COMARCO (CMRO)

Business Outlook

We expect revenues on an overall basis to increase during fiscal 2009.

As previously discussed, late in the fourth quarter of fiscal 2008 we began shipping volume production of a small form factor 90-watt AC/DC external power adapter to Lenovo, a leading notebook computer OEM.

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During fiscal 2008, demand for our WTS products decreased compared to the prior fiscal year due to widespread industry consolidation, delays in purchasing decisions by customers, primarily wireless carriers, and increased competition and price pressure. Our first order for Symphony^™ Multi, our next-generation 3G and 4G wireless network optimization and QoS system developed through our alliance with Ascom, a leading Swiss company with the largest installed base of wireless QoS systems in the world, was received late in the fourth quarter. This order from AT&T, valued at $10.1 million, is expected to be delivered during the first half of fiscal 2009. We believe our partnership with Ascom may open sales channels in Europe for our harmonized technology, including our integrated scanners.

During fiscal 2009, our Call Box business is expected to substantially complete the digital TTY upgrade contracts awarded in the prior fiscal years. As a significant portion of the installed base was upgraded during fiscal 2008 and 2007, we expect call box revenue for fiscal 2009 to decrease compared to fiscal 2008.

Discontinued Operations

On January 6, 2004, we sold the net assets of our reporting unit EDX. This reporting unit was formerly included in the wireless test solutions segment, and has been classified as discontinued operations.

Additionally, during fiscal 2001, we sold our defense and commercial staffing businesses, the non-wireless businesses. Adjustments made to the estimated exit costs of these businesses are recorded as discontinued operations.

In fiscal 2006, we recorded expense of $45,000, primarily related to workers compensation expenses related to the staffing business. As of January 31, 2006, all estimated exit costs of the sale of both EDX and the non-wireless businesses have been utilized.

Business Outlook

The Company’s outlook for fiscal 2008 remains unchanged. Fiscal 2008 is expected to be a year of transition. The Company will continue to transition the retail distribution of its ChargeSource products to multiple distribution partners under non-exclusive distribution agreements. Shipments to Kensington under a recently executed non-exclusive distribution agreement are expected to commence during the second half of fiscal 2008. The Company is currently negotiating additional non-exclusive retail channel arrangements with other distributors and brands. Also, the Company is currently developing two products specifically for a leading OEM of notebook computers to be branded and marketed by the OEM as an option in conjunction with the sale of notebook computers. If successful, the Company expects to go into volume production during the second half of fiscal 2008.

The Company’s ChargeSource business is also responding to interest from the leading OEMs for a small form factor power adapter to be sold “in-the-box” with notebook computers. It is difficult to predict the timing and amount of any revenue attributable to this “in-the-box” initiative. However, the Company is in negotiations with tier-one electronics contract manufacturers to enable the Company to execute on these highly price-competitive high volume opportunities.

During fiscal 2007, demand for the Company’s WTS products decreased compared to the prior fiscal year driven by widespread industry consolidation, delays in purchasing decisions by customers, primarily wireless carriers, and increased competition and price pressure. It is difficult to predict when these negative trends will abate or improve. While it may take several quarters for market demand to recover, the Company continues to develop the next-generation 3G and 4G wireless network optimization and Quality of Service (“QoS”) systems through an alliance with Ascom AG, a leading Swiss company with the largest installed base of wireless QoS systems in the world. These new products are expected to be available for sale during the second half of fiscal 2008. Currently, WTS revenue for fiscal 2008 is expected to be less than WTS revenue for fiscal 2007.

During fiscal 2008, the Company’s call box business is expected to substantially complete the digital and text-telephony (“TTY”) upgrade contracts awarded in the prior fiscal years. As a significant portion of the installed base was upgraded during fiscal 2007, the Company expects call box revenue for fiscal 2008 to decrease compared to fiscal 2007. During fiscal 2007, the amount and timing of call box upgrade revenue was impacted by customer delays. Upgrade contracts expected to be completed during fiscal 2008 could also be subject to customer delays.

Business Outlook

Fiscal 2008 is expected to be a year of transition. The Company will continue to transition the retail distribution of its ChargeSource products to multiple distribution partners under non-exclusive distribution agreements. Shipments to Kensington under a recently executed non-exclusive distribution agreement are expected to commence during the second half of fiscal 2008. The Company is currently negotiating additional non-exclusive retail channel arrangements with other distributors and brands. Also, the Company is currently developing two products specifically for a leading OEM of notebook computers to be branded and marketed by the OEM as an option in conjunction with the sale of notebook computers. If successful, the Company expects to go into volume production during the second half of fiscal 2008.

The Company’s ChargeSource business is also responding to interest from the leading OEMs for a small form factor power adapter to be sold “in-the-box” with notebook computers. It is difficult to predict the timing and amount of any revenue attributable to this “in-the-box” initiative. However, the Company is in negotiations with tier-one electronics contract manufacturers to enable the Company to execute on these highly price-competitive high volume opportunities.

During fiscal 2007, demand for the Company’s WTS products decreased compared to the prior fiscal year driven by widespread industry consolidation, delays in purchasing decisions by customers, primarily wireless carriers, and increased competition and price pressure. It is difficult to predict when these negative trends will abate or improve. While it may take several quarters for market demand to recover, the Company continues to develop the next-generation 3G and 4G wireless network optimization and Quality of Service (“QoS”) systems through an alliance with Ascom AG, a leading Swiss company with the largest installed base of wireless QoS systems in the world. These new products are expected to be available for sale during the second half of fiscal 2008. Currently, WTS revenue for fiscal 2008 is expected to be less than WTS revenue for fiscal 2007.

Business Outlook

Fiscal 2008 is expected to be a year of transition. We currently expect to continue to transition the retail distribution of our ChargeSource products to multiple distribution partners under non-exclusive distribution agreements. Shipments to Kensington under a recently executed non-exclusive distribution agreement are expected to commence during the second half of fiscal 2008. Additionally, fiscal 2008 revenue from sales to Kensington are expected to be significantly less than achieved during fiscal 2007.

We are currently developing two ChargeSource products specifically for a leading OEM of notebook computers to be branded and marketed by the OEM in conjunction with the sale of notebook computers. If

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successful, we expect to go into volume production during the second half of fiscal 2008. Our ChargeSource business is also responding to interest from the leading OEMs for small form factor power adapters to be sold “in-the-box” with notebook computers. It is difficult to predict the timing and amount of any revenue attributable to this “in-the-box” initiative. However, we are in negotiations with tier-one electronics contract manufactures to enable us to execute on these highly price-competitive high volume opportunities.

During fiscal 2007, demand for our WTS products decreased compared to the prior fiscal year due to widespread industry consolidation, delays in purchasing decisions by customers, primarily wireless carriers, and increased competition and price pressure. It is difficult to predict when these negative trends will abate or improve. While it may take several quarters for market demand to recover, we continue to develop the next-generation 3G and 4G wireless network optimization and QoS systems through our alliance with Ascom AG, a leading Swiss company with the largest installed base of wireless QoS systems in the world. These new products are expected to be available for sale during the second half of fiscal 2008. We currently expect WTS revenue for fiscal 2008 to be less than WTS revenue for fiscal 2007.

During fiscal 2008, our call box business is expected to substantially complete the digital and TTY upgrade contracts awarded in the prior fiscal years. As a significant portion of the installed base was upgraded during fiscal 2007, we expect call box revenue for fiscal 2008 to decrease compared to fiscal 2007. During fiscal 2007, the amount and timing of call upgrade revenue was impacted by customer delays. Upgrade contracts expected to be completed during fiscal 2008 could also be subject to customer delays.

Discontinued Operations

On January 6, 2004, we sold the net assets of our reporting unit EDX. This reporting unit was formerly included in the wireless test solutions segment, and has been classified as discontinued operations.

Income from discontinued operations was $596,000 for fiscal 2004, which includes income from operations of $258,000 on revenue of $1.1 million, plus an after-tax gain of $319,000 on the sale of EDX.

Additionally, during fiscal 2001, we sold our defense and commercial staffing businesses, the non-wireless businesses.

In fiscal 2005, we recorded income of $325,000 related primarily to the release of indemnification provisions provided by the terms of one of these sale transactions.

In fiscal 2006, we recorded expense of $45,000, primarily related to workers compensation expenses related to the staffing business. As of January 31, 2006, all estimated exit costs of the sale of both EDX and the non-wireless businesses have been utilized.

Business Outlook

The Company currently expects WTS revenue for the fourth fiscal quarter, ending January 31, 2007, to continue to be impacted by the trends and events discussed above, including soft demand for WTS products across all regions. Revenue for the fourth quarter and fiscal 2007 for the WTS business is expected to total approximately $2.8 million and $12.9 million, respectively.

The Company’s call box business continues to execute on contracts to upgrade a significant portion of the installed base to digital and TTY technologies. Revenue for the fourth quarter and fiscal 2007 for the emergency call box business is expected to total approximately $4.5 million and $16.0 million, respectively.

With respect to the ChargeSource business, the Company entered the fourth quarter of fiscal 2007 with a backlog of purchase orders from its primary distributor totaling approximately $3.3 million, which are expected to be delivered during the fourth quarter. Accordingly, the Company currently expects ChargeSource revenue for the fourth quarter and fiscal 2007 to total approximately $3.3 to $3.4 million, and $16.3 million, respectively.

Business Outlook

With respect to the Company’s WTS business, the Company continues to focus on achieving its revenue target of approximately $20 million for fiscal 2007. However, there are several factors which continue to present challenges to achieving this goal, including the relatively small number of wireless carrier and equipment vendor customers, softness in the Company’s European region and uncertainty regarding the timing and amount of anticipated orders.

The Company’s call box business entered fiscal 2007 with contracts to upgrade a significant portion of the installed base to digital and TTY technologies. During the second quarter, the Company was notified of a customer’s intention to delay the commencement of their upgrade project until the next fiscal year. Due to this delay, fiscal 2007 revenue for the emergency call box business is currently expected to total approximately $16.0 million, a $2.0 million decrease compared to prior revenue guidance.

The Company’s revenue growth expectation for its ChargeSource business remains unchanged. The Company expects to continue to gain placement in retail, OEM, and other channels through its relationship with Kensington and others. As a result, the Company continues to expect ChargeSource revenue for fiscal 2007 to grow in comparison to the prior fiscal year and total approximately $18.0 million, an expected 46 percent increase compared with fiscal 2006.

Business Outlook

On a combined basis, the Company continues to expect revenue for fiscal 2007 to increase 20% compared with $46.9 million reported for fiscal 2006. The growth in revenue should be driven by the call box and ChargeSource businesses. The Company’s wireless test solutions business derives revenue from a limited set of customers and the timing and size of customer orders can vary greatly. As a result, WTS revenue can fluctuate from quarter to quarter. Currently, the Company expects WTS revenue for fiscal 2007 to be approximately $20 million with revenues in the second half of the year higher than during the first half of the year.

Regarding ChargeSource, the Company expects to continue to gain placement in retail, OEM, and other channels through its relationship with Kensington and others. As a result, the Company expects ChargeSource revenue for fiscal 2007 to grow in comparison to the prior fiscal year and total approximately $18.0 million.

The Company’s call box business entered fiscal 2007 with contracts to upgrade a significant portion of the installed base to digital and TTY technologies. Aided by these contracts and project awards, fiscal 2007 revenue for the emergency call box business is currently expected to total approximately $18.0 million.

Business Outlook

On a combined basis, the Company expects revenue for fiscal 2007 to increase at least 20% compared with $46.9 million reported for fiscal 2006. The Company’s wireless test solutions business derives revenue from a limited set of customers and the timing and size of customer orders can vary greatly. As a result, WTS revenue can fluctuate from quarter to quarter. During fiscal 2006, a U.S.-based wireless carrier accounted for a significant portion of WTS revenue which the Company does not expect to recur to the same extent in fiscal 2007. Currently, the Company expects WTS revenue for fiscal 2007 to range between $20 million to $24 million with a stronger second half of the year. WTS revenue for the first quarter ending April 30, 2006 is expected to range between $3.5 million and $4.0 million.

Regarding ChargeSource, the Company expects to continue to gain placement in retail, OEM, and other channels through its relationship with Kensington and others and launch a range of strategic new products. As a result, the Company expects ChargeSource revenue for fiscal 2007 to grow in comparison to the prior fiscal year and range between $16.0 million and $18.0 million. ChargeSource revenue for the first quarter of fiscal 2007 is expected to range between $3.5 million and $4.0 million.

The Company’s call box business entered fiscal 2007 with contracts to upgrade a significant portion of the installed base to digital and TTY technologies. Supported by these contracts and project awards, fiscal 2007 revenue for the emergency call box business is currently expected to total approximately $16.0 to $18.0 million. During the first quarter of fiscal 2007, Comarco experienced a delay in commencing work on a significant upgrade project. This project is now expected to commence in May 2006. Call box revenue for the first quarter of fiscal 2007, therefore, is expected to range between $2.5 million and $3.0 million.

Business Outlook

Our WTS business derives revenue from a limited set of customers and the timing and size of customer orders can vary greatly. As a result, WTS revenue can fluctuate from quarter to quarter. Currently, we expect WTS revenue for fiscal 2007 to range from $20 million to $24 million with a stronger second half of the year. WTS revenue for the first quarter ended April 30, 2006 is expected to range between $3.5 million and $4.0 million.

Regarding ChargeSource, we expect to continue to gain placement in retail, OEM, and other channels through its relationship with Kensington and others and launch a range of strategic new products. As a result, we expect ChargeSource revenue for fiscal 2007 to grow in comparison to the prior fiscal year and range between $16.0 million and $18.0 million. ChargeSource revenue for the first quarter of fiscal 2007 is expected to range between $3.5 million and $4.0 million.

Our call box business enters fiscal 2007 with contracts to upgrade a significant portion of the installed base to digital and TTY technologies. Supported by these contracts and project awards, the emergency call box revenue for fiscal 2006 is currently expected to total approximately $18.0 million. During the first quarter of fiscal 2007, we experienced a delay in commencing work on a significant upgrade project. This project is now expected to commence in May 2006. Call box revenue for the first quarter of fiscal 2007 is expected to range between $2.5 million and $3.0 million.

Discontinued Operations

On January 6, 2004, we sold the net assets of our reporting unit EDX. This reporting unit was formerly included in the wireless test solutions segment, and has been classified as discontinued operations.

Income from discontinued operations was $596,000 for fiscal 2004, which includes income from operations of $258,000 on revenue of $1.1 million, plus an after-tax gain of $319,000 on the sale of EDX.

Additionally, during fiscal 2001, we sold our defense and commercial staffing businesses, the non-wireless businesses.

In fiscal 2005, we recorded income of $325,000 related primarily to the release of indemnification provisions provided by the terms of one of these sale transactions.

In fiscal 2006, we recorded expense of $45,000, primarily related to workers compensation expenses related to the staffing business. As of January 31, 2006, all estimated exit costs of the sale of both EDX and the non-wireless businesses have been utilized and we do not expect any discontinued operations in fiscal 2007.

Business Outlook

The Company’s WTS business continues to benefit from the rollout of next generation wireless technologies. The Company’s Seven.Five product platform is the leading edge technology for quality of service algorithms, industry leading scanning receivers, and powerful post processing tools designed specifically for 3G cellular networks. Based upon the fiscal third quarter results for WTS, the Company is now anticipating that full year revenue for this business will be between $23 million and $24 million. The Company’s previous full year revenue expectation was $22 million.

Regarding ChargeSource, the Company continues to expect to gain additional placements in retail, OEM, and other channels through its relationship with Kensington and others as a result of its launch of a range of strategic new products. Accordingly, ChargeSource revenue is expected to increase sequentially on a quarterly basis and range between $4 million and $5 million for the fourth quarter of fiscal 2006. The Company continues to believe that the ChargeSource business will break even at a $5 million quarterly revenue run-rate.

The Company’s call box business continues to execute on previously awarded upgrade contracts and projects. The Company now expects to commence work on two upgrade projects during the first quarter of fiscal 2007 compared with its original fourth quarter of fiscal 2006 expectation. Accordingly, the Company now anticipates call box revenue will be approximately $11 million for fiscal 2006. The Company’s previous full year revenue expectation was $12 million.

Based upon the outlook for each business unit, the Company continues to expect to achieve full year fiscal 2006 revenue of between $45 and $48 million.

Business Outlook

The Company’s WTS business continues to benefit from the rollout of next generation wireless technologies. The Company’s Seven.Five product platform is the leading edge technology for quality of service algorithms, industry leading scanning receivers, and powerful post processing tools designed specifically for 3G cellular networks. For the second half of fiscal 2006, the Company anticipates a quarterly revenue run-rate of approximately $6.0 million per quarter or approximately $22 million for the year.

Regarding ChargeSource, the Company continues to expect to gain additional placements in retail, OEM, and other channels through its relationship with Kensington and others as a result of its launch of a range of strategic new products. Accordingly, the Company reiterates its expectation that ChargeSource revenue will increase sequentially on a quarterly basis throughout the rest of the fiscal year and reach a revenue run-rate of approximately $5.0 million per quarter, or $20.0 million annually, by the end of fiscal 2006.

Supported by an increase in current upgrade contract and project awards, the Company is raising its call box revenue expectations to $12 million for fiscal 2006.

Based upon the outlook for each business unit, the Company expects to achieve full year fiscal 2006 revenue of between $45 and $48 million.

Throughout fiscal 2006, the Company expects to continue to effectively manage its balance sheet, which included approximately $1.22 per share in cash at July 31, 2005.

Business Outlook

The Company’s WTS business is benefiting from the rollout of next generation wireless technologies. The Company’s Seven.Five product platform is the leading edge technology for quality of service algorithms, scanning receivers, and powerful post processing tools designed specifically for second and third generation cellular networks. The Company continues to anticipate a quarterly run-rate of $4.0 million to $6.0 million per quarter for the remainder of fiscal 2006, or approximately $20.0 million for the year.

Regarding ChargeSource, the Company continues to expect to gain additional placements in retail, OEM, and other channels through its relationship with Kensington and others and as a result of its launch of a range of strategic new products. As a result, the Company continues to expect sequential revenue increases for ChargeSource each quarter for the remainder of fiscal 2006. By the end of the year, Comarco continues to expect ChargeSource to be on a revenue run-rate of approximately $5.0 million per quarter, or $20.0 million annually.

Supported by current upgrade contract and project awards, the Company reiterated its estimate that call box revenue will total at least $10.0 million for fiscal 2006.

Throughout fiscal 2006, the Company expects to continue to effectively manage its balance sheet, which included approximately $1.40 per share in cash at April 30, 2005.