Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended April 30, 2000 Commission File Number 0-5449
COMARCO, Inc.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2088894
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2 Cromwell, Irvine, California 92618
- ------------------------------ -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (714) 599-7400
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 31, 2000.
Common Stock,
$.10 Par Value 4,376,487 Shares
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Index to Form 10-Q
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
April 30, 2000 and January 31, 2000 1
Condensed Consolidated Statements of Income
Quarters Ended April 30, 2000 and April 30, 1999 2
Condensed Consolidated Statements of Cash Flows
Quarters Ended April 30, 2000 and April 30, 1999 3
Condensed Consolidated Statements of Comprehensive Income
Quarters Ended April 30, 2000 and April 30, 1999 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II. THER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMARCO, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
April 30, 2000 January 31, 2000
ASSETS (Unaudited) (Audited)
- ------
Current assets:
Cash and cash equivalents $ 5,738,000 $ 5,064,000
Short-term investments 3,329,000 3,721,000
Accounts receivable, net 9,276,000 6,695,000
Inventory 5,270,000 4,852,000
Deferred tax asset 2,908,000 2,908,000
Net assets available for sale 5,717,000 9,361,000
Other current assets 3,321,000 2,651,000
----------------- ----------------
Total current assets 35,559,000 35,252,000
Property and equipment, net 3,276,000 2,763,000
Software development costs, net 6,329,000 5,839,000
Intangible assets, net 2,144,000 2,222,000
Other assets 777,000 72,000
----------------- ----------------
TOTAL ASSETS $ 48,085,000 $ 46,148,000
================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 797,000 $ 666,000
Deferred revenue 2,765,000 3,077,000
Accrued liabilities 8,511,000 8,052,000
----------------- ----------------
Total current liabilities 12,073,000 11,795,000
Deferred income taxes 2,599,000 2,599,000
Minority interest 114,000 -
Stockholders' equity:
Common stock, $.10 par value,
33,750,000 shares authorized,
4,366,387 and 4,340,362 shares
outstanding at April 30, 2000 and
January 31, 2000, respectively 437,000 434,000
Paid-in capital 5,244,000 4,692,000
Accumulated other comprehensive income:
Unrealized investment gains 3,000 3,000
Retained earnings 27,615,000 26,625,000
----------------- ----------------
Total stockholders' equity 33,299,000 31,754,000
----------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 48,085,000 $ 46,148,000
================= ================
See accompanying notes to the condensed consolidated financial statements.
COMARCO, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
-------------------------------------------
(Unaudited)
Quarters Ended
---------------
April 30, 2000 April 30, 1999
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Revenues:
Product sales $ 7,332,000 $ 6,661,000
Services 2,765,000 1,181,000
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10,097,000 7,842,000
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Cost of sales:
Product sales 3,134,000 3,166,000
Services 1,674,000 815,000
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4,808,000 3,981,000
--------- ---------
Gross profit 5,289,000 3,861,000
Selling, general and administrative costs 2,881,000 2,103,000
Engineering and support costs 1,109,000 879,000
--------- -------
Operating income 1,299,000 879,000
Net interest income 64,000 80,000
Minority interest in earnings (1) -
------------- --------
Income before income taxes 1,362,000 959,000
Income tax expense 497,000 350,000
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Net income from continuing operations 865,000 609,000
Net income from discontinued operations 198,000 350,000
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Net income $ 1,063,000 $ 959,000
============== ================
Earnings per share - continuing operations:
Basic $ .20 $ .14
============== ================
Diluted $ .18 $ .12
============== ================
Earnings per share - discontinued operations:
Basic $ .04 $ .08
============== ================
Diluted $ .04 $ .08
============== ================
Earnings per share:
Basic $ .24 $ .22
============== ================
Diluted $ .22 $ .20
============== ================
See accompanying notes to the condensed consolidated financial statements.
COMARCO, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
(Unaudited)
Quarters Ended
April 30, 2000 April 30, 1999
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Cash flows from operating activities:
Net income from continuing operations $ 865,000 $ 609,000
Adjustments to reconcile net income from continuing
operations to net cash provided (used) by operating activities:
Depreciation and amortization 976,000 814,000
Provision for doubtful accounts receivable 6,000 6,000
Changes in operating assets and liabilities:
Decreases in investments 381,000 98,000
Decrease (increase) in accounts receivable (2,587,000) 4,056,000
Increase in inventory (418,000) (474,000)
Decrease (increase) in other current assets 30,000 (50,000)
Decrease (increase) in other assets (5,000) 12,000
Increase in current liabilities 278,000 228,000
----------------- ----------------
Net cash provided (used) by operating activities (474,000) 5,299,000
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Cash flows from investing activities:
Proceeds from sales of investments 11,000 233,000
Purchases of property and equipment (804,000) (162,000)
Software development costs (1,097,000) (818,000)
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Net cash used in investing activities (1,890,000) (747,000)
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Cash flows from financing activities:
Proceeds from issuance of common stock 596,000 31,000
Purchase of common stock - (549,000)
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Net cash provided (used) by financing activities 596,000 (518,000)
----------------- ----------------
Net increase (decrease) in cash and cash equivalents -
continuing operations (1,768,000) 4,034,000
Net increase in cash and cash equivalents -
discontinued operations 2,442,000 657,000
----------------- ----------------
Net increase in cash and cash equivalents 674,000 4,691,000
Cash and cash equivalents, beginning of period 5,064,000 3,220,000
----------------- ----------------
Cash and cash equivalents, end of period $ 5,738,000 $ 7,911,000
================= ================
Supplemental disclosures of cash flow information
Cash paid during the quarter for:
Interest $ - $ -
Income taxes 2,000 271,000
See accompanying notes to the condensed consolidated financial statements.
COMARCO, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
---------------------------------------------------------
(Unaudited)
Quarters Ended
April 30, 2000 April 30, 1999
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Net income $ 1,063,000 $ 959,000
Other comprehensive income:
Unrealized holding gains on investments,
net of tax - -
-------------- ---------------
Comprehensive income $ 1,063,000 $ 959,000
============== ================
See accompanying notes to the condensed consolidated financial statements.
COMARCO, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
April 30, 2000, January 31, 2000, and April 30,1999
(Unaudited)
1. General
The accompanying interim financial statements have been prepared by the
Company's management in accordance with generally accepted accounting
principles and in conjunction with the rules and regulations of the
Securities and Exchange Commission ("SEC"). Certain information and
footnote disclosures required for annual financial statements have been
condensed or excluded pursuant to SEC rules and regulations. Accordingly,
the interim financial statements do not include all of the information
and footnotes required by generally accepted accounting principles in the
United States of America for complete financial statements. In the
opinion of management, the interim financial statements presented herein
reflect all adjustments of a normal and recurring nature which are
considered necessary for a fair presentation of the results for the
interim periods presented. The results of operations for the interim
period are not necessarily indicative of the results that may be expected
for the year ended January 31, 2001. These financial statements should be
read in conjunction with the audited consolidated financial statements
and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended January 31, 2000.
2. Discontinued Operations
In July 1999, the Company announced that it was embarking on a plan to
strengthen the Company's focus on the wireless communications products
and services business area. This plan, which was formalized at the end of
the quarter ended October 31, 1999, involves selling the Company's
information technology and staffing services product lines. Therefore,
this segment is presented as discontinued operations and prior periods
have been restated. The Company has engaged an investment banking firm to
market and sell the discontinued segment. As of June 13, 2000, the
Company has closed three out of six currently planned divestiture
transactions, including the sale of the Company's commercial staffing
business. The aggregate consideration received to date is $3.5 million,
which includes $2.1 in cash and a two-year promissory note of $1.4
million. The Company has signed an agreement for the sale of the airport
management business and is negotiating agreements with buyers for all of
the remaining discontinued businesses. The Company cannot determine the
amount of gain that may result from the sale, however it does not expect
to realize a loss on the sale. At the conclusion of the divestiture
process, the Company will consist of the parent company, Comarco Wireless
Technologies, Inc., and its wholly-owned subsidiary, Comarco Wireless
International, Inc. The Company operates in one business segment,
wireless communication products and services. Revenues from the
discontinued segment were $11.0 million and $13.3 million for the
quarters ended April 30, 2000 and 1999, respectively. Operating income of
the discontinued segment was $353,000 and $587,000 for the quarters ended
April 30, 2000 and 1999, respectively.
3. Significant Accounting Policies - Per Share Information
The Company computes basic and diluted net income per share based on the
weighted-average number of shares of common stock and potential common
stock outstanding during the period. Potential common stock, for purposes
of determining diluted earnings per share, includes the effects of
dilutive stock options. The effect of such potential common stock is
computed using the treasury stock method. Comparative earnings per share
data have been restated for prior periods. Consolidated net income of the
Company used for diluted earnings per share purposes is diluted as a
result of stock options issued by the
Company's subsidiaries which enable their holders to obtain the
subsidiaries' common stock. Basic and diluted net income per share are
calculated as follows:
Quarters Ended
April 30, 2000 April 30, 1999
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Basic:
Net income from continuing operations $ 865,000 $ 609,000
Weighted average shares outstanding 4,352,000 4,456,000
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Basic income per share from continuing operations $ .20 $ .14
============ =============
Net income from discontinued operations $ 198,000 $ 350,000
Weighted average shares outstanding 4,352,000 4,456,000
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Basic income per share from discontinued operations $ .04 $ .08
========== ==========
Net income $ 1,063,000 $ 959,000
Weighted average shares outstanding 4,352,000 4,456,000
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Basic income per share $ .24 $ .22
========== ==========
Diluted:
Net income from continuing operations $ 865,000 $ 609,000
Less - net income allocated to subsidiary
dilutive stock options outstanding (50,000) (44,000)
------------ -------------
Net income used in calculation of diluted
income per share from continuing operations $ 815,000 $ 565,000
============ ==============
Weighted average shares outstanding 4,352,000 4,456,000
Plus - common equivalent shares (determined
using the "treasury stock" method) representing
shares issuable upon exercise of stock options 249,000 208,000
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Weighted average number of shares used in
calculation of diluted income per share from
continuing operations 4,601,000 4,664,000
========= ==============
Diluted income per share from continuing
operations $ .18 $ .12
========== ===========
Net income from discontinued operations $ 198,000 $ 350,000
Less - net income allocated to subsidiary
dilutive stock options outstanding - -
------------ ----------
Net income used in calculation of diluted
income per share from discontinued operations $ 198,000 $ 350,000
============ ==============
Weighted average shares outstanding 4,352,000 4,456,000
Plus - common equivalent shares (determined
using the "treasury stock" method) representing
shares issuable upon exercise of stock options 249,000 208,000
------- -------
Weighted average number of shares used in
calculation of diluted income per share from
discontinued operations 4,601,000 4,664,000
========= ==============
Diluted income per share from discontinued
operations $ .04 $ .08
========== ==========
Net income $ 1,063,000 $ 959,000
Less - net income allocated to subsidiary
dilutive stock options outstanding (50,000) (44,000)
------------ -------------
Net income used in calculation of diluted
income per share $ 1,013,000 $ 915,000
============ =============
Weighted average shares outstanding 4,352,000 4,456,000
Plus - common equivalent shares (determined
using the "treasury stock" method) representing
shares issuable upon exercise of stock options 249,000 208,000
------- -------
Weighted average number of shares used in
calculation of diluted income per share 4,601,000 4,664,000
========= =========
Diluted income per share $ .22 $ .20
========== ==========
4. Commitments and Contingencies
The Company is subject to legal proceedings and claims that arise in the
ordinary course of business. In the opinion of management and the
Company's legal counsel, the amount of ultimate liability with respect to
these actions will not materially affect the financial condition of the
Company.
The Company is experiencing a greater percentage of its discontinued
operations' information technology and staffing services revenue from
fixed-price and fixed labor rate contracts versus cost-reimbursable
contracts. Fixed-price and fixed labor-rate contracts shift more of the
performance risk to the Company. Therefore, if the Company's assumptions
or performance do not meet expectations, operating results could be
negatively impacted.
5. Reclassifications
Certain prior year amounts have been reclassified to conform to the
current period's presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
A. FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Except for the historical information contained herein, the
matters discussed in this Form 10-Q are forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended, and Section 27A of the Securities Act of
1933, as amended, that involve risks and uncertainties. The actual
results that the Company achieves may differ materially from any
forward-looking projections due to such risks and uncertainties.
Factors which could cause a material difference in results
include, but are not limited to, the following: regional and
national economic conditions; changes in interest rates; changes
in government spending polices and/or decisions concerning
specific programs; individual business decisions of customers and
business partners; developments in technology; new and expanding
product lines; competition for employee resources; competitive
factors and pricing pressures; the Company's ability to achieve
the objectives of its business plans, including the disposal of
its discontinued businesses; and changes in government laws or
regulations. Words such as "believes," "anticipates," "expects,"
"future," "intends," and similar expressions are intended to
identify forward-looking statements but are not the exclusive
means of identifying such statements. A more complete discussion
of business risks is included in the Company's Annual Report on
Form 10-K for the year ended January 31, 2000.
The Company has experienced, in each of the past six years, a
seasonal fluctuation in wireless communications products activity,
with greater sales in the latter half of its fiscal year and
lesser amounts in the first half, although this trend has been
declining over the same six years. This fluctuation may or may not
continue due to a number of factors, including: the timing,
cancellation, or delay of customer orders; the timing of new
product introductions by the Company or its competitors; the
deployment schedule of wireless network operators in both North
American and international markets, which can be delayed by both
economic and political issues; the size of customers' capital
budgets, which are the traditional source of customer funding for
the purchase of the Company's products; market acceptance of the
Company and its customers' products; variations in manufacturing
capacities, efficiencies and costs; the availability and cost of
parts exacerbated by the very tight market for electrical and
semiconductor components; capacity and production constraints
associated with single source component suppliers; and other
competitive factors. Historically, the Company has often
recognized a substantial portion of its revenues in the last month
of any given quarter. Because the Company's operating expenses are
based on anticipated revenue levels and because a high percentage
of the Company's expenses are relatively fixed, a small variation
in the timing of the recognition of revenues could cause
significant variations in operating results from quarter to
quarter. The nature of the wireless communications products
business is inherently unpredictable; sales and profits may
fluctuate significantly from quarter to quarter; and therefore,
period-to-period comparisons of its operating results are not
necessarily meaningful and such comparisons cannot be relied upon
as indicators of future performance.
The Company's future product prospects will depend in part on its
ability to enhance the functionality of its existing products in a
timely and cost-effective manner; to identify, develop, and
achieve market acceptance of new products; the availability and
cost of parts exacerbated by the very tight market for electrical
and semiconductor components; and the capacity and production
constraints associated with single source component suppliers.
There can be no assurance that the Company will be able to respond
to technological advances, changes in customer requirements, or
changes in regulatory requirements or industry standards, and any
significant delays in development, introduction or shipment of
products, or achievement of acceptable product costs, could have a
material adverse effect on the Company's business, operating
results and financial condition.
The Company faces additional risk factors in developing its
wireless communications products business, including: foreign
marketing, capital requirements, technical requirements,
employees, competition, and proprietary information. A negative
impact to any of these risk factors could have a material adverse
effect on the Company's business, operating results, and financial
condition. Foreign marketing risks include: the need for export
licenses; tariffs and other potential trade restrictions; changes
in laws governing the imposition of duties, quotas, taxes, or
other charges relating to the import or export of its products;
and changes in foreign currency exchange rates which can impact
customers' demand for the Company's products and their ability to
pay for the Company's products. Other companies having a presence
or doing business overseas may have advantages over the Company in
these areas. Certain components used by the Company in its
existing products are only available from single or a limited
number of suppliers, and the inability by any of these suppliers
to fulfill Company requirements may result in an interruption in
production. Access to the technical design of air interface
devices is essential for the Company to anticipate and develop
compatible wireless communications products, therefore, the
inability to obtain such technical designs on a timely basis would
have a direct impact on product design and schedule. The Company's
future success also depends in large part on the continued service
of its key personnel, and on its ability to continue to attract
and retain qualified employees, especially highly skilled
engineers, for whom competition in the industry is intense. In
addition, the ability of the Company to compete successfully
depends upon a number of factors, including the rate at which
customers accept the Company's products in overseas markets,
product quality and performance, experienced sales and marketing
personnel, rapid development of new products and features,
evolving industry standards, and the number and nature of the
Company's competitors. There can be no assurance that the Company
will be able to compete successfully in the future. The Company
relies on a combination of patents, trade secrets, copyrights, and
contractual rights to protect its intellectual property. There can
be no assurance that the steps taken by the Company will be
adequate to protect its technology; in addition, the laws of
certain foreign countries in which the Company's products may be
sold do not protect the Company's intellectual property rights to
the same extent as do the laws of the United States.
B. RESULTS OF OPERATIONS
In July 1999, the Company announced that it was embarking on a
plan to strengthen the Company's focus on the wireless
communications products and services business area. This plan,
which was formalized at the end of the quarter ended October 31,
1999, involves selling the Company's information technology and
staffing services product lines. Therefore, this segment is
presented as discontinued operations and prior periods have been
restated. The Company has engaged an investment banking firm to
market and sell the discontinued segment. As of June 13, 2000, the
Company has closed three out of six currently planned divestiture
transactions, including the sale of the Company's commercial
staffing business. The aggregate consideration received to date is
$3.5 million, which includes $2.1 million in cash and a two-year
promissory note of $1.4 million. The Company has signed an
agreement for the sale of the airport management business and is
negotiating agreements with buyers for all of the remaining
discontinued businesses. The Company cannot determine the amount
of gain that may result from the sale, however, it does not expect
to realize a loss on the sale. At the conclusion of the
divestiture process, the Company will consist of the parent
company, Comarco Wireless Technologies, Inc., and its wholly-owned
subsidiary, Comarco Wireless International, Inc. The Company is
operating in one business segment, wireless communication products
and services.
Results of Continuing Operations
During the first quarter of Fiscal Year 2001 (year ending January
31, 2001), the Company recorded revenues from continuing
operations of $10.1 million, up 29% from the revenues of $7.8
million for the comparable period of a year earlier. Increased
quarter-to-quarter revenue is primarily due to mobile information
services, which began in the fourth quarter of Fiscal Year 2000;
an increase in the sale of wireless test and measurement products
to major cellular carriers; and increased sales of the Company's
wireless callboxes, partially offset by reduced revenues from its
mobile power products as the Company transitions to its second
generation product, a 70-watt universal power adapter. The Company
has also begun a major product transition to the new X-series test
and measurement platform. The first of the X-series family was
released in March 2000. The X-50 platform will support all
multiple access technologies: CDMA, IS-136, GSM, and iDEN. The
Company expects the level of sales activity for its wireless
callboxes will continue to be at historical levels for the
remaining quarters of Fiscal Year 2001, while services revenues
will increase significantly with the full rollout of its mobile
information services.
The Company's orders for wireless communications products totalled
$17.0 million for the first quarter of Fiscal Year 2001, up from
$8.5 million from the comparable prior period. For the
twelve-month periods ended April 30, 2000 and 1999, orders
received were $51.8 million and $36.8 million, respectively.
Because of the long sales cycle involved in selling the Company's
wireless products and services and the high contract value of each
order, the Company believes that orders are best analyzed by
looking at a twelve-month time period, as orders can fluctuate
significantly from quarter to quarter. The value of unfilled
orders including deferred revenue for outstanding post-contract
support and extended warranty obligations at April 30, 2000
totalled $28.1 million. This balance consisted of $7.6 million of
product and service revenues, $17.7 million of long-term wireless
application callbox maintenance contracts, and $2.8 million of
deferred revenue for outstanding post-contract support and
extended warranty obligations.
The Company expects a rapid proliferation of portable and
stationary computing and communication systems and appliances that
are connected by wireless communication networks to the public
internet, private intranet, private local area networks, servers,
and other terminal devices. The Company provides products and
services for these markets and with its core technologies
consisting of wireless network design, wireless appliance
interfaces and wireless design technologies, plans to provide
additional products and services to end-users and network
operators. Based on this current strategy, the Company forecasts
that a growing percentage of its revenues and profit may come from
services in the future.
Gross profit from continuing operations increased to $5.3 million
in the first quarter of Fiscal Year 2001, up 36% from $3.9 million
for the comparable period of the prior fiscal year. Gross profit
percentage of revenue was 52% in the first quarter of Fiscal Year
2001 compared with 50% for the comparable period of the prior
fiscal year. The increase is due to increased sales of higher
margin wireless test and measurement products and services.
Indirect costs were $4.0 million in the first quarter of Fiscal
Year 2001, up from $3.0 million for the comparable period of the
prior fiscal year. The Company has experienced increases in
selling, general and administrative costs as well as in sustaining
engineering, research and development and support costs as a
result of executing its current plan to develop additional
products and services for the wireless marketplace. These efforts
included continuing development of the Company's second generation
portable power adapter; its RAP(TM) Central wireless revenue
assurance system and services, which is an emerging market for the
Company; and expenses to launch and grow its mobile information
services business.
The Company is continuing its software product development program
in its continuing operations' wireless communications products
business. In accordance with Financial Accounting Standard No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased,
or Otherwise Marketed, the Company capitalized $1,097,000 and
$818,000, during the first quarters of Fiscal Years 2001 and 2000,
respectively. The increase in the amount capitalized is due to the
product development efforts discussed above. Corresponding amounts
amortized in such periods were $657,000 and $568,000,
respectively. These amounts are in addition to the engineering,
research and development and support expense discussed above.
Operating income from continuing operations was $1.3 million in
the first quarter of Fiscal Year 2001, up from $.9 million for the
comparable period of the prior fiscal year. Operating income as a
percentage of revenues was 13% for the first quarter of Fiscal
Year 2001, up from 12% for the comparable period of the prior
fiscal year. This year-to-year increase in operating income is
primarily due to higher gross profit contribution from the
increased sales of wireless test and measurement products and
services, offset by increased indirect costs, as discussed above.
Net interest income (interest income less interest expense) for
the first quarter of Fiscal Year 2001 amounted to $64,000, as
compared to $80,000 for the comparable period of the prior fiscal
year. The decrease is principally due to a reduction in cash
available to invest from an average of $6.7 million in the first
quarter of Fiscal Year 2000 to an average of $5.9 million in the
first quarter of Fiscal Year 2001 (excludes investments in the
Company's deferred compensation plan for executives).
The Company's effective tax rate for the first quarter of Fiscal
Year 2001 is 36.5%, the same as the comparable period of the prior
fiscal year.
The overall increase in continuing operations' net income from the
prior year is primarily due to higher gross profit contribution
dollars as discussed above.
Results of Discontinued Operations
As previously discussed, in July 1999, the Company announced that
it was embarking on a plan to strengthen the Company's focus on
the wireless communications products and services business area.
This plan, which was formalized at the end of the quarter ended
October 31, 1999, involves selling the Company's information
technology and staffing services product lines.
Revenues provided by the Company's discontinued operations
decreased 21%, from $13.3 million in the first quarter of Fiscal
Year 2000 to $11.0 million in the first quarter of Fiscal Year
2001. The decrease in period-to-period revenue is principally due
to the sale of the Company's commercial staffing business in March
2000.
Operating income (revenues less direct costs, indirect costs, and
depreciation and amortization) for the discontinued segment is
down from $587,000 in the first quarter of Fiscal Year 2000 to
$353,000 in the first quarter of Fiscal Year 2001. This decrease
is principally due to the sale of the Company's commercial
staffing business in March 2000.
The Company is experiencing a greater percentage of its
discontinued operations' information technology and staffing
services revenue from fixed-price and fixed labor rate contracts
versus cost-reimbursable contracts. Fixed-price and fixed
labor-rate contracts shift more of the performance risk to the
Company. Therefore, if the Company's assumptions or performance do
not meet expectations, operating results could be negatively
impacted.
C. FINANCIAL CONDITION
The Company signed a loan agreement with a bank effective
September 26, 1994, which was last amended effective August 21,
1998. The loan agreement consists of a $10 million revolving
credit facility, which expires June 30, 2000. The Company expects
to renew the loan agreement under similar terms and conditions.
The revolving credit facility is unsecured provided that the
Company maintains certain covenants. Currently, management
anticipates that cash flow will remain at a level which will
enable the Company to avoid utilizing the credit facility except
to support letters of credit and acquisition financing, and that
the Company will be able to purchase investments on a regular
basis. The Company's cash and investment balances averaged $5.9
million (includes highly liquid long-term investments with
maturities of 12 to 36 months and excludes investments in the
Company's deferred compensation plan for executives) during the
first quarter of Fiscal Year 2001. However, maintaining such cash
balances is predicated on the Company maintaining its business
base and is subject to the cost of financing new contracts,
acquisitions, geographic expansion, product development costs, and
stock re-purchases. As previously discussed, in July 1999, the
Company announced that it was embarking on a plan to strengthen
the Company's focus on the wireless communications products and
services business area. This plan, which was formalized at the end
of the quarter ended October 31, 1999, involves selling the
Company's information technology and staffing services product
lines.
During the first quarter of Fiscal Year 2001, the Company's
average days' sales in accounts receivable increased, primarily
due to the timing of several significant sales at the end of the
quarter.
Several additional key factors indicating the Company's financial
condition include:
April 30, 2000 January 31, 2000
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Current ratio 2.95 2.99
Working capital $ 23,486,000 $ 23,457,000
Book value per share $7.63 $7.32
The Company continued to demonstrate solid financial strength in
the above financial factors during the first quarter of Fiscal
Year 2001 due to continued profitable activity.
During the first quarter of Fiscal Year 2001, the Company had
($.5) million of cash flows from operating activities, as compared
to $5.3 million in the prior year's first quarter. This decrease
is primarily due to the increase in accounts receivable from the
timing of significant sales in the quarter, as discussed above.
The Company has a significant commitment for capital expenditures
at April 30, 2000 for Comarco Wireless Technologies, Inc. The
Company has developed and intends to continue to develop numerous
new product line extensions for the wireless communications
industry. This software product development program is expected to
be funded from the Company's current working capital and future
cash flows. The amounts capitalized in the Company's wireless
communications products business in accordance with Financial
Accounting Standard No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed, totaled
$1,097,000 and $818,000, respectively, in the first quarters of
Fiscal Year 2001 and 2000. Corresponding amounts amortized in such
periods were $657,000 and $568,000, respectively.
The Company's Board of Directors has authorized a stock
re-purchase program of up to 2,000,000 shares. As of April 30,
2000, the Company has re-purchased and retired approximately
1,456,000 shares. Over the term of the program, which began in
1992, the average price paid per share re-purchased under the
program was $11.06.
The Company is subject to legal proceedings and claims that arise
in the ordinary course of business. In the opinion of management,
the amount of ultimate liability with respect to these actions
will not materially affect the financial condition of the Company
(see Note 4 of the Notes to Condensed Consolidated Financial
Statements). The Company is experiencing a greater percentage of
its discontinued operations' information technology and staffing
services revenue from fixed-price and fixed labor rate contracts
versus cost-reimbursable contracts. Fixed-price and fixed
labor-rate contracts shift more of the performance risk to the
Company. Therefore, if the Company's assumptions or performance do
not meet expectations, operating results could be negatively
impacted.
The Company believes that its cash flow from operations and
available bank borrowings will be sufficient to satisfy the
current and anticipated capital requirements for operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, including changes in
interest rates and currency exchange rates. As of April 30, 2000,
the Company had no accounts receivable denominated in foreign
currencies. The Company's standard terms require foreign customers
to pay for the Company's products with U.S. dollars. For those
orders denominated in foreign currencies, the Company may limit
its exposure to losses from foreign currency transactions by the
purchase of forward foreign exchange contracts. Such activity to
date has been insignificant.
PART II - OTHER INFORMATION
ITEM1. LEGAL PROCEEDINGS
The Company is subject to Legal proceedings and claims that arise
in the ordinary course of its business. In the opinion of
management, the amount of ultimate liability with respect to these
actions will not materially affect the Company's operating results
and financial condition. In particular, see Note 4 of the Notes to
Condensed Consolidated Financial Statements.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are included herewith:
ll. Schedule of Computation of Net Income Per Share
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMARCO, Inc.
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(Registrant)
June 14, 2000
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Thomas P. Baird
Chief Financial Officer
(Authorized Officer and Principal Financial Officer)