Comarco Sees $2.5-Million Loss, Blames Too-Rapid Expansion

Comarco Inc., an Anaheim defense contractor with ambitious growth plans, said Monday that it expects later this month to report a pretax loss of $2.5 million for its fiscal 1987, largely because its expansion program swallowed “too much, too fast.”

The news surprised Wall Street investors and analysts who had been projecting a modest profit for the company for its fiscal year ended Jan. 31. Comarco stock closed Monday at $7.25 a share, down 50 cents for the day.

“It’s a major screw-up,” said Robert Hanisee, an analyst with Seidler Amdec Securities Inc. “Their credibility was already suspect, and this only pushes it down further.”

As a result of the loss, the company said it no longer complies with its bank loan requirements. However, the company said it expects the bank to waive the requirements.

Don Bailey, Comarco’s vice president for corporate development, said the company uncovered its financial woes during an intense review of operations in February and March. The review was prompted by a decision in January to take a $1.7-million write-off on one of the three companies Comarco had acquired during the fiscal year.

According to sources familiar with the company’s activities, the review uncovered lax accounting practices, inefficient operations and sluggish sales for some of its newer products.

Bailey and Hanisee agreed that Comarco’s determination to grow quickly into a mid-size defense contractor through an aggressive acquisition program caused the problems.

“It was an overexpansion,” Bailey conceded. “We did too much too fast.”

Despite the losses, the company said it expects to report revenues for the fiscal year of between $75 million and $80 million, contrasted with $41.7 million in fiscal 1986.

As a result of the losses, Bailey said, the company has laid off as many as 70 employees throughout its nationwide operation and has reorganized the remaining 1,550 under two group presidents. In addition, the company expects to close one of its three Washington offices in the very near future.

Further, Bailey said, two former group presidents have been reassigned after giving up their posts. Robert Conger, formerly the president of the logistic technology group, was assigned to pursue new business in Washington. Mark Fagerlin, formerly president of the design and engineering group, is still awaiting a new assignment.