##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549-1004
 FORM 10-Q
 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarter Ended March 31, 2007
Commission File Number 1-10515
 JMAR TECHNOLOGIES, INC.
  Delaware
    
    68-0131180(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. employer
identification number)
 (Address, including zip code and telephone number including
  þ o
  o o þ
  o þ




---



##### Table of Contents



INDEX
 Page #PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Balance Sheets  March 31, 2007 (unaudited) and December 31, 2006
    
    
    2Consolidated Statements of Operations (unaudited)  Three months ended March 31, 2007 and 2006
    
    
    3Consolidated Statements of Cash Flows (unaudited)  Three months ended March 31, 2007 and 2006
    
    
    4Notes to Consolidated Financial Statements (unaudited)
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    24PART II.
    
    OTHER INFORMATIONItem 1.
    
    N/AItem 1A.
    
    Risk Factors
    
    
    25Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3.
    
    Exhibits
    
    
    27EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 10.3EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
 1




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 JMAR TECHNOLOGIES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 As of March 31, 2007 and December 31, 2006
 March 31, 2007
    
    
    December 31, 2006(Unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    149,498
    
    
    $
    696,546Accounts receivable
    
    
    281,842
    
    
    
    1,223,985Inventories
    
    
    504,320
    
    
    
    519,400Net current assets of discontinued operations
    
    
    45,744
    
    
    
    45,963Prepaid expenses and other
    
    
    96,734
    
    
    
    255,147Total current assets
    
    
    1,078,138
    
    
    
    2,741,041Property and equipment, net
    
    
    939,819
    
    
    
    1,027,239Intangible assets, net
    
    
    1,780,225
    
    
    
    1,759,454Other assets
    
    
    325,177
    
    
    
    443,082TOTAL ASSETS
    
    $
    4,123,359
    
    
    $
    5,970,816LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current Liabilities:Accounts payable
    
    $
    1,412,440
    
    
    $
    1,054,558Accrued liabilities
    
    
    903,599
    
    
    
    618,794Accrued payroll and related costs
    
    
    249,565
    
    
    
    451,912Billings in excess of costs incurred
    
    
    452,511
    
    
    
    1,418,372Working capital line of credit, net
    
    
    684,388
    
    
    
    1,059,355Current portion of notes payable and other liabilities, net
    
    
    214,338
    
    
    
    207,710Net current liabilities of discontinued operations
    
    
    538,636
    
    
    
    538,636Deferred rent
    
    
    49,429
    
    
    
    49,429Total current liabilities
    
    
    4,504,906
    
    
    
    5,398,766Notes payable and other long-term liabilities, net of current portion
    
    
    368,869
    
    
    
    413,694Notes payable and other long-term liabilities of discontinued operations,
net of current portion
    
    
    89,208
    
    
    
    89,209Redeemable convertible preferred stock, 785,000 shares issued and
outstanding as of March 31, 2007 and December 31, 2006, net of unamortized
discount of $844,315 and $2,440,473, respectively
    
    
    5,558,522
    
    
    
    5,409,527Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity (deficit):Preferred stock, $.01 par value; 5,000,000 shares authorized;
785,000 shares issued and outstanding as of March 31, 2007 and
December 31, 2006 included in redeemable convertible preferred stock
above
    
    
    
    
    
    
    Common stock, $.01 par value; 150,000,000 shares authorized;
42,177,004 shares issued and outstanding as of March 31, 2007 and
39,535,615 shares issued and outstanding as of December 31, 2006
    
    
    421,687
    
    
    
    395,356Additional-paid in capital
    
    
    84,580,168
    
    
    
    84,077,547Accumulated deficit
    
    
    (91,400,001
    )
    
    
    (89,813,283
    )Total stockholders (deficit) equity
    
    
    (6,398,146
    )
    
    
    (5,340,380
    )TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
    
    $
    4,123,359
    
    
    $
    5,970,816
  2




---



##### Table of Contents



JMAR TECHNOLOGIES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months Ended March 31, 2007 and 2006
 (Unaudited)
 2007
    
    
    2006Revenues
    
    $
    1,112,334
    
    
    $
    1,217,525Costs of revenues
    
    
    850,044
    
    
    
    1,091,728Gross profit
    
    
    262,290
    
    
    
    125,797Operating expenses:Selling, general and administrative
    
    
    987,129
    
    
    
    1,404,646Research and development
    
    
    311,322
    
    
    
    894,419Total operating expenses
    
    
    1,298,451
    
    
    
    2,299,065Loss from operations
    
    
    (1,036,161
    
    
    
    (2,173,268
    )Interest and other income
    
    
    18,530
    
    
    
    34,037Interest and other expense
    
    
    258,187
    
    
    
    56,905Loss from continuing operations
    
    
    (1,275,818
    )
    
    
    (2,196,136
    )Loss from operations of discontinued operations
    
    
    
    
    
    
    64,101Net loss
    
    
    (1,275,818
    )
    
    
    (2,260,237
    )Deemed preferred stock dividends
    
    
    (310,901
    )
    
    
    (348,947
    )Loss applicable to common stock
    
    $
    (1,586,719
    )
    
    $
    (2,609,184
    )Basic and diluted loss per share:Loss per share from continuing operations
    
    $
    (0.04
    )
    
    $
    (0.07
    )Loss per share from discontinued operations
    
    
    
    
    
    
    Basic and diluted loss per share applicable to
common stock
    
    $
    (0.04
    )
    
    $
    (0.07
    )Shares used in computation of basic and diluted
loss per share
    
    
    40,729,287
    
    
    
    39,285,564
  3




---



##### Table of Contents



JMAR TECHNOLOGIES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Three Months Ended March 31, 2007 and 2006
 (Unaudited)
 2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (1,275,818
    )
    
    $
    (2,260,237
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation, amortization and debt discount
    
    
    170,731
    
    
    
    117,342Stock based compensation expense
    
    
    59,817
    
    
    
    114,605Services received in exchange for common stock or warrants
    
    
    29,275
    
    
    
    Asset write-downs
    
    
    125,000
    
    
    
    14,077Change in assets and liabilities:Accounts receivable
    
    
    942,140
    
    
    
    (279,380
    )Inventories
    
    
    15,080
    
    
    
    (59,926
    )Prepaid expenses and other
    
    
    139,586
    
    
    
    (231,443
    )Billings in excess of costs incurred
    
    
    (697,688
    )
    
    
    130,199Accounts payable and accrued liabilities
    
    
    27,786
    
    
    
    (232,906
    )Changes in net assets and liabilities of discontinued
operations
    
    
    219
    
    
    
    (26,238
    )Net cash used in operating activities
    
    
    (463,872
    )
    
    
    (2,713,907
    )Cash flows from investing activities:Capital expenditures of continuing operations
    
    
    (8,292
    )
    
    
    (26,940
    )Capital expenditures of discontinued operations
    
    
    
    
    
    
    (4,056
    )Additions of intangible assets and other assets of continuing operations
    
    
    (23,168
    )
    
    
    (4,129
    )Net cash used in investing activities
    
    
    (31,460
    )
    
    
    (35,125
    )Cash flows from financing activities:Net proceeds from the issuance of common stock
    
    
    384,182
    
    
    
    1,357,281Cash payments of preferred stock dividends
    
    
    
    
    
    
    (147,737
    )Cash
received on notes receivable
    
    
    11,687Net
(payments) borrowings under line of credit
    
    
    (447,585
    )
    
    
    7,088Net cash provided by financing activities
    
    
    (51,716
    )
    
    
    1,216,632Net increase (decrease) in cash and cash equivalents
    
    
    (547,048
    )
    
    
    (1,532,400
    )Cash and cash equivalents, beginning of period
    
    
    696,546
    
    
    
    5,490,789Cash and cash equivalents, end of period
    
    $
    149,498
    
    
    $
    3,958,389Cash paid for interest
    
    $
    58,086
    
    
    $
    7,934
   4




---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 (1) Basis of Presentation and Financial Condition
       5




---



##### Table of Contents



(2) Recent Accounting Pronouncements
  Fair Value Measurements
 Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans
  6




---



##### Table of Contents



The Fair Value Option for Financial Assets and
Financial Assets and Liabilities  Including an Amendment of FASB Statement No. 115 Accounting for Certain Investments in Debt and Equity Securities,
 (3) Stock-Based Compensation Plans
     7




---



##### Table of Contents



2007
    
    2006Wtd. Avg.
    
    
    
    
    
    
    
    
    
    
    
    
    
    Wtd. Avg.Wtd. Avg.
    
    Remaining
    
    Aggregate
    
    
    
    
    
    Wtd. Avg.
    
    Remaining
    
    AggregateExercise
    
    Contractual
    
    Intrinsic
    
    
    
    
    
    Exercise
    
    Contractual
    
    IntrinsicShares
    
    Price
    
    Life
    
    Value
    
    Shares
    
    Price
    
    Life
    
    ValueOutstanding at
beginning of period
    
    
    2,329,054
    
    
    $
    2.71
    
    
    5.1 years
    
    
    
    
    
    
    3,162,610
    
    
    $
    2.11Granted
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,095
    
    
    $
    1.16Exercised
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65,700
    )
    
    $
    1.09Forfeited
    
    
    (1,062,552
    )
    
    $
    2.96
    
    
    
    
    
    
    
    
    
    
    
    (36,666
    )
    
    $
    1.85Outstanding at end
of year
    
    
    1,266,502
    
    
    $
    1.78
    
    
    6.5 years
    
    $
    
    
    
    
    3,104,339
    
    
    $
    2.12
    
    
    5.2 years
    
    $
    Vested and
expected to vest
    
    
    1,244,960
    
    
    $
    1.80
    
    
    6.7 years
    
    $
    
    
    
    
    3,069,990
    
    
    $
    2.13
    
    
    5.3 years
    
    $
    Exercisable
at end of period
    
    
    782,836
    
    
    $
    2.33
    
    
    5.0 years
    
    $
    
    
    
    
    2,386,689
    
    
    $
    2.34
    
    
    4.6 years
    
    $
    
  2007
    
    2006Weighted-
    
    
    
    
    
    Weighted-average grant-
    
    
    
    
    
    average grant-Shares
    
    date fair value
    
    Shares
    
    date fair valueNonvested at beginning of period
    
    
    623,762
    
    
    $
    1.02
    
    
    
    815,657
    
    
    $
    1.21Granted
    
    
    0
    
    
    $
    
    
    
    
    44,095
    
    
    $
    1.16Vested
    
    
    (36,667
    )
    
    $
    1.41
    
    
    
    (145,914
    )
    
    $
    1.18Forfeited
    
    
    (103,429
    )
    
    $
    1.70
    
    
    
    (18,333
    )
    
    $
    1.01Non-vested at end of period
    
    
    483,666
    
    
    $
    0.91
    
    
    
    695,505
    
    
    $
    1.20
  (4) Accounts Receivable
  March 31, 2007
    
    
    December 31, 2006(Unaudited)Billed
    
    $
    686,114
    
    
    $
    1,402,953Unbilled
    
    
    23,795
    
    
    
    249,099709,909
    
    
    
    1,652,052Less-allowance for doubtful accounts
    
    
    (428,067
    )
    
    
    (428,067
    )$
    281,842
    
    
    $
    1,223,985
 8




---



##### Table of Contents



(5) Inventories
  March 31, 2007
    
    
    December 31, 2006(Unaudited)Raw materials, components and sub-assemblies
    
    $
    126,364
    
    
    $
    136,811Work-in-process
    
    
    174
    
    
    
    174Finished goods
    
    
    388,050
    
    
    
    392,683514,588
    
    
    
    529,668Less-reserve for excess and obsolete inventory
    
    
    (10,268
    )
    
    
    (10,268
    )$
    504,320
    
    
    $
    519,400
 (6) Property and Equipment
  March 31, 2007
    
    
    December 31, 2006(Unaudited)Equipment and machinery
    
    $
    2,633,368
    
    
    $
    2,641,660Software
    
    
    599,752
    
    
    
    599,752Furniture and fixtures
    
    
    280,229
    
    
    
    280,229Leasehold improvements
    
    
    652,401
    
    
    
    652,4014,165,750
    
    
    
    4,174,042Less-accumulated depreciation
    
    
    (3,225,931
    )
    
    
    (3,146,803
    )$
    939,819
    
    
    $
    1,027,239
  (7) Segment Information
  Research Division/Vermont Operations
 9




---



##### Table of Contents



Sensor Products Group
 TM
   SensorResearch
    
    Vermont
    
    ProductsDivision
    
    Operations
    
    Group
    
    Corporate
    
    Total2007:Revenues
    
    $
    100,714
    
    
    $
    969,102
    
    
    $
    42,518
    
    
    $
    
    
    
    $
    1,112,334Operating loss
    
    
    303,337
    
    
    
    136,402
    
    
    
    661,789
    
    
    
    65,367
    
    
    
    1,036,161Total assets
    
    
    846,154
    
    
    
    478,335
    
    
    
    1,672,824
    
    
    
    1,126,046
    
    
    
    4,123,359Capital expenditures
    
    
    -0-
    
    
    
    - 0 -
    
    
    
    - 0 -
    
    
    
    - 0 -
    
    
    
    - 0 -Depreciation & amortization
    
    
    20,051
    
    
    
    6,645
    
    
    
    10,759
    
    
    
    80,528
    
    
    
    117,9832006:Revenues
    
    
    512,203
    
    
    
    691,921
    
    
    
    13,401
    
    
    
    
    
    
    
    1,217,525Operating loss
    
    
    631,854
    
    
    
    284,210
    
    
    
    923,439
    
    
    
    333,765
    
    
    
    2,173,268Total assets
    
    
    1,386,472
    
    
    
    5,515,016
    
    
    
    1,859,743
    
    
    
    5,726,385
    
    
    
    14,487,616Goodwill
    
    
    
    
    
    
    4,415,932
    
    
    
    
    
    
    
    
    
    
    
    4,415,932Capital expenditures
    
    
    
    
    
    
    1,242
    
    
    
    9,945
    
    
    
    15,753
    
    
    
    26,940Depreciation & amortization
    
    
    24,633
    
    
    
    7,215
    
    
    
    5,729
    
    
    
    79,765
    
    
    
    117,342
 10




---



##### Table of Contents



(8) Line of Credit and Notes Payable
     (9) Equity Transactions
     11




---



##### Table of Contents



(10) Earnings Per Share
  (11) Discontinued Operations
   March 31, 2007
    
    
    December 31, 2006Current Assets:Cash
    
    $
    0
    
    
    $
    1,897Accounts receivable
    
    
    0
    
    
    
    44,066$
    0
    
    
    $
    45,963Current Liabilities:Lease accrual/deferred rent
    
    $
    0
    
    
    $
    233,190Accounts payable
    
    
    0
    
    
    
    272,645Accrued liabilities
    
    
    0
    
    
    
    32,801$
    0
    
    
    $
    538,636Non-Current Liabilities:Lease accrual/deferred rent
    
    $
    0
    
    
    $
    89,209
  Three Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006Revenues
    
    $
    
    
    
    $
    1,683,874Costs of revenues
    
    
    
    
    
    
    1,462,330Gross profit (loss)
    
    
    
    
    
    
    221,544Selling, general and administrative
    
    
    
    
    
    
    124,856Research and development
    
    
    
    
    
    
    106,261Asset writedowns
    
    
    
    
    
    
    49,722Lease reserves
    
    
    
    
    
    
    Interest and other expense
    
    
    
    
    
    
    4,806Loss from operations of discontinued operations
    
    $
    
    
    
    $
    64,101
 (12) Commitments
and Contingencies
   12




---



##### Table of Contents



(13) Subsequent Events
   Sale of XRM Assets.
 13




---



##### Table of Contents



Item 2.
 Overview
 TM TM
 Sources of Revenue
 Contract Research and Development, Technical Support, and Production Programs
    Standard Products
 TM
  14




---



##### Table of Contents



New Products Under Development
   Results of Operations
 Revenues
 2007
    
    
    2006Research Division
    
    $
    100,714
    
    
    $
    512,203Vermont Operations
    
    
    969,102
    
    
    
    691,921Sensor Products Group
    
    
    42,518
    
    
    
    13,401$
    1,112,334
    
    
    $
    1,217,525
  Losses
 Gross Margins
 Selling, General and Administrative (SG&A).
 15




---



##### Table of Contents



Research, Development and Engineering Program (RD&E).
 
    
    Customer-funded RD&E costs incurred, primarily related to the DARPA Contract and the
NAVAIR Contract, are included in Costs of Revenues, and
totaled $631,707 and $791,968 for
the three months ended March 31, 2007 and 2006, respectively. The $942,929 in
customer-funded RD&E expenditures for the three months ended March 31, 2007 primarily
consists of materials and support costs associated with the fulfillment of the NAVAIR
Contract.
    
    Company-funded RD&E costs associated with product development are shown in Operating
Expenses and totaled $942,929 and $894,419 for the three months ended March 31, 2007 and
2006, respectively.
  Interest and Other Income.
 Interest and Other Expense.
 Discontinued Operations
 Preferred Stock Dividends.
 16




---



##### Table of Contents



Liquidity and Financial Condition
 General.
   Sales
of common stock.
  17




---



##### Table of Contents



Working
Capital Line.
  18




---



##### Table of Contents



Subsequent Financing Transactions.
 Sale of XRM Assets
 Letter of Credit
 Cash
Used in Operations
 Cash
Used in Investing Activities
 Cash
(Used) and Provided by Financing Activities
 19




---



##### Table of Contents



Commitments
  2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter
    
    
    TotalLeases
    
    $
    537,039
    
    
    $
    530,495
    
    
    $
    373,797
    
    
    $
    371,233
    
    
    $
    384,494
    
    
    $
    331,020
    
    
    $
    2,528,079Deferred
compensation
    
    
    218,443
    
    
    
    185,955
    
    
    
    56,003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    460,401$
    755,482
    
    
    $
    716,450
    
    
    $
    429,800
    
    
    $
    371,233
    
    
    $
    384,494
    
    
    $
    331,020
    
    
    $
    2,988,480
  Preferred Stock Redemption Obligations
  GrossAmountOutstandingat March
    
    
    Scheduled RedemptionsDescription
    
    31, 2007
    
    
    2007
    
    
    2008
    
    
    TotalSeries G Preferred
    
    $
    1,456,020
    
    
    $
    306,042
    
    
    $
    1,149,978
    
    
    $
    1,456,020Series I Preferred
    
    $
    6,393,980
    
    
    
    610,890
    
    
    
    5,783,090
    
    
    
    6,393,980$
    916,932
    
    
    $
    6,933,068
    
    
    $
    7,850,000
 Line of Credit
  License Agreements
  20




---



##### Table of Contents



Net Operating Loss Carryforward
  Critical Accounting Policies and Estimates
  21




---



##### Table of Contents



Revenues
  Goodwill and Intangible Assets
    22




---



##### Table of Contents



Beneficial Conversion Feature and Warrant Valuation
   Allowances for Doubtful Accounts
  Deferred Taxes
  23




---



##### Table of Contents



Stock-Based Compensation Expense
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
   24




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1A. Risk Factors
  Our cash requirements are significant and the failure to raise additional capital will have a
significant adverse effect on the Companys financial condition and its operations.
  Our continuing decline in revenues and our net and operating losses are significant and could have
an adverse impact on our stock price.
  Weaknesses in our internal control over financial reporting could result in material misstatements
in our financial statements.
 25




---



##### Table of Contents



If our outstanding options and warrants are exercised and if our preferred stock is converted it
will result in substantial dilution.
    
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 (a)(i)
    
    In January 2007, the Company issued 33,332 shares of common stock to its four
outside Board Members in payment of $1,500 of the quarterly retainer for each of the
outside Board Members. In February 2007, the Company issued 23,076 shares of common stock
to three of its outside Board members in payment of $2,000 of the Board Members fee.
 26




---



##### Table of Contents



Also
in February 2007, the Company issued 36,151 shares of common stock to the fourth outside
Board Member in payment of $7,500 in director fees and $1,899 in Board related expenses. In
addition, in February 2007, the Company issued 6,000 shares of common stock to its three
Audit Committee members in payment of $500 in meeting fees. In March 2007, the Company
issued 9,524 shares of common stock to its four outside Board Members in payment of $500 in
meeting fees. The Company valued the stock based on the fair value on
the date of issuance. These transactions were exempt under Section 4(2) of the Securities Act of
1933.
 
 Item 3. Exhibits.
 Exhibit 10.1
    
    Securities Purchase Agreement dated February 8, 2007 between JMAR Technologies, Inc. and Laurus Master Fund, Ltd.Exhibit 10.2
    
    Securities Purchase Agreement dated March 6, 2007 between JMAR Technologies, Inc. and Laurus Master Fund, Ltd.Exhibit 10.3
    
    Asset Purchase Agreement dated March 16, 2007 between JMAR Technologies, Inc. and Gatan, Inc.Exhibit 31.1
    
    Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act 2002.Exhibit 31.2
    
    Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 
   JMAR TECHNOLOGIES, INC.May 22, 2007
    By:
    /s/  C. Neil BeerC. Neil Beer,Chief Executive Officer
and Chief Accounting Officer By:
    /s/  I. Michael SweatmanI. Michael Sweatman,Chief Financial Officer 27