			2016			2015
Stock-based compensation expense	$	5		$	9		$	18		$	16
Impact on basic and diluted earnings per share	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)

There is no compensation cost related to nonvested awards yet to be recognized.

During the three and six months ended July 31, 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, 2015
Weighted average risk-free interest rate		2	%
Expected life (in years)		10
Expected stock volatility		152	%
Dividend yield		-
Expected forfeitures		-

Transactions and other information related to stock options granted under these plans for the six months ended July 31, 2016 are summarized below:

	Outstanding Options
				Weighted-Ave.
	Number of			Exercise
	Shares			Price
Balance, January 31, 2016		950,000		$	0.96
Options granted		-			-
Options canceled or expired		(246,192	)		1.06
Options exercise		-			-
Balance, July 31, 2016		703,808		$	0.51
Stock Options Exercisable at July 31, 2016		663,808		$	0.48

As of July 31, 2016, the stock awards outstanding have an aggregate intrinsic value of $0, based on a closing market price of $0.08 per share on July 31, 2016. The following table summarizes information about the Company’s stock awards outstanding at July 31, 2016:

			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
$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

Shares available under the plans for future grants at July 31, 2016 totaled 219,724.

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Note 5 - Net Income (Loss) Per Share

6 Months Ended

Jul. 31, 2016

Notes to Financial Statements

Earnings Per Share [Text Block]

5.            Net Income (Loss) Per Share

We calculate basic income (loss) per share by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted income (loss) per share reflects the effects of potentially dilutive securities. Because we incurred a net loss for the three and six months ended July 31, 2015, basic and diluted loss per share for this period was the same because the inclusion of dilutive potential common shares related to outstanding stock awards in the calculation would have been antidilutive.

Potential common shares of 785,870 and 3,044,475 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 ended July 31, 2015, respectively, as the effect would have been antidilutive.

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 ended

July 31, 2016, as the effect would have been antidilutive.

The following table presents reconciliations of the numerators and denominators of the basic and diluted loss per share computations for net income (loss). In the tables below, “Net income (loss)” represents the numerator and “shares” represents the denominator (in thousands, except per share amounts):

	Three Months Ended July 31,					Six Months Ended July 31,
	2016		2015			2016		2015
Net income (loss)	$	128	$	(265	)	$	1,452	$	(576	)
Basic net income (loss) per share:
Weighted-average shares outstanding-Basic		14,644		14,644			14,644		14,659
Basic net income (loss) per share	$	0.01	$	(0.02	)	$	0.10	$	(0.04	)
Diluted net (loss) income per share:
Weighted average shares outstanding - basic		14,644		14,644			14,644		14,659
Effect of potentially dilutive securities		-		-			-		-
Weighted average shares outstanding - diluted		14,644		14,644			14,644		14,659
Diluted net income (loss) per share	$	0.01	$	(0.02	)	$	0.10	$	(0.04	)

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Note 6 - Supplier Concentrations

6 Months Ended

Jul. 31, 2016

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

6.            Supplier Concentrations

There 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).

	As of July 31,				As of January 31,
	2016				2016
Total gross accounts payable	$	127	100	%	$	883	100	%
Supplier concentration:
Pillsbury Winthrop Shaw Pittman, LLP		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.

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Note 7 - Accrued Liabilities

6 Months Ended

Jul. 31, 2016

Notes to Financial Statements

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

7.               Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	July 31,		January 31,
	2016		2016
Uninvoiced materials and services received	$	7	$	331
Accrued legal and professional fees		71		169
Accrued payroll and related expenses		36		33
Consulting		65		16
Other		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.   

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Note 8 - Commitments and Contingencies

6 Months Ended

Jul. 31, 2016

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

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 he

would have achieved for the year in which the termination occurs plus the acceleration of unvested options. We have not recorded any liability in the 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 of

July 31, 2016 no compensation expense has been accrued under this deferred compensation plan as its goal has not yet been attained.

Legal Contingencies

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.

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. 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.

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.

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Note 9 - Legal Settlement

6 Months Ended

Jul. 31, 2016

Notes to Financial Statements

Legal Matters and Contingencies [Text Block]

9.           

Legal Settlement

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 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.

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Significant Accounting Policies (Policies)

6 Months Ended

Jul. 31, 2016

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The accompanying condensed consolidated balance sheet as of July 31, 2016, which has been derived from our audited financial statements, and our unaudited interim condensed consolidated financial statements as of July 31, 2016 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 10 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, 2016 (the “2016 Form 10-K”), which was filed with the SEC on April 30, 2016. The accounting policies followed by the Company are set forth in Note 2 to the Company’s audited financial statements included in the 2016 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, 2016 are not necessarily indicative of the results to be expected for the fiscal year ending January 31, 2017.

Consolidation, Policy [Policy Text Block]

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 Equivalents, Policy [Policy Text Block]

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. Cash and cash equivalents are generally maintained in uninsured accounts, which are subject to investment risk including possible loss ofprincipal invested.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restricted Cash

Our 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 we

are 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.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of 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.

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 assessment of the impairment of long-lived assets, valuation allowances for deferred tax assets, valuation of derivative liabilities and determination of stock-based compensation.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

Our financial instruments include cash and cash equivalents, 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.

Selling, General and Administrative Expenses, Policy [Policy Text Block]

Legal expense classification

Our legal expenses are classified in either selling, general, and administrative expenses or engineering and support expenses depending on the nature of the legal expense. All legal expenses incurred related to our intellectual property, including associated litigation expense and maintenance of our patent portfolio, are included in engineering 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.

Income Tax, Policy [Policy Text Block]

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 of

July 31, 2016.

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Note 4 - Stock-based Compensation (Tables)

6 Months Ended

Jul. 31, 2016

Notes Tables

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

	Three Months Ended						Six Months Ended
	July 31,						July 31,
	2016			2015			2016			2015
Stock-based compensation expense	$	5		$	9		$	18		$	16
Impact on basic and diluted earnings per share	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Six Months Ended July 31, 2015
Weighted average risk-free interest rate		2	%
Expected life (in years)		10
Expected stock volatility		152	%
Dividend yield		-
Expected forfeitures		-

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Outstanding Options
				Weighted-Ave.
	Number of			Exercise
	Shares			Price
Balance, January 31, 2016		950,000		$	0.96
Options granted		-			-
Options canceled or expired		(246,192	)		1.06
Options exercise		-			-
Balance, July 31, 2016		703,808		$	0.51
Stock Options Exercisable at July 31, 2016		663,808		$	0.48

Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding and Exercisable [Table Text Block]

			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
$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

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Note 5 - Net Income (Loss) Per Share (Tables)

6 Months Ended

Jul. 31, 2016

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended July 31,					Six Months Ended July 31,
	2016		2015			2016		2015
Net income (loss)	$	128	$	(265	)	$	1,452	$	(576	)
Basic net income (loss) per share:
Weighted-average shares outstanding-Basic		14,644		14,644			14,644		14,659
Basic net income (loss) per share	$	0.01	$	(0.02	)	$	0.10	$	(0.04	)
Diluted net (loss) income per share:
Weighted average shares outstanding - basic		14,644		14,644			14,644		14,659
Effect of potentially dilutive securities		-		-			-		-
Weighted average shares outstanding - diluted		14,644		14,644			14,644		14,659
Diluted net income (loss) per share	$	0.01	$	(0.02	)	$	0.10	$	(0.04	)

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Note 6 - Supplier Concentrations (Tables)

6 Months Ended

Jul. 31, 2016

Notes Tables

Schedules of Concentration of Risk, by Risk Factor [Table Text Block]

	As of July 31,				As of January 31,
	2016				2016
Total gross accounts payable	$	127	100	%	$	883	100	%
Supplier concentration:
Pillsbury Winthrop Shaw Pittman, LLP		62	49	%		432	49	%
	$	62	49	%	$	432	49	%

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Note 7 - Accrued Liabilities (Tables)

6 Months Ended

Jul. 31, 2016

Notes Tables

Schedule of Accrued Liabilities [Table Text Block]

	July 31,		January 31,
	2016		2016
Uninvoiced materials and services received	$	7	$	331
Accrued legal and professional fees		71		169
Accrued payroll and related expenses		36		33
Consulting		65		16
Other		146		138
	$	325	$	687

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Note 2 - Current Developments, Future Operations, Liquidity and Capital Resources (Details Textual) - USD ($)					1 Months Ended		3 Months Ended		6 Months Ended
	May 30, 2014	May 16, 2014	May 15, 2014	Feb. 04, 2014	Apr. 30, 2016	May 31, 2014	Jul. 31, 2016	Apr. 30, 2016	Jul. 31, 2016	Jul. 31, 2015	Jan. 31, 2016
Zheng Ge Electrical Company Ltd [Member]
Accounts Payable, Write-offs							$ 600,000
Accounts Receivable, Write-offs							100,000
Chicony Power Technology Company Ltd [Member] | Net of Attorneys Fees [Member]
Proceeds from Legal Settlements						$ 6,500,000
Chicony Power Technology Company Ltd [Member] | Cost of Sales [Member]
Increase (Decrease) in Accounts Payable						(1,100,000)
Chicony Power Technology Company Ltd [Member]
Litigation Settlement, Amount			$ 7,600,000	$ 9,700,000		7,600,000
Proceeds from Legal Settlements	$ 3,600,000	$ 4,000,000
Professional Fees						$ 1,100,000
Pillsbury Winthrop Shaw Pittman L L P [Member] | Litigation Reserve [Member]
Liabilities, Current					$ 100,000		100,000	$ 100,000	$ 100,000
Pillsbury Winthrop Shaw Pittman L L P [Member]
Payments for Legal Settlements					$ 400,000			$ 400,000
Increase (Decrease) in Accounts Payable									(756,000)	$ (3,000)
Working Capital							700,000		700,000
Liabilities, Current							$ 452,000		$ 452,000		$ 1,570,000

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Note 3 - Summary of Significant Accounting Policies (Details Textual)	Jul. 31, 2016 USD ($)
Letter of Credit [Member]
Restricted Cash and Cash Equivalents	$ 77,000

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Note 4 - Stock-based Compensation (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jul. 31, 2016	Jul. 31, 2015	Jul. 31, 2016	Jul. 31, 2015
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	0	0	0	0
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 0		$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	0	350,000	0	350,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	$ 0		$ 0
Share Price	$ 0.08		$ 0.08
Common Stock, Capital Shares Reserved for Future Issuance	219,724		219,724

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Note 4 - Share-based Compensation Expense (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 31, 2016	Jul. 31, 2015	Jul. 31, 2016	Jul. 31, 2015
Stock-based compensation expense	$ 5	$ 9	$ 18	$ 16
Impact on basic and diluted earnings per share (in dollars per share)	$ 0	$ 0	$ 0	$ 0

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Note 4 - Weighted Average Assumptions (Details)	6 Months Ended
	Jul. 31, 2015
Weighted average risk-free interest rate	2.00%
Expected life (in years)	10 years
Expected stock volatility	152.00%
Dividend yield
Expected forfeitures

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Note 4 - Stock Options Activity (Details) - $ / shares	3 Months Ended		6 Months Ended
	Jul. 31, 2016	Jul. 31, 2015	Jul. 31, 2016	Jul. 31, 2015
Balance, stock options (in shares)			950,000
Balance, stock options, weighted-average exercise price (in dollars per share)			$ 0.96
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	0	350,000	0	350,000
Options granted, weighted-average exercise price (in dollars per share)			$ 0
Options canceled or expired (in shares)			(246,192)
Options canceled or expired, weighted-average exercise price (in dollars per share)			$ 1.06
Options exercise (in shares)			0
Options exercise, weighted-average exercise price (in dollars per share)			$ 0
Balance, stock options (in shares)	703,808		703,808
Balance, stock options, weighted-average exercise price (in dollars per share)	$ 0.51		$ 0.51
Stock Options Exercisable (in shares)	663,808		663,808
Stock Options Exercisable, weighted-average exercise price (in dollars per share)	$ 0.48		$ 0.48

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Note 4 - Stock Awards Outstanding (Details)	6 Months Ended
	Jul. 31, 2016 $ / shares shares
Range 1 [Member]
Range of Exercise/Grant Prices (in dollars per share)	$ 0.14
Range of Exercise/Grant Prices (in dollars per share)	$ 0.16
Number Outstanding (in shares) | shares	203,808
Weighted-Ave. Remaining Contractual Life	8 years 321 days
Weighted-Ave. Exercise/Grant Price (in dollars per share)	$ 0.15
Number Exercisable (in shares) | shares	203,808
Weighted-Ave. Exercise Price (in dollars per share)	$ 0.15
Range 2 [Member]
Number Outstanding (in shares) | shares	385,000
Weighted-Ave. Remaining Contractual Life	6 years 3 days
Weighted-Ave. Exercise/Grant Price (in dollars per share)	$ 0.40
Number Exercisable (in shares) | shares	385,000
Weighted-Ave. Exercise Price (in dollars per share)	$ 0.40
Range 3 [Member]
Number Outstanding (in shares) | shares	100,000
Weighted-Ave. Remaining Contractual Life	2 years 102 days
Weighted-Ave. Exercise/Grant Price (in dollars per share)	$ 1.09
Number Exercisable (in shares) | shares	60,000
Weighted-Ave. Exercise Price (in dollars per share)	$ 1.09
Range 4 [Member]
Number Outstanding (in shares) | shares	15,000
Weighted-Ave. Remaining Contractual Life	1 year 211 days
Weighted-Ave. Exercise/Grant Price (in dollars per share)	$ 4.53
Number Exercisable (in shares) | shares	15,000
Weighted-Ave. Exercise Price (in dollars per share)	$ 4.53
Number Outstanding (in shares) | shares	703,808
Weighted-Ave. Exercise/Grant Price (in dollars per share)	$ 0.51
Number Exercisable (in shares) | shares	663,808
Weighted-Ave. Exercise Price (in dollars per share)	$ 0.48

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Note 5 - Net Income (Loss) Per Share (Details Textual) - shares	3 Months Ended		6 Months Ended
	Jul. 31, 2016	Jul. 31, 2015	Jul. 31, 2016	Jul. 31, 2015
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	3,007,226	785,870	2,948,613	3,044,475

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Note 5 - Summary of Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 31, 2016	Jul. 31, 2015	Jul. 31, 2016	Jul. 31, 2015
Net income (loss)	$ 128	$ (265)	$ 1,452	$ (576)
Basic net income (loss) per share:
Weighted-average shares outstanding-Basic (in shares)	14,644	14,644	14,644	14,659
Basic net income (loss) per share (in dollars per share)	$ 0.01	$ (0.02)	$ 0.10	$ (0.04)
Diluted net (loss) income per share:
Weighted-average shares outstanding-Basic (in shares)	14,644	14,644	14,644	14,659
Effect of potentially dilutive securities (in shares)
Weighted average shares outstanding - diluted (in shares)	14,644	14,644	14,644	14,659
Diluted net income (loss) per share (in dollars per share)	$ 0.01	$ (0.02)	$ 0.10	$ (0.04)

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Note 6 - Supplier Concentrations (Details Textual) - USD ($)		1 Months Ended	3 Months Ended		6 Months Ended	12 Months Ended
	May 28, 2014	Apr. 30, 2016	Jul. 31, 2016	Apr. 30, 2016	Jul. 31, 2016	Jan. 31, 2016
Supplier Concentration Risk [Member] | Account Receivable from Suppliers [Member]
Concentration Risk, Percentage					0.00%
Supplier Concentration Risk [Member]
Concentration Risk, Percentage					100.00%	100.00%
Pillsbury Winthrop Shaw Pittman L L P [Member]
Gain (Loss) Related to Litigation Settlement	$ 0
Lump Sum Legal Fee	1,500,000
Accrued Professional Fees	$ 400,000
Interest Rate for Outstanding Legal Fees Payable Solely with Settlement	20.00%
Zheng Ge Electrical Company Ltd [Member]
Accounts Receivable, Write-offs			$ 100,000
Accounts Payable, Write-offs			600,000
Pillsbury Winthrop Shaw Pittman L L P [Member] | Litigation Reserve [Member]
Liabilities, Current		$ 100,000	100,000	$ 100,000	$ 100,000
Pillsbury Winthrop Shaw Pittman L L P [Member]
Payments for Legal Settlements		$ 400,000		$ 400,000
Liabilities, Current			$ 452,000		$ 452,000	$ 1,570,000

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Note 6 - Supplier Concentration Risk Accounts Payable (Details) - USD ($)	6 Months Ended	12 Months Ended
	Jul. 31, 2016	Jan. 31, 2016
Supplier Concentration Risk [Member] | Accounts Payable [Member] | Pillsbury Winthrop Shaw Pittman L L P [Member]
Accounts payable	$ 62,000	$ 432,000
Concentration Risk, Percentage	49.00%	49.00%
Supplier Concentration Risk [Member] | Accounts Payable [Member]
Accounts payable	$ 62,000	$ 432,000
Concentration Risk, Percentage	49.00%	49.00%
Supplier Concentration Risk [Member]
Accounts payable	$ 127,000	$ 883,000
Concentration Risk, Percentage	100.00%	100.00%
Accounts payable	$ 127,000	$ 883,000

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Note 7 - Accrued Liabilities (Details Textual) $ in Millions	3 Months Ended
	Jul. 31, 2016 USD ($)
Zheng Ge Electrical Company Ltd [Member]
Uninvoiced Materials and Services Received, Write-offs	$ 0.3

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Note 7 - Accrued Liabilities (Details) - USD ($)	Jul. 31, 2016	Jan. 31, 2016
Uninvoiced materials and services received	$ 7,000	$ 331,000
Accrued legal and professional fees	71,000	169,000
Accrued payroll and related expenses	36,000	33,000
Consulting	65,000	16,000
Other	146,000	138,000
	$ 325,000	$ 687,000

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Note 8 - Commitments and Contingencies (Details Textual)	Jul. 31, 2016 USD ($)
Deferred Compensation Liability, Current and Noncurrent	$ 0

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Note 9 - Legal Settlement (Details Textual) $ in Millions						1 Months Ended	3 Months Ended
	May 30, 2014 USD ($)	May 16, 2014 USD ($)	May 15, 2014 USD ($)	Feb. 04, 2014 USD ($)	Apr. 26, 2011 USD ($)	May 31, 2014 USD ($)	Jul. 31, 2014 USD ($)	Apr. 16, 2013 USD ($)	Feb. 29, 2012	Sep. 01, 2011	May 13, 2011 USD ($)
Additional Damages Sought [Member]
Gain Contingency, Unrecorded Amount								$ 15.0
Gross Amount [Member] | Chicony Power Technology Company Ltd [Member]
Litigation Settlement, Amount				$ 10.8
Chicony Power Technology Company Ltd [Member]
Litigation Settlement, Amount			$ 7.6	9.7		$ 7.6
Previously Accrued Seeking Payments				$ 1.1			$ 1.1
Proceeds from Legal Settlements	$ 3.6	$ 4.0
Gain (Loss) Related to Litigation Settlement							$ 7.6
Number of Units Under Indemnity Agreement			500,000
Loss Contingency, Damages Sought, Value					$ 1.2
Loss Contingency Amount Claimed for Recovery of Damages											$ 4.9
Number of Patents Relating to Power Technology										5
Number of Comarco Patents									5