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 October 29, 1995 Commission File Number 0-5449
COMARCO, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2088894
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
22800 Savi Ranch Parkway, Suite 214, Yorba Linda, California 92808-1299
- ------------------------------------------------------------ -----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (714) 282-3832
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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 November 30, 1995.
Common Stock,
$.10 Par Value 4,650,209 Shares
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<PAGE>
INDEX TO FORM 10-Q
Page No.
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Part I. Financial Information
Condensed Consolidated Balance Sheets
October 29, 1995 and January 31, 1995 1
Condensed Consolidated Statements of Income
Quarters ended and Three Quarters Ended October 29, 1995
and October 30, 1994 2
Condensed Consolidated Statements of Cash Flows
Three Quarters ended October 29, 1995 and October 30, 1994 3
Notes to Condensed Consolidated Financial Statements 4-5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
COMARCO, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
October 29, 1995 January 31, 1995
ASSETS (Unaudited) *
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,810,000 $ 7,968,000
Short-term investments 2,491,000 1,939,000
Accounts receivable, net 8,880,000 8,703,000
Other current assets 1,795,000 1,238,000
---------- ----------
Total current assets 20,976,000 19,848,000
Long-term investments - highly liquid 969,000 1,023,000
Property and equipment, net 1,198,000 970,000
Software development costs, net 1,186,000 676,000
Intangible assets, net 2,686,000 3,011,000
Other assets 293,000 282,000
---------- ----------
TOTAL ASSETS $27,308,000 $25,810,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 706,000 $ 616,000
Deferred revenue 1,220,000 1,044,000
Accrued liabilities 4,757,000 5,794,000
---------- ----------
Total current liabilities 6,683,000 7,454,000
Convertible subordinated debentures - 844,000
Deferred income taxes 435,000 309,000
Stockholders' equity:
Common stock, $.10 par value,
33,705,000 shares authorized,
4,648,959 and 4,602,009 shares
outstanding at October 29, 1995 and
January 31, 1995, respectively 465,000 460,000
Capital contributed in excess
of par value 3,530,000 3,244,000
Retained earnings 16,195,000 13,499,000
---------- ----------
Total stockholders' equity 20,190,000 17,203,000
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $27,308,000 $25,810,000
========== ==========
See accompanying notes to the condensed consolidated financial statements.
*The condensed consolidated balance sheet as of January 31, 1995 has been
summarized from the Company's audited consolidated balance sheet as of that
date.
</TABLE>
<PAGE>
<TABLE>
COMARCO, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
Quarter Ended Three Quarters Ended
--------------------------------------- ------------------------------------
October 29, 1995 October 30, 1994 October 29, 1995 October 30, 1994
<S> <C> <C> <C> <C>
Revenues:
Contract revenues $14,187,000 $15,017,000 $42,376,000 $44,318,000
Product sales 4,299,000 3,261,000 10,684,000 5,642,000
--------- ---------- ---------- ----------
18,486,000 18,278,000 53,060,000 49,960,000
---------- ---------- ---------- ----------
Direct costs:
Contract costs 9,726,000 10,379,000 28,594,000 29,641,000
Cost of product sales 2,113,000 1,785,000 4,961,000 3,312,000
---------- ---------- ---------- ----------
11,839,000 12,164,000 33,555,000 32,953,000
Indirect costs 5,230,000 4,697,000 15,572,000 13,531,000
---------- ---------- ---------- ----------
17,069,000 16,861,000 49,127,000 46,484,000
---------- ---------- ---------- ----------
Operating income 1,417,000 1,417,000 3,933,000 3,476,000
Net interest income
(expense) 114,000 26,000 346,000 (12,000)
---------- ---------- ---------- ----------
Income before income taxes 1,531,000 1,443,000 4,279,000 3,464,000
Income taxes 511,000 491,000 1,583,000 1,178,000
---------- ---------- ---------- ---------
Net income $ 1,020,000 $ 952,000 $ 2,696,000 $ 2,286,000
========== ========== ========== ==========
Weighted average shares
outstanding* 4,977,000 4,774,000 4,957,000 4,909,000
========== ========== ========== =========
Earnings per share**
Primary $ .20 $ .20 $ .53 $ .47
==== ==== ==== ====
*Weighted average shares outstanding include the dilutive effect of stock
options outstanding.
**Fully diluted earnings per share has not been presented as the effect is
immaterial.
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
COMARCO, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Quarters Ended
------------------------------------
October 29, 1995 October 30, 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,696,000 $ 2,286,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,684,000 942,000
Loss in disposal of property and equipment 9,000 -
Deferred income taxes 38,000 180,000
Provision for doubtful accounts receivable 23,000 9,000
Decrease (increase) in accounts receivable (200,000) 215,000
Increase in other current assets (469,000) (202,000)
Decrease (increase) in other assets (11,000) 70,000
Increase (decrease) in accounts payable 90,000 (465,000)
Increase in deferred revenue 176,000 -
Decrease in other current liabilities (1,037,000) (200,000)
----------- ---------
Net cash provided by operating activities 2,999,000 2,835,000
Cash flows from investing activities:
Purchases of investments (1,482,000) -
Proceeds from sales of investments 984,000 -
Purchases of property and equipment (581,000) (411,000)
Software development costs (1,525,000) (1,050,000)
Payment for purchase of LCTI,
net of cash acquired - 17,000
----------- ----------
Net cash used in investing activities (2,604,000) (1,444,000)
Cash flows from financing activities:
Principal payments on notes payable, current - (462,000)
Proceeds from issuance of common stock 291,000 97,000
Purchase of common stock - (1,392,000)
Purchase of subordinated debentures (844,000) (2,140,000)
----------- ----------
Net cash used in financing activities (553,000) (3,897,000)
----------- ----------
Net decrease in cash and cash equivalents $ (158,000) $(2,506,000)
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the three quarters for:
Interest $ 41,000 $ 198,000
Income taxes 1,702,000 792,000
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
<PAGE>
COMARCO, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
October 29, 1995 and October 30, 1994
(Unaudited)
1. General
The financial statements have been prepared without audit. However, they
reflect all adjustments which in the opinion of management are necessary
to fairly state the Company's financial position at October 29, 1995 and
October 30, 1994 and the results of its operations and cash flows for the
quarter ended and three quarters ended October 29, 1995 and October 30,
1994. The information has been prepared in accordance with Form 10-Q
instructions, but does not necessarily include all information and
footnotes required by generally accepted accounting principles for
complete financial statements. The results of the quarter ended and three
quarters ended October 29, 1995 are not necessarily indicative of the
results to be obtained for the full fiscal year.
2. Significant Accounting Policies - Per Share Information
The outstanding shares used for earnings per share calculations for all
years presented include the weighted average effect of common shares and
common share equivalents outstanding during the year. Common share
equivalents include dilutive stock options computed using the treasury
stock method. Convertible subordinated debentures are not considered
common stock equivalents and are not considered in the computation of
fully diluted earnings per share since the effect would be antidilutive.
Consolidated net income of the Company used for 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.
Primary earnings per share is calculated as follows:
<TABLE>
Quarter Ended Three Quarters Ended
----------------------------------- ------------------------------------
October 29, 1995 October 30, 1994 October 29, 1995 October 30, 1994
<S> <C> <C> <C> <C>
Net income $ 1,020,000 $ 952,000 $ 2,696,000 $ 2,286,000
less - net income
allocated to subsidiary
dilutive stock options
oustanding (29,000) - (58,000) -
----------- ---------- ---------- ----------
Net income used in
calculation of primary
income per share $ 991,000 $ 952,000 $ 2,638,000 $ 2,286,000
========== ========== ========== ==========
Weighted average number
of common shares used in
calculation of primary
income per share 4,977,000 $ 4,774,000 4,957,000 4,909,000
========== ========== ========== ==========
Primary income per
common share $ .20 $ .20 $ .53 $ .47
==== ==== ==== ====
</TABLE>
3. China Lake Competition
On May 26, 1995, the Company was notified that it was not selected in the
contract competition with the Naval Air Warfare Center ("NAWC") at China
Lake, California. The current contract in this location accounted for
approximately 14% of total revenue for the first three quarters of the
Company's Fiscal Year 1996 and 15% of its operating income for the same
period. Most costs associated with this effort are directly attributable
to the contract itself, so there will be few direct residual costs not
reimbursed by the customer.
The Company's current work at China Lake substantially ended on September
30, 1995.
4. Subsequent Event - Contingencies
In November 1995, the Company settled a claim with a customer that had
questioned the applicability of $5.5 million of the Company's general and
administrative costs allocated to two completed contracts over a
seven-and-a-half year period. The settlement had no significant impact on
the Company's financial position or results of operations.
5. Reclassifications
Certain reclassifications of prior year amounts have been made to conform
with the current year presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(a) Results of Operations
The Company is involved in two distinct business areas:
development and manufacture of wireless communications products;
and providing engineering, technical, and airport management
services to primarily government entities.
During the third quarter of Fiscal Year 1996 (year ending January
31, 1996), the Company recorded total revenues of $18.5 million,
up 1.1% from the revenues of $18.3 million for the comparable
period of a year earlier. Revenues for the first three quarters of
Fiscal Year 1996 of $53.1 million are up 6.2% from $50.0 million
for the comparable period of the prior fiscal year.
Increased year-to-year revenues are primarily due to:
- increased sales of the Company's wireless communications
products,
- increased activity in support of the Army's Joint
Interoperability Test Center at Ft. Huachuca, Arizona,
partially offset by:
- substantial completion of the Company's contract with the
Naval Air Warfare Center ("NAWC") at China Lake,
California, and
- reduction in activity in support of the Army's Software
Development Center at Ft. Lee, Virginia.
Wireless Communications Products
Wireless communications products revenues increased 32% to $4.1
million for the third quarter of Fiscal Year 1996 from $3.1
million for the comparable period of the prior fiscal year.
Wireless communications products revenues for the first three
quarters of Fiscal Year 1996 increased 78% to $9.8 million from
$5.5 million for the comparable period of the prior fiscal year.
These increases are due to increased sales of the Company's
network evaluation systems and revenue assurance systems to major
cellular telephone carriers. Revenues from sales of callboxes were
minimal during the first three quarters of Fiscal Year 1996, as
states other than California are only at the field testing stage
of these units. Operating income from wireless communications
products increased 41% from the comparable quarter of the prior
fiscal year. Summary operating results for Comarco Wireless
Technologies, Inc., the Company's wireless communications products
subsidiary, are as follows:
<TABLE>
Quarter Ended Three Quarters Ended
----------------------------------- ------------------------------------
October 29, 1995 October 30, 1994 October 29, 1995 October 30, 1994
<S> <C> <C> <C> <C>
Revenues $ 4,140,000 $ 3,097,000 $ 9,820,000 $ 5,478,000
Cost of product sales 1,834,000 1,496,000 4,253,000 3,023,000
---------- ---------- ---------- ----------
Gross margin 2,306,000 1,601,000 5,567,000 2,455,000
Indirect costs* 1,279,000 874,000 3,161,000 1,465,000
---------- ---------- ---------- ----------
Operating income $1,027,000 $727,000 $ 2,406,000 $990,000
*Indirect costs include selling, general, and administrative
expenses as well as research and development expenses.
</TABLE>
The increases in cost of goods sold and selling, general, and
administrative expenses for the third quarter and for the three
quarters of Fiscal Year 1996 over the comparable periods of the
prior fiscal year are a result of the increase in revenues as well
as an increase in research and development expenses.
Operating income as a percentage of revenues is 24.8% for the
third quarter of Fiscal Year 1996, compared to 23.5% for the
comparable period of the prior fiscal year. Operating income as a
percentage of revenues is 24.5% for the three quarters of Fiscal
Year 1996, compared to 18.1% for the comparable period of the
prior fiscal year. These increases are also due to the increasing
revenues for the Company's products.
The Company is continuing its software product development program
in its wireless communications products business. The Company
views the next few years as a window of opportunity to expand its
product line to take advantage of the worldwide growth in this
market. 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 $1.0 million and
$1.4 million of software product development costs related to the
program in the first three quarters of Fiscal Year 1996 and in all
of Fiscal Year 1995, respectively. Corresponding amounts amortized
are $.9 million and $.9 million, respectively.
The Company's orders for wireless communications products totalled
$10.2 million for the first three quarters of Fiscal Year 1996, up
from $6.5 million from the comparable prior period. The value of
unfilled orders at October 29, 1995 totaled $1.1 million. An
additional $1.2 million of deferred revenue has been recorded for
anticipated customer warranty obligations.
The Company has experienced in each of the past two years a
fluctuation in wireless communications product activity, with
greater sales in the second half of its fiscal year and lesser
amounts in the first half. Profit margins from the Company's
wireless communications products business have been significantly
higher than margins from the services business. The nature of the
wireless communications products business is inherently less
predictable than the longer-term services contracts. Therefore,
sales levels and profits are more difficult to predict and may
fluctuate significantly from quarter to quarter.
Government Contracting and Other Revenues
On May 26, 1995, the Company was notified that it was not selected
in the contract competition with NAWC at China Lake, California.
The Company's current work at China Lake substantially ended on
September 30, 1995. The China Lake contract accounted for
approximately 14% of the Company's total revenues and 15% of its
operating income for the first three quarters of Fiscal Year 1996.
Most costs associated with this effort are directly attributable
to the contract itself, so there will be few direct residual costs
not reimbursed by the customer. The loss of this contract will
have an adverse effect on operations - a loss of approximately 15%
of the Company's revenues and approximately the same percentage of
loss in operating profits.
Engineering and technical services revenues decreased from $10.6
million in the third quarter of Fiscal Year 1995 to $9.5 million
in the third quarter of Fiscal Year 1996, a decrease of 10.4%.
This decrease is primarily due to the reduced activity in the
Company's contracts with the Naval Air Warfare Center at China
Lake, California and the Army's Software Development Center at Ft.
Lee, Virginia. The China Lake contract's revenues were
approximately $1.9 million during the third quarter of Fiscal Year
1996. Without this revenue during the quarter, engineering and
technical services revenues would have been $7.6 million, a
decrease of 28.3% from the comparable period last year.
The Company's contract in support of the Army's Software
Development Center at Ft. Lee, Virginia has experienced a decrease
in activity of approximately 32% from the comparable quarter last
year. This decrease is due to reductions in Government funding
available. The Company expects that defense related activity in
the remainder of Fiscal Year 1996 will continue to show reductions
from prior year periods due to the above-stated contract declines
and general Government budgetary pressures. Except as noted above,
the Company's other defense-related activity has been steady
during the first three quarters of Fiscal Year 1996.
During the remainder of Fiscal Year 1996 and for Fiscal Year 1997,
approximately 27% of the Company's current engineering and
technical services revenues (excluding revenues associated with
the China Lake contract) are planned for recompetition or will
end. The Company plans to aggressively compete for all work opened
for recompetition to the extent possible, selectively pursue
certain high value defense procurements, and build its non-defense
work in the areas of airport management, wireless communications
products, and non-defense systems engineering and integration. If
the Company is unable to maintain defense related activity by
pursuit of suitable Government awards or replace it with
commercial work, the Company will need to consider appropriate
organizational changes and cost reduction efforts.
The Company's defense segment has submitted or currently plans to
submit proposals for high value government procurements totalling
approximately $300 million by January 31, 1996. If the Company is
selected for award, these efforts would generate revenue primarily
in the latter half of Fiscal Year 1997 and forward.
Airport management services revenues increased from $4.6 million
in the third quarter of Fiscal Year 1995 to $4.9 million in the
third quarter of Fiscal Year 1996, an increase of 6.5%. This
increase is principally due to increased activity at the Company's
contract to manage five general aviation airports in Los Angeles
County, California. Operating income from airport management
services was unchanged from year to year.
In addition, government agencies may generally terminate their
contracts in whole or in part at their convenience. Government
agencies may remove funding previously attached or may not
exercise option periods. Therefore, there can be no assurances
that the Government will fund those portions of existing contracts
that are unfunded, or that the Government will exercise any
options.
The Company is also investing in development of the next
generation of Computer-Aided Software Engineering (CASE) tools for
test program engineers sold by its newly acquired subsidiary,
LCTI, Inc. The amounts capitalized and amortized in accordance
with Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed totaled $500,000 and $100,000, respectively in the first
three quarters of Fiscal Year 1996. LCTI sustained operating
losses of $900,000 for the first three quarters of Fiscal Year
1996, and while management believes that longer term prospects
look favorable for this operation, the near term could continue to
show losses. Substantial changes were made to the business late in
the third quarter.
Engineering and technical services revenues for the first three
quarters of Fiscal Year 1996 of $29.4 million are down $1.4
million (4.5%) from $30.8 million for the comparable period of the
prior fiscal year. The year-to-year decrease is primarily due to
the reduced activity in the Company's contracts with the Naval Air
Warfare Center at China Lake, California and the Army's Software
Development Center at Ft. Lee, Virginia, as discussed above.
Airport management services revenues for the first three quarters
of Fiscal Year 1996 of $13.9 million are up $.2 million (1.5%)
from $13.7 million for the comparable period of the prior fiscal
year, due to the increased activity at the Los Angeles County
Airports, as discussed above.
Sales to the United States Government as well as government prime
contractors were 50% and 53% of total revenues for the third
quarter of Fiscal Year 1996 and the first three quarters of Fiscal
Year 1996, respectively, as compared to 58% of total revenues for
all of Fiscal Year 1995. Management anticipates that Government
sales for the fourth quarter of Fiscal Year 1996 will be
approximately 42% of total revenues.
Direct costs of $11.8 million for the third quarter of Fiscal Year
1996 are down $.4 million (3.3%) from $12.2 million for the
comparable period of the prior fiscal year. This decrease is due
to the decrease in engineering and technical services activity, as
discussed above, offset by the increase in wireless communications
products activity. Direct costs for the three quarters ended
October 29, 1995 are $33.6 million, up $.6 million (1.8%) from
$33.0 million for the comparable period of the prior fiscal year.
This increase is due to the strong increase in wireless
communications products activity in the three quarters of the
current fiscal year versus the prior fiscal year.
Indirect costs for the quarter ended October 29, 1995 are $5.2
million, up $.5 million (10.6%) from $4.7 million for the
comparable period of the prior fiscal year. Indirect costs for the
three quarters ended October 29, 1995 are $15.6 million, up $2.1
million (15.6%) from $13.5 million for the comparable period of
the prior fiscal year. These increases are due to increased
research and development costs incurred in the wireless
communications products area and at the Company's subsidiary,
LCTI, Inc., as well as increases in costs associated with the
increase in revenues, as discussed above.
Net interest income (interest income, less amortization of
offering costs and interest expense) for the third quarter of
Fiscal Year 1996 amounted to $114,000, as compared to net interest
income of $26,000 for the comparable period of the prior fiscal
year. Net interest income for the first three quarters of Fiscal
Year 1996 amounted to $346,000, as compared to net interest
expense of $12,000 for the comparable period of the prior fiscal
year. The increases are principally due to the decrease in the
Company's convertible subordinated debentures outstanding and the
accelerated amortization of offering costs related to the
Company's purchase of its convertible subordinated debentures
during the first quarters of Fiscal Years 1996 and 1995, as well
as the increase in interest rates available for the Company's
invested funds in the first three quarters of Fiscal Year 1996.
The Company recorded accelerated offering cost amortization of
$23,000 and $64,000 in the first three quarters of Fiscal Years
1996 and 1995, respectively. The Company retired the remaining
$844,000 of its convertible subordinated debentures on April 15,
1995, leaving no outstanding debt as of October 29, 1995.
The Company's effective tax rate for the first three quarters of
Fiscal Year 1996 is 37% versus an effective tax rate of 34% for
the comparable period of the prior fiscal year. The increased
effective tax rate is due to a reduced level of current tax
credits available to offset income taxes on current taxable
income.
The overall increase in net income from the prior fiscal year is
primarily due to the significant increase in the sales of wireless
communications products at higher operating income margins, as
well as increased net interest income, partially offset by a
higher effective income tax rate.
(b) Financial Condition
The Company signed a loan agreement with a bank effective
September 26, 1994, which was amended effective September 26,
1995. The loan agreement consists of (1) an $8 million revolving
credit facility, which expires June 30, 1997, and (2) a $5 million
guidance line of credit, which expires June 30, 1996. The
revolving credit facility and the guidance line of credit are
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 $10.9 million (includes highly liquid long-term
investments with maturities of 12 to 36 months) during the third
quarter of Fiscal Year 1996. 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, and software product development costs for Comarco
Wireless Technologies, Inc. and LCTI, Inc.
During the third quarter of Fiscal Year 1996, the Company's
average days' sales in accounts receivable have remained steady
from the prior fiscal year's levels, at approximately 45 days.
Several additional key factors indicating the Company's financial
condition include:
<TABLE>
October 29, 1995 January 31, 1995
---------------- ----------------
<S> <C> <C>
Current ratio 3.14 2.66
Working capital $ 14,293,000 $ 12,394,000
Debt to equity 0 .05
Book value per share $4.34 $3.74
</TABLE>
The Company continues to demonstrate improvements in the above
financial factors during the first three quarters of fiscal year
1996, primarily due to increased operating margins from increased
sales of wireless communications products.
The Company has two significant commitments for capital
expenditures at October 29, 1995 for Comarco Wireless
Technologies, Inc. and LCTI, Inc. In February 1994, the Company
embarked on a multi-year software product development program in
its wireless communications products business. The Company has 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. In addition, the Company is
also investing in development of the next generation of
Computer-Aided Software Engineering (CASE) tools for test program
engineers sold by its newly acquired subsidiary, LCTI, Inc. The
amounts capitalized and amortized in accordance with Financial
Accounting Standard No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed, totaled $1.5
million and $1.0 million, respectively, in the first three
quarters of Fiscal Year 1996.
The Company's Board of Directors has authorized a stock
re-purchase program of up to 1,000,000 shares. As of October 29,
1995, the Company has re-purchased and retired approximately
796,000 shares. The average price paid per share re-purchased
under the program was $4.75.
The Company redeemed the remaining $844,000 of outstanding
convertible subordinated debentures in accordance with the
provisions of the debenture agreement on April 15, 1995.
On May 26, 1995, the Company was notified by the Navy that it was
not successful in the Naval Air Warfare Center, China Lake
contract competition. Activity on this contract substantially
ended on September 30, 1995. While the Company does anticipate
lower revenues and profits due to this decision, the Company does
not anticipate a proportional negative impact to its liquidity or
capital resources.
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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are included herewith:
10.16 First Amendment to Loan Agreement dated September 26, 1995
between the Company and NationsBank of Virginia, N.A.
10.17 Amended and Restated Master Line of Credit Note dated
October 31, 1995 between the Company and NationsBank of Virginia,
N.A.
10.18 Amended and Restated Guidance Line of Credit Note dated
October 31, 1995 between the Company and NationsBank of Virginia,
N.A.
ll. Schedule of Computation of Net Income Per Share
(b) Reports on Form 8-K
None.
<PAGE>
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.
--------------------
(Registrant)
December 13, 1995
THOMAS P. BAIRD
----------------------------------------
Thomas P. Baird
Chief Financial Officer
(Authorized Officer and Principal Financial Officer)
FIRST AMENDMENT TO LOAN AGREEMENT
This First Amendment to Loan Agreement (this Agreement) is entered into on
October 31, 1995, with an effective date as of September 26, 1995, by and
between NationsBank, N.A., a national banking association (Bank), Comarco Inc.,
a California corporation, (Borrower) and Comarco Wireless Technologies, Inc., a
Delaware corporation, International Business Services, Inc., a District of
Columbia corporation, Decisions and Designs, Inc., a Virginia corporation and
LCTI, Inc., a Maryland Corporation (individually and collectively the
Guarantors).
Recitals
A. The Borrower, the Guarantors and the Bank entered into a Loan Agreement
(the Original Agreement) dated September 26, 1994.
B. The Borrower, the Guarantors and the Bank now wish to further amend the
Original Agreement to extend the maturity date, to modify certain covenants, and
for certain other matters, as set forth in this Agreement.
Agreements
Now, therefore, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
Section 1. Definitions Used in this Agreement
(a) In this Agreement, the term Existing Agreement means the Original
Agreement.
(b) In this Agreement, the term Loan Agreement means the Existing
Agreement.
(c) All capitalized terms used in this Agreement which are not otherwise
defined in this Agreement shall have the meanings assigned to them in the Loan
Agreement, including those definitions added to the Loan Agreement by this
Agreement.
Sections 2. Representations and Warranties
In order to induce the Bank to enter into this Agreement, the Borrower and
Guarantors make the following representations and warranties and:
(a) Existing Agreement Representations. The representations and warranties
contained in the Existing Agreement remain true and correct in all material
respects, except for representations which by their nature referred to facts at
the time the Existing Agreement was executed and which would normally be
expected to change over time.
(b) Due Authorization, Execution, Etc. This Agreement has been duly
authorized, executed and delivered by the Borrower and Guarantors and
constitutes the valid and binding obligation of the Borrower, enforceable
against the Borrower in accordance with its terms.
(c) No Defaults. There exists under the Loan Agreement no Event of Default
and no event, fact or circumstance, which, with notice or the passage of time,
or both, will become an Event of Default.
(d) No Material Adverse Change. There has occurred no material adverse
change in the operations, financial condition, or business prospects of the
Borrower since the delivery to the Bank of the Borrower's most recent quarterly
financial statements.
Section 3. Conditions Precedent
The matters set forth in Section 4 and 5 shall be subject to the satisfaction,
not later than the close of business on October 31, 1995, of the following
conditions precedent:
(a) Corporate Documents. The Borrower shall provide the following corporate
documents to the Bank:
(1) Articles and Bylaws. A certificate of the Borrower's secretary or
assistant secretary dated not more than 2 days before delivery to the effect
that the Borrower's articles of incorporation and bylaws have not been amended
since they were last supplied to the Bank in connection with the execution and
delivery of the Existing Agreement.
(2) Bank's Satisfaction. The documents delivered to the Bank pursuant to
paragraphs (1) and (2) shall be satisfactory in form and substance to the Bank.
(b) Notes. The Borrower shall execute and deliver to the Bank an amended
Guidance Line of Credit Note, amended Master Line of Credit note and all
Acquisition Term notes, collectively.
(c) Opinion of Counsel. The Borrower shall provide to the Bank a favorable
opinion of Borrower's counsel concerning the due authorization, execution,
delivery, validity and binding effect of this Agreement and the other loan
Documents executed and delivered pursuant to this Agreement.
Section 4. Amendments to Loan Agreement
Upon the satisfaction, but not later than the outside date set forth in Section
3, of the conditions precedent set forth in Section 3, the Loan Agreement shall
be amended as follows; if the conditions precedent set forth in Section 3 are
not so satisfied, the following amendments shall not become effective:
(a) Amendment to Article I of Loan Agreement. The following definitions are
added (if they are not already defined) or revised (if they are already defined)
to read as follows:
Note means that certain First Amended and Restated Master Line of
Credit Note dated as of October 31, 1995 with an effective date as of September
26, 1995, that First Amended and Restated Guidance Line of Credit Note dated as
of October 31, 1995 with an effective date as of September 26, 1995 and all
Acquisition Term Notes, collectively, all dated as of October 31, 1995 with an
effective date as of September 26, 1995. The term also shall include any other
promissory notes hereafter executed by Borrower in favor of Bank and any and all
renewals, extension or rearrangements thereof.
(b) Amendment to Article VII of Loan Agreement. The borrower shall at all times
maintain Tangible Net Worth of not less than Nine Million Thousand Dollars
($9,000,000.00). For purposes of this Article VII, Tangible Net Worth shall mean
all capital stock, paid in capital and retained earnings less all treasury
stock, amounts due from officers, directors, stockholders and members of their
immediate families, amounts due from affiliates, investments in non-marketable
securities or affiliated companies, leasehold improvements, goodwill,
non-compete agreements, capitalized organization and development costs,
capitalized expenses, loan costs, patents, trademarks, copy rights, franchises,
licenses, and other intangible assets.
Section 5. Reaffirmation, Confirmation and Miscellaneous
(a) Reaffirmation by Borrower. As modified by the Agreement, the Borrower
reaffirms all of its obligations under the Loan Agreement and the other Loan
Documents, and confirm that they remain in full force and effect and otherwise
unmodified.
(b) Fees and Expenses. Upon execution of this Agreement, the Borrower shall pay
all out-of-pocket expenses incurred by the Bank in connection with this
Agreement and the transactions contemplated hereunder, including the expenses
and reasonable fees of Bank's legal counsel.
(c) Defenses. The Borrower confirms that is has no defenses against the Bank or
any of its obligations under the loan Agreement or the other loan Documents. The
Borrower confirms that it has no claims against the Bank for any reason
whatsoever arising our of the Loan, or the relationship between the parties from
making of the loan and subsequent transactions relating to the loan.
(d) No Waivers. The execution and delivery of this Agreement by the Bank shall
not constitute a waiver by the Bank of any Event of Default under the Loan
Agreement or a waiver of the Bank's right to take action as it deems appropriate
under the loan Agreement or other loan Documents in response to any extant Event
of Default or Default.
(e) Approvals of Guarantors. The approval of the Guarantors is set forth
below.
In witness whereof, the parties have executed this Agreement on the date first
written above.
Attest: Comarco, Inc.
[Corporate Seal]
By: By:
-------------------------------- ---------------------------------
Thomas P. Baird
Chief Financial Officer
Attest: NationsBank, N.A.
By: By:
--------------------------------- ---------------------------------
Elaine T. Eaton
Vice President
ACKNOWLEDGMENT AND CONFIRMATION BY GUARANTORS
The Guarantors hereby reaffirm their obligations under their existing joint and
several unconditional guaranty of the payment of the Loan and all other
obligations, and confirm that the Borrower's execution and delivery of this
Agreement in no way impairs or limits their obligations under such existing
guaranty.
[Corporate Seal] COMARCO WIRELESS TECHNOLOGIES, INC.
Attest:
By:
- ------------------------------------ ---------------------------------
Thomas P. Baird
Chief Financial Officer
[Corporate Seal] INTERNATIONAL BUSINESS SERVICES, INC.
Attest:
By:
- ------------------------------------ ---------------------------------
Thomas P. Baird
Chief Financial Officer
[Corporate Seal] DECISIONS AND DESIGNS, INC.
Attest:
By:
- ------------------------------------ ---------------------------------
Thomas P. Baird
Chief Financial Officer
[Corporate Seal] LCTI, INC.
Attest:
By:
- ------------------------------------ ---------------------------------
Thomas P. Baird
Chief Financial Officer
AMENDED AND RESTATED
MASTER LINE OF CREDIT NOTE
$8,000,000.00 October 31, 1995
R.1 On September 26, 1995 NationsBank, N.A. formerly known as NationsBank of
Virginia, N.A. (the "Lender") extended a loan to Comarco, Inc., A California
corporation (the "Maker") in the original Principal Sum of Eight Million and
00/100 Dollars ($8,000,000.00), as evidenced by a Master Line of Credit Note
delivered by the Undersigned to the Bank of even date therewith, which Note may
have been modified and extended from time to time (the Note and all amendment,
modifications and extensions thereto are collectively referred to herein as the
"Loans"); and
R.2 The Undersigned has requested the Bank to modify and amend certain
provisions of the Note and the Bank has agreed to do so pursuant to the terms of
the Amended and Restated Master Line of Credit Note.
R.3 As contemplated by the First Amended to the Loan Agreement dated the date of
this Note with an effective date as of September 26, 1995, this Note is issued
pursuant to that certain Loan Agreement dated September 26, 1994 between the
Maker, as the borrower, and the Bank as amended from time to time (the
Agreement). All capitalized terms used in this Note which are not otherwise
defined in this Note shall have the meanings assigned to them in the Agreement.
R.4 This Note is issued in substitution and replacement for, but not in payment
of, the Master Line of Credit Note from the Maker to the Bank dated September
26, 1995.
R.5 References in this Note to the Agreement and other Loan Documents shall in
no way affect or impair the absolute and unconditional obligations of the Maker
to pay the principal of and interest on this Note as provided in this Note.
NOW, THEREFORE, in consideration of the premises and for other good and valuable
and legal consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto do hereby agree to amend and restate the Note
as follows:
FOR VALUE RECEIVED, on or before October 31, 1995, with an effective date as of
September 26, 1995, the undersigned, Comarco, Inc., a California corporation
(the "Maker"), promises to pay to the order of NationsBank, formerly known as
NationsBank of Virginia, N.A., a national banking association ("Lender"),
without setoff, at 8300 Greensboro Drive, McLean, VA 22102-3604, or at such
other place as the holder hereof may from time to time designate in writing, the
principal sum of Eight Million and No/100 Dollars ($8,000,000.00), or so much
thereof as shall be advanced or readvanced and from time to time remain unpaid,
plus interest on the principal balance hereof from time to time outstanding,
from the date of this Note until the date paid, at the rates set forth below.
Except as otherwise provided in this Note with respect to amounts bearing
interest on a Libor Rate (hereinafter defined) basis, this Note shall be payable
in successive monthly installments of accrued and unpaid interest only,
commencing October 31, 1995 and continuing on the last day of each succeeding
calendar month thereafter until June 30, 1997, the maturity date of this Note,
at which time the entire principal balance of this Note and all accrued and
unpaid interest thereon shall be due and payable in full. Interest on this Note
shall be calculated on a 360-day year and the actual number of days elapsed.
All payments hereunder shall be payable in lawful currency of the United States
and in immediately available funds, and shall be applied first to late charges
and costs of collections, then to accrued and unpaid interest, and then to
reduce the principal balance hereof. Notwithstanding the foregoing, accrued and
unpaid interest on amounts outstanding hereunder bearing interest on a Libor
Rate basis shall be due and payable on the last day of the applicable Libor Rate
Funding Period (hereinafter defined), and if such Libor Rate Funding Period is
longer than 90 days, on the 90th day of each Libor Rate Funding Period.
Except as otherwise expressly set forth below, amounts outstanding hereunder
shall bear interest at a floating rate which is at all times equal to the Prime
Rate (hereinafter defined), from time to time in effect, plus the Additional
Percentage (hereinafter defined). For purposes of this Note, the term Prime Rate
shall mean the fluctuating rate established by Lender as its prime rate of
interest from time to time, at its discretion, whether or not such rate shall
otherwise be published. Maker and each other party liable hereon in any
capacity, whether as maker, endorser, surety, guarantor or otherwise,
acknowledges and agrees that Lender's Prime Rate is established by Lender as an
index or base rate and may or may not at any time be the best or lowest rate
charged by Lender on any loan. Such rate shall be adjusted as and when any
change in the Lender's Prime Rate or any change in the Additional Percentage
shall occur.
The term Additional Percentage shall mean the percentage applicable to this Note
in accordance with the following:
- if the Maker's Total Liabilities divided by Tangible Net Worth is
less than or equal to 1.00 to 1.00, the Additional Percentage shall be
zero;
- if the Maker's Total Liabilities divided by Tangible Net Worth is
less than or equal to 1.50 to 1.00, but greater than 1.00 to 1.00, the
Additional Percentage shall be one-quarter of one percent (1/4%); and
- if the Maker's Total Liabilities divided by Tangible Net Worth is
greater than 1.50 to 1.00, the Additional Percentage shall be one-
half of one percent (1/2%).
For purposes of this Note, the terms Total Liabilities and Tangible Net Worth
shall have the meaning attributed to such terms in the Loan Agreement
(hereinafter defined).
The initial Additional Percentage shall be calculated based on the Maker's
consolidated financial statements for the quarter ending July 31, 1995.
Thereafter, the applicable Additional Percentage shall be calculated and
adjusted quarterly, based on the quarterly financial statements required to be
submitted to the Lender pursuant to paragraph 4 of Article VI of the Loan
Agreement. Such quarterly changes shall be effective commencing five (5)
business days after submission by the Maker of the required financial
statements; it being understood, however, that in the event the quarterly
financial statements are not submitted when due, the Applicable Percentage shall
be one-half of one percent (1/2%) until such financial statements are submitted
as required, at which time the Applicable Percentage (for the balance of the
quarterly period) shall be determined as set forth above.
Additionally, so long as no event of default or any act, event or condition
which, with notice or the passage of time, or both, would constitute an event of
default under any Loan Document has accrued or is continuing, Maker shall have
the right to elect that specified amounts advanced under this Note bear interest
for specified periods (each being herein referred to as a Libor Rate Funding
Period), at the Libor Rate (hereinafter defined) plus the Additional Libor Rate
Percentage (hereinafter defined) in effect at the commencement of the Libor Rate
Funding Period. Election by Maker of a Libor Rate interest rate as herein
provided shall be made in a writing delivered to Lender not less than three (3)
business days prior to the date on which the Libor Rate Funding Period is to
begin, and shall specify (1) the business day on which the Libor Rate is to be
effective and the period (each being herein referred to as a "Libor Rate Funding
Period") for which the Libor Rate shall be applicable (which shall be only 30,
60, 90 or 180 days and the expiration of which may not be later than the
"Maturity Date"); and (2) the principal amount of this Note which shall bear
interest at the Libor Rate plus the Applicable Libor Rate Percentage (each being
herein referred to as a "Libor Rate Funding Segment"). Maker may not revoke any
such election without Lender's written consent. Upon the expiration of an
applicable Libor Rate Funding Period, unless notice of Libor Rate election from
Maker, the rate of interest applicable to any Libor Rate Funding Segment (after
the expiration thereof) shall automatically convert at the end of the applicable
Libor Rate Funding Period, to the Prime Rate plus the Applicable Percentage.
For purposes hereof, the term "Libor Rate" shall mean the per annum rate of
interest, as determined by the Lender in its sole discretion, at which deposits
in United States Dollars in an amount approximately equal to the amount for
which for which the rate is to be fixed and with maturates comparable to the
interest period selected by the Maker, to be the average of rates per annum for
11:00 a.m., London time, two (2) London business days prior to the first day of
such Libor Rate Funding Period for delivery on the first such day of such Libor
Rate Funding Period, in amounts comparable to the applicable Libor Rate Funding
Segment adjusted for Federal Reserve Board reserve requirements and similar
assessments, if any, imposed upon Lender from time to time.
The term Additional Libor Rate Percentage shall mean the percentage applicable
to this Note in accordance with the following:
- if Total Liabilities divided by Tangible Net Worth is less than or
equal to 1.00 to 1.00, the Additional Percentage shall be one and
one-half percent (1-1/2%);
- if Total Liabilities divided by Tangible Net Worth is less than or
equal to 1.50 to 1.00, but greater than 1.00 to 1.00, the Additional
Libor Rate Percentage shall be one and three quarters percent (1-3/4%);
and
- if Total Liabilities divided by Tangible Net Worth is greater than
1.50 to 1.00, the Additional Libor Rate Percentage shall be two percent
(2%).
The Additional Libor Rate Percentage shall be calculated based on the Maker's
consolidated financial statements for the quarter ending July 31, 1995.
Thereafter, the applicable Additional Libor Rate Percentage shall be determined
quarterly, based on the quarterly financial statements required to be submitted
to the Maker pursuant to paragraph 4 of Article VI of the Loan Agreement. In the
event the quarterly financial statements are not submitted when due, the
Applicable Percentage shall be two percent (2%) until such financial statements
are submitted as required, at which time the Applicable Percentage (for the
balance of the quarterly period) shall be determined as set forth above. It is
expressly understood, however, that once the Additional Libor Rate Percentage is
determined in connection with any particular Libor Rate Funding Segment, such
Additional Libor Rate Percentage shall remain in effect for the period for which
the applicable Libor Rate election is made.
In the event that any payment of principal and/or interest is not actually
received by the holder of this Note within five (5) business days of the date
such payment is due, Maker agrees to pay a late charge equal to five percent
(5%0 of the total amount of the delinquent installment.
If default is made in the payment of any amount due (I) hereunder; (ii) under
the Guidance Line of Credit Note (hereinafter defined); (iii) under any
Acquisition Term Note (hereinafter defined); or (iv) under any other Loan
Document (hereinafter defined), or if default be made in the performance of any
covenant or agreement set forth in this Note, the Guidance Line of Credit Note,
any Acquisition Term note or any other Loan Document, then, subject to any
applicable grace period provided in the Loan Agreement (I) the entire
outstanding principal balance of this Note shall thereafter bear interest at a
rate which is two percent (2%) above the interest rate otherwise payable
pursuant to the terms of this Note; and (ii) the entire principal balance of
this Note and all accrued and unpaid interest thereon shall at once become due
and payable at the option of the holder of this Note. Failure to exercise the
foregoing option to accelerate payment shall not constitute a waiver of the
right to exercise the same in the event of any subsequent default.
Amounts outstanding which bear interest based on the Prime Rate may be prepaid
in whole or part at any time, without premium or penalty. No prepayment of any
other amounts outstanding hereunder shall be permitted without the prior written
consent of lender. Notwithstanding such prohibition, if there is a prepayment of
any such loan, whether voluntary or involuntary by reason of acceleration or
otherwise, Maker shall also pay to Lender any loss or expense which Lender may
incur or sustain as a result of prepayment. Any partial prepayments shall be
applied to amounts due hereunder in inverse order of maturity, and shall not
relieve Maker of the obligation to pay periodic installments of principal and/or
interest hereunder as and when the same would otherwise be due hereunder.
Each party liable under this Note in any capacity, whether as maker, endorser,
surety, guarantor or otherwise: (I) waives its homestead exemption, (ii) waives
presentment, demand, protest and notice of presentment, notice of protest and
notice of dishonor of this debt and each and every other notice of any kind with
respect to this Note, (iii) agrees that the holder of this Note, at any time or
times, without notice to it or its consent, may grant extensions of time,
without limit as to the number or the aggregate period of such extensions, for
the payment of any principal, interest or other sums due hereunder, and (iv) to
the extent not prohibited by law, waives the benefit of any law or rule of law
intended for its advantage or protection as an obligor hereunder or providing
for its release or discharge from liability under this note, in whole or in
part, on account of any facts or circumstances other than full and complete
payment of all amounts due hereunder.
Maker promises to pay all costs of collection, including reasonable attorneys'
fees, upon default in the payment of the principal of this Note or interest or
other sums hereon when due, whether at maturity, as herein provided, or by
reason of acceleration of maturity under the terms of this Note or under the
terms of any other Loan Documents, whether suit be brought or not.
In the event any one or more of the provisions contained in this Note or any
other Loan Document shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note or such other Loan Document,
but this Note and the other Loan Documents shall be construed as if such
invalid, illegal or unenforceable provision had never been contained or therein.
This Note may not be changed orally, but only by an agreement in writing signed
by the party against whom enforcement of any waiver, change, modification or
discharge is sought.
This Note is the "Master Line of Credit Note" issued pursuant to the terms and
conditions of a certain Loan Agreement, dated September 26, 1994 and all
modifications thereof (the "Loan Agreement"), by and among the Lender, the Maker
and the parties below executing this Note as Guarantors, and is executed and
delivered in connection with the Master Line of Credit (as defined and more
particularly described in the Loan Agreement). This Note, the Guidance Line of
Credit Note (as defined and more particularly described in the Loan Agreement),
each Acquisition Term Note (as defined and more particularly described in the
Loan Agreement) and the Loan Agreement, together with all extensions, renewals
and modifications thereof and substitutions therefor and all other documents or
instruments executed, issued or delivered in connection with the loan evidenced
hereby, are herein collectively referred to as the "Loan Documents".
All of the terms, covenants, provisions, conditions, stipulations, promises and
agreements contained in the Loan Documents to be kept, observed and performed by
Maker pursuant to the Loan Documents are hereby made a part of this Note and
incorporated herein by reference to the same extent and with the same force and
effect as if they were fully set forth herein, and Maker promises and agrees to
keep, observe and perform them, or cause them to be kept, observed and
performed, strictly in accordance with the terms and provisions thereof.
A default under the Guidance line of Credit Note or any Acquisition Term Note
shall, at the option of the holder of this Note, be deemed a default under this
Note, entitling the holder of this Note (I) to exercise all of its rights and
remedies hereunder, including the right to accelerate payment of all sums due
hereunder; and (ii) to exercise all of its rights and remedies provided in the
Loan Agreement to be exercised upon the occurrence of an Event of Default (as
defined in the Loan Agreement). In the event that at any time this Note, the
Guidance Line of Credit Note and/or any Acquisition Term Note are held by
different persons, each of such persons shall have all of the rights, privileges
and options provided to the noteholder herein and/or in the Loan Agreement.
Maker warrants and represents that the loan evidenced hereby is being made for
business or investment purposes.
This Note shall be governed in all respects by the laws of the Commonwealth of
Virginia and shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, executors, administrators, personal
representatives, successors and assigns.
Any controversy or claim between or among the parties hereto, including, but not
limited to, those arising out of or relating to this Note or any of the other
Loan Documents, including any claim based on or arising from an alleged tort,
shall be determined by binding arbitration in accordance with the Federal
Arbitration Act (or if not applicable, the applicable state law), the rules of
practice and procedure for the arbitration of commercial disputes of Judicial
Arbitration and Mediation Services, Inc. (J.A.M.S.) and the "special rules" set
forth below. In the event of any inconsistency, the special rules shall control.
Judgment upon any arbitration award may be entered in any court having
jurisdiction. Any party to this Note may bring an action, including a summary or
expedited proceeding, to compel arbitration of any controversy or claim to which
this Note applies in any court having jurisdiction over such action.
1. Special Rules. The arbitration shall be conducted in the city of the Maker's
domicile at the time of this Note's execution, and administered by J.A.M.S., who
will appoint an arbitrator; if J.A.M.S. is unable or legally precluded from
administrating the arbitration, then the American Arbitration Association will
serve. All Arbitration hearings will be commenced within 90 days of the demand
for arbitration; further, the arbitrator shall only, upon a showing of cause, be
permitted to extend the commencement of such hearing for up to an additional 60
days.
2. Reservation of Rights. Nothing in this Agreement shall be deemed to (I) limit
the applicability of any otherwise applicable statutes of limitation or repose
and any waivers contained in this Note; or (ii) be a waiver by Lender of the
protection afforded to it by 12 U.S.C. Section 01 or any substantially
equivalent state law; or (iii) limit the right of Lender hereto (a) to exercise
self help remedies such as (but not limited to) setoff, or (b) to foreclose
against any real or personal property collateral, or (c) to obtain from a court
provisional or ancillary remedies such as (but not limited to) injunctive
relief, writ of possession or the appointment of a receiver. Lender may exercise
such self help rights, foreclose upon such property, or obtain such provisional
or ancillary remedies before, during or after the pendency of any arbitration
proceeding brought pursuant to this Agreement. Neither this exercise of self
help remedies nor the institution or maintenance of an action for foreclosure or
provisional or ancillary remedies shall constitute a waiver of the right of any
party, including the claimant in any such action, to arbitrate the merits of the
controversy or claim occasioning resort to such remedies.
COMARCO, INC., a California corporation
By:
-----------------------------------
Thomas P. Baird
Chief Financial Officer
FOR VALUE RECEIVED, the undersigned hereby jointly and severally, personally and
unconditionally guarantee the payment when due of each installment of principal
and/or interest due hereunder and all other sums due hereunder, whether due by
reason of acceleration or otherwise.
[Corporate Seal] COMARCO WIRELESS TECHNOLOGIES, INC.
Attest:
By:
- ------------------------------------ ---------------------------------
Thomas P. Baird
Chief Financial Officer
[Corporate Seal] INTERNATIONAL BUSINESS SERVICES, INC.
Attest:
By:
- ------------------------------------ ---------------------------------
Thomas P. Baird
Chief Financial Officer
[Corporate Seal] DECISIONS AND DESIGNS, INC.
Attest:
By:
- ------------------------------------ ---------------------------------
Thomas P. Baird
Chief Financial Officer
[Corporate Seal] LCTI, INC.
Attest:
By:
- ------------------------------------ ---------------------------------
Thomas P. Baird
Chief Financial Officer
AMENDED AND RESTATED
GUIDANCE LINE OF CREDIT NOTE
$5,000,000.00 October 31, 1995
R.1 On September 26, 1994 NationsBank, N.A. formerly known as NationsBank of
Virginia, N.A. (the "Lender") extended a loan to Comarco, Inc., A California
corporation (the "Maker") in the original Principal Sum of Five Million and
00/100 Dollars ($5,000,000.00), as evidenced by a Guidance Line of Credit Note
delivered by the Undersigned to the Bank of even date therewith, which Note may
have been modified and extended from time to time (the Note and all amendment,
modifications and extensions thereto are collectively referred to herein as the
"Loans"); and
R.2 The Undersigned has requested the Bank to modify and amend certain
provisions of the Note and the Bank has agreed to do so pursuant to the terms of
the Amended and Restated Guidance Line of Credit Note.
R.3 As contemplated by the First Amended to the Loan Agreement dated the date of
this Note with an effective date as of September 26, 1995, this Note is issued
pursuant to that certain Loan Agreement dated September 26, 1994 between the
Maker, as the borrower, and the Bank as amended from time to time (the
Agreement). All capitalized terms used in this Note which are not otherwise
defined in this Note shall have the meanings assigned to them in the Agreement.
R.4 This Note is issued in substitution and replacement for, but not in payment
of, the Guidance Line of Credit Note from the Maker to the Bank dated September
26, 1994.
R.5 References in this Note to the Agreement and other Loan Documents shall in
no way affect or impair the absolute and unconditional obligations of the Maker
to pay the principal of and interest on this Note as provided in this Note.
NOW, THEREFORE, in consideration of the premises and for other good and valuable
and legal consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto do hereby agree to amend and restate the Note
as follows:
FOR VALUE RECEIVED, on or before October 31, 1995, with an effective date as of
September 26, 1995, the undersigned, Comarco, Inc., a California corporation
(the "Maker"), promises to pay to the order of NationsBank, formerly known as
NationsBank of Virginia, N.A., a national banking association ("Lender"),
without setoff, at 8300 Greensboro Drive, McLean, VA 22102-3604, or at such
other place as the holder hereof may from time to time designate in writing, the
principal sum of Five Million and No/100 Dollars ($5,000,000.00), or so much
thereof as shall be advanced or readvanced and from time to time remain unpaid,
plus interest on the principal balance hereof from time to time outstanding,
from the date of this Note until the date paid, at the rates set forth below.
Except as otherwise provided in this Note with respect to amounts bearing
interest on a Libor Rate (hereinafter defined) basis, this Note shall be payable
in successive monthly installments of accrued and unpaid interest only,
commencing October 31, 1995 and continuing on the last day of each succeeding
calendar month thereafter until June 30, 1996, the maturity date of this Note,
at which time the entire principal balance of this Note and all accrued and
unpaid interest thereon shall be due and payable in full. Interest on this Note
shall be calculated on a 360-day year and the actual number of days elapsed.
All payments hereunder shall be payable in lawful currency of the United States
and in immediately available funds, and shall be applied first to late charges
and costs of collections, then to accrued and unpaid interest, and then to
reduce the principal balance hereof. Notwithstanding the foregoing, accrued and
unpaid interest on amounts outstanding hereunder bearing interest on a Libor
Rate basis shall be due and payable on the last day of the applicable Libor Rate
Funding Period (hereinafter defined), and if such Libor Rate Funding Period is
longer than 90 days, on the 90th day of each Libor Rate Funding Period.
Except as otherwise expressly set forth below, amounts outstanding hereunder
shall bear interest at a floating rate which is at all times equal to the Prime
Rate (hereinafter defined), from time to time in effect, plus the Additional
Percentage (hereinafter defined). For purposes of this Note, the term Prime Rate
shall mean the fluctuating rate established by Lender as its prime rate of
interest from time to time, at its discretion, whether or not such rate shall
otherwise be published. Maker and each other party liable hereon in any
capacity, whether as maker, endorser, surety, guarantor or otherwise,
acknowledges and agrees that Lender's Prime Rate is established by Lender as an
index or base rate and may or may not at any time be the best or lowest rate
charged by Lender on any loan. Such rate shall be adjusted as and when any
change in the Lender's Prime Rate or any change in the Additional Percentage
shall occur.
The term Additional Percentage shall mean the percentage applicable to this Note
in accordance with the following:
- if the Maker's Total Liabilities divided by Tangible Net Worth is less
than or equal to 1.00 to 1.00, the Additional Percentage shall be one-eighth of
one percent (1/8%);
- if the Maker's Total Liabilities divided by Tangible Net Worth is less
than or equal to 1.50 to 1.00, but greater than 1.00 to 1.00, the Additional
Percentage shall be three-eighths of one percent (3/8%); and
- if the Maker's Total Liabilities divided by Tangible Net Worth is greater
than 1.50 to 1.00, the Additional Percentage shall be five-eighths of one
percent (5/8%).
For purposes of this Note, the terms Total Liabilities and Tangible Net Worth
shall have the meaning attributed to such terms in the Loan Agreement
(hereinafter defined).
The initial Additional Percentage shall be calculated based on the Maker's
consolidated financial statements for the quarter ending July 31, 1995.
Thereafter, the applicable Additional Percentage shall be calculated and
adjusted quarterly, based on the quarterly financial statements required to be
submitted to the Lender pursuant to paragraph 4 of Article VI of the Loan
Agreement. Such quarterly changes shall be effective commencing five (5)
business days after submission by the Maker of the required financial
statements; it being understood, however, that in the event the quarterly
financial statements are not submitted when due, the Applicable Percentage shall
be five-eighths of one percent (5/8%) until such financial statements are
submitted as required, at which time the Applicable Percentage (for the balance
of the quarterly period) shall be determined as set forth above.
Additionally, so long as no event of default or any act, event or condition
which, with notice or the passage of time, or both, would constitute an event of
default under any Loan Document has accrued or is continuing, Maker shall have
the right to elect that specified amounts advanced under this Note bear interest
for specified periods (each being herein referred to as a Libor Rate Funding
Period), at the Libor Rate (hereinafter defined) plus the Additional Libor Rate
Percentage (hereinafter defined) in effect at the commencement of the Libor Rate
Funding Period. Election by Maker of a Libor Rate interest rate as herein
provided shall be made in a writing delivered to Lender not less than three (3)
business days prior to the date on which the Libor Rate Funding Period is to
begin, and shall specify (1) the business day on which the Libor Rate is to be
effective and the period (each being herein referred to as a "Libor Rate Funding
Period") for which the Libor Rate shall be applicable (which shall be only 30,
60, 90 or 180 days and the expiration of which may not be later than the
"Maturity Date"); and (2) the principal amount of this Note which shall bear
interest at the Libor Rate plus the Applicable Libor Rate Percentage (each being
herein referred to as a "Libor Rate Funding Segment"). Maker may not revoke any
such election without Lender's written consent. Upon the expiration of an
applicable Libor Rate Funding Period, unless notice of Libor Rate election from
Maker, the rate of interest applicable to any Libor Rate Funding Segment (after
the expiration thereof) shall automatically convert at the end of the applicable
Libor Rate Funding Period, to the Prime Rate plus the Applicable Percentage.
For purposes hereof, the term "Libor Rate" shall mean the per annum rate of
interest, as determined by the Lender in its sole discretion, at which deposits
in United States Dollars in an amount approximately equal to the amount for
which for which the rate is to be fixed and with maturates comparable to the
interest period selected by the Maker, to be the average of rates per annum for
11:00 a.m., London time, two (2) London business days prior to the first day of
such Libor Rate Funding Period for delivery on the first such day of such Libor
Rate Funding Period, in amounts comparable to the applicable Libor Rate Funding
Segment adjusted for Federal Reserve Board reserve requirements and similar
assessments, if any, imposed upon Lender from time to time.
The term Additional Libor Rate Percentage shall mean the percentage applicable
to this Note in accordance with the following:
- if Total Liabilities divided by Tangible Net Worth is less than or
equal to 1.00 to 1.00, the Additional Percentage shall be one and
five-eighths percent (1-5/8%);
- if Total Liabilities divided by Tangible Net Worth is less than or
equal to 1.50 to 1.00, but greater than 1.00 to 1.00, the Additional
Libor Rate Percentage shall be one and seven-eighths percent (1-7/8%);
and
- if Total Liabilities divided by Tangible Net Worth is greater than
1.50 to 1.00, the Additional Libor Rate Percentage shall be two and
one eighths percent (2-1/8%).
The Additional Libor Rate Percentage shall be calculated based on the Maker's
consolidated financial statements for the quarter ending July 31, 1995.
Thereafter, the applicable Additional Libor Rate Percentage shall be determined
quarterly, based on the quarterly financial statements required to be submitted
to the Maker pursuant to paragraph 4 of Article VI of the Loan Agreement. In the
event the quarterly financial statements are not submitted when due, the
Applicable Percentage shall be two and one-eighths percent (2-1/8%) until such
financial statements are submitted as required, at which time the Applicable
Percentage (for the balance of the quarterly period) shall be determined as set
forth above. It is expressly understood, however, that once the Additional Libor
Rate Percentage is determined in connection with any particular Libor Rate
Funding Segment, such Additional Libor Rate Percentage shall remain in effect
for the period for which the applicable Libor Rate election is made.
In the event that any payment of principal and/or interest is not actually
received by the holder of this Note within five (5) business days of the date
such payment is due, Maker agrees to pay a late charge equal to five percent
(5%0 of the total amount of the delinquent installment.
If default is made in the payment of any amount due (I) hereunder; (ii) under
the Master Line of Credit Note (hereinafter defined); (iii) under any
Acquisition Term Note (hereinafter defined); or (iv) under any other Loan
Document (hereinafter defined), or if default be made in the performance of any
covenant or agreement set forth in this Note, the Master Line of Credit Note,
any Acquisition Term note or any other Loan Document, then, subject to any
applicable grace period provided in the Loan Agreement (I) the entire
outstanding principal balance of this Note shall thereafter bear interest at a
rate which is two percent (2%) above the interest rate otherwise payable
pursuant to the terms of this Note; and (ii) the entire principal balance of
this Note and all accrued and unpaid interest thereon shall at once become due
and payable at the option of the holder of this Note. Failure to exercise the
foregoing option to accelerate payment shall not constitute a waiver of the
right to exercise the same in the event of any subsequent default.
Amounts outstanding which bear interest based on the Prime Rate may be prepaid
in whole or part at any time, without premium or penalty. No prepayment of any
other amounts outstanding hereunder shall be permitted without the prior written
consent of lender. Notwithstanding such prohibition, if there is a prepayment of
any such loan, whether voluntary or involuntary by reason of acceleration or
otherwise, Maker shall also pay to Lender any loss or expense which Lender may
incur or sustain as a result of prepayment. Any partial prepayments shall be
applied to amounts due hereunder in inverse order of maturity, and shall not
relieve Maker of the obligation to pay periodic installments of principal and/or
interest hereunder as and when the same would otherwise be due hereunder.
Each party liable under this Note in any capacity, whether as maker, endorser,
surety, guarantor or otherwise: (I) waives its homestead exemption, (ii) waives
presentment, demand, protest and notice of presentment, notice of protest and
notice of dishonor of this debt and each and every other notice of any kind with
respect to this Note, (iii) agrees that the holder of this Note, at any time or
times, without notice to it or its consent, may grant extensions of time,
without limit as to the number or the aggregate period of such extensions, for
the payment of any principal, interest or other sums due hereunder, and (iv) to
the extent not prohibited by law, waives the benefit of any law or rule of law
intended for its advantage or protection as an obligor hereunder or providing
for its release or discharge from liability under this note, in whole or in
part, on account of any facts or circumstances other than full and complete
payment of all amounts due hereunder.
Maker promises to pay all costs of collection, including reasonable attorneys'
fees, upon default in the payment of the principal of this Note or interest or
other sums hereon when due, whether at maturity, as herein provided, or by
reason of acceleration of maturity under the terms of this Note or under the
terms of any other Loan Documents, whether suit be brought or not.
In the event any one or more of the provisions contained in this Note or any
other Loan Document shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note or such other Loan Document,
but this Note and the other Loan Documents shall be construed as if such
invalid, illegal or unenforceable provision had never been contained or therein.
This Note may not be changed orally, but only by an agreement in writing signed
by the party against whom enforcement of any waiver, change, modification or
discharge is sought.
This Note is the "Guidance Line of Credit Note" issued pursuant to the terms and
conditions of a certain Loan Agreement, dated September 26, 1994 and all
modifications thereof (the "Loan Agreement"), by and among the Lender, the Maker
and the parties below executing this Note as Guarantors, and is executed and
delivered in connection with the Guidance Line of Credit (as defined and more
particularly described in the Loan Agreement). This Note, the Master Line of
Credit Note (as defined and more particularly described in the Loan Agreement),
each Acquisition Term Note (as defined and more particularly described in the
Loan Agreement) and the Loan Agreement, together with all extensions, renewals
and modifications thereof and substitutions therefor and all other documents or
instruments executed, issued or delivered in connection with the loan evidenced
hereby, are herein collectively referred to as the "Loan Documents".
All of the terms, covenants, provisions, conditions, stipulations, promises and
agreements contained in the Loan Documents to be kept, observed and performed by
Maker pursuant to the Loan Documents are hereby made a part of this Note and
incorporated herein by reference to the same extent and with the same force and
effect as if they were fully set forth herein, and Maker promises and agrees to
keep, observe and perform them, or cause them to be kept, observed and
performed, strictly in accordance with the terms and provisions thereof.
A default under the Master Line of Credit Note or any Acquisition Term Note
shall, at the option of the holder of this Note, be deemed a default under this
Note, entitling the holder of this Note (I) to exercise all of its rights and
remedies hereunder, including the right to accelerate payment of all sums due
hereunder; and (ii) to exercise all of its rights and remedies provided in the
Loan Agreement to be exercised upon the occurrence of an Event of Default (as
defined in the Loan Agreement). In the event that at any time this Note, the
Master Line of Credit Note and/or any Acquisition Term Note are held by
different persons, each of such persons shall have all of the rights, privileges
and options provided to the noteholder herein and/or in the Loan Agreement.
Maker warrants and represents that the loan evidenced hereby is being made for
business or investment purposes.
This Note shall be governed in all respects by the laws of the Commonwealth of
Virginia and shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, executors, administrators, personal
representatives, successors and assigns.
Any controversy or claim between or among the parties hereto, including, but not
limited to, those arising out of or relating to this Note or any of the other
Loan Documents, including any claim based on or arising from an alleged tort,
shall be determined by binding arbitration in accordance with the Federal
Arbitration Act (or if not applicable, the applicable state law), the rules of
practice and procedure for the arbitration of commercial disputes of Judicial
Arbitration and Mediation Services, Inc. (J.A.M.S.) and the "special rules" set
forth below. In the event of any inconsistency, the special rules shall control.
Judgment upon any arbitration award may be entered in any court having
jurisdiction. Any party to this Note may bring an action, including a summary or
expedited proceeding, to compel arbitration of any controversy or claim to which
this Note applies in any court having jurisdiction over such action.
1. Special Rules. The arbitration shall be conducted in the city of the Maker's
domicile at the time of this Note's execution, and administered by J.A.M.S., who
will appoint an arbitrator; if J.A.M.S. is unable or legally precluded from
administrating the arbitration, then the American Arbitration Association will
serve. All Arbitration hearings will be commenced within 90 days of the demand
for arbitration; further, the arbitrator shall only, upon a showing of cause, be
permitted to extend the commencement of such hearing for up to an additional 60
days.
2. Reservation of Rights. Nothing in this Agreement shall be deemed to (I) limit
the applicability of any otherwise applicable statutes of limitation or repose
and any waivers contained in this Note; or (ii) be a waiver by Lender of the
protection afforded to it by 12 U.S.C. Section 01 or any substantially
equivalent state law; or (iii) limit the right of Lender hereto (a) to exercise
self help remedies such as (but not limited to) setoff, or (b) to foreclose
against any real or personal property collateral, or (c) to obtain from a court
provisional or ancillary remedies such as (but not limited to) injunctive
relief, writ of possession or the appointment of a receiver. Lender may exercise
such self help rights, foreclose upon such property, or obtain such provisional
or ancillary remedies before, during or after the pendency of any arbitration
proceeding brought pursuant to this Agreement. Neither this exercise of self
help remedies nor the institution or maintenance of an action for foreclosure or
provisional or ancillary remedies shall constitute a waiver of the right of any
party, including the claimant in any such action, to arbitrate the merits of the
controversy or claim occasioning resort to such remedies.
COMARCO, INC., a California corporation
By:
-----------------------------------
Thomas P. Baird
Chief Financial Officer
FOR VALUE RECEIVED, the undersigned hereby jointly and severally, personally and
unconditionally guarantee the payment when due of each installment of principal
and/or interest due hereunder and all other sums due hereunder, whether due by
reason of acceleration or otherwise.
[Corporate Seal] COMARCO WIRELESS TECHNOLOGIES, INC.
Attest:
By:
- ------------------------------------ ---------------------------------
Thomas P. Baird
Chief Financial Officer
[Corporate Seal] INTERNATIONAL BUSINESS SERVICES, INC.
Attest:
By:
- ------------------------------------ ---------------------------------
Thomas P. Baird
Chief Financial Officer
[Corporate Seal] DECISIONS AND DESIGNS, INC.
Attest:
By:
- ------------------------------------ ---------------------------------
Thomas P. Baird
Chief Financial Officer
[Corporate Seal] LCTI, INC.
Attest:
By:
- ------------------------------------ ---------------------------------
Thomas P. Baird
Chief Financial Officer
<TABLE>
Exhibit ll
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
--------- Three Quarters Ended ---------
October 29, 1995 October 30, 1994
<S> <C> <C>
PRIMARY
Net income $ 2,696,000 $ 2,286,000
Less - net income allocated to subsidiary
dilutive stock options outstanding (58,000) -
---------- ----------
Net income used in calculation of primary
income per share $ 2,638,000 $ 2,286,000
========== ==========
Weighted average number of common shares
outstanding during the period 4,615,000 4,730,000
Add - common equivalent shares (determined using
the "treasury stock" method)
representing shares issuable upon
exercise of stock options 342,000 179,000
---------- ----------
Weighted average number of common shares used
in calculation of primary income per share 4,957,000 4,909,000
========== ==========
Primary income per common share $ .53 $ .47
==== ====
FULLY DILUTED
Net income $ 2,696,000 $ 2,286,000
Less - net income allocated to subsidiary
dilutive stock options outstanding (68,000) -
---------- ----------
Net income used in calculation of fully diluted
income per share $ 2,628,000 $ 2,286,000
========== ==========
Weighted average number of common shares
outstanding during the period 4,615,000 4,730,000
Add - common equivalent shares (determined using
the "treasury stock" method)
representing shares issuable upon
exercise of stock options 345,000 232,000
---------- ----------
Weighted average number of common shares used
in calculation of fully diluted
income per share 4,960,000 4,962,000
========== ==========
Fully diluted income per common share $ .53 $ .46
==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> OCT-29-1995
<CASH> 7,810
<SECURITIES> 3,460
<RECEIVABLES> 8,880
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,976
<PP&E> 1,198
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,308
<CURRENT-LIABILITIES> 6,683
<BONDS> 0
<COMMON> 465
0
0
<OTHER-SE> 19,725
<TOTAL-LIABILITY-AND-EQUITY> 27,308
<SALES> 10,684
<TOTAL-REVENUES> 53,060
<CGS> 4,961
<TOTAL-COSTS> 49,127
<OTHER-EXPENSES> 15,572
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (346)
<INCOME-PRETAX> 4,279
<INCOME-TAX> 1,583
<INCOME-CONTINUING> 2,696
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,696
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
<FN>
NOTE: RECEIVABLES AND PP&E VALUES REPORTED REPRESENT NET AMOUNTS.
</FN>
</TABLE>
