##### 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
 
 JMAR TECHNOLOGIES, INC.
  Delaware(State or other jurisdiction of
incorporation or organization)
    
    68-0131180(I.R.S. employer
identification number)
 (Address, including zip code and telephone number including
  þ o
  o þ




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INDEX
 Page #PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets  June 30, 2005 (unaudited) and December 31, 2004
    
    
    2Consolidated Statements of Operations (unaudited)  Three months and six months ended June 30, 2005 and 2004
    
    
    3Consolidated Statements of Cash Flows (unaudited)  Six months ended June 30, 2005 and 2004
    
    
    4Notes to Consolidated Financial Statements (unaudited)
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    29PART II. OTHER INFORMATIONItem 1. N/AItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3. N/AItem 4. Submission of Matters to a Vote of Security Holders
    
    
    30Item 5. N/AItem 6. Exhibits
    
    
    30EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
 1




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PART I  FINANCIAL INFORMATION
 JMAR TECHNOLOGIES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 As of June 30,
2005 and December 31, 2004
 June 30, 2005
    
    December 31, 2004ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    6,810,150
    
    
    $
    6,599,588Accounts receivable
    
    
    2,433,247
    
    
    
    3,090,922Inventories
    
    
    327,975
    
    
    
    335,336Prepaid expenses and other
    
    
    512,905
    
    
    
    925,943Total current assets
    
    
    10,084,277
    
    
    
    10,951,789Property and equipment, net
    
    
    901,248
    
    
    
    879,012Intangible assets, net
    
    
    1,890,610
    
    
    
    537,191Other assets
    
    
    390,248
    
    
    
    642,174Goodwill
    
    
    4,415,932
    
    
    
    4,415,932TOTAL ASSETS
    
    $
    17,682,315
    
    
    $
    17,426,098LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    1,075,327
    
    
    $
    943,027Accrued liabilities
    
    
    264,314
    
    
    
    673,869Accrued payroll and related costs
    
    
    820,800
    
    
    
    731,718Billings in excess of costs incurred
    
    
    361,344
    
    
    
    861,383Current portion of notes payable and other liabilities
    
    
    145,355
    
    
    
    145,019Current liabilities of discontinued operations, including notes payable
    
    
    166,748
    
    
    
    416,391Total current liabilities
    
    
    2,833,888
    
    
    
    3,771,407Notes payable and other long-term liabilities, net of current portion
    
    
    378,814
    
    
    
    465,492Redeemable convertible preferred stock, 885,000 shares issued and
outstanding as of June 30, 2005 and 908,333 shares issued and outstanding
as of December 31, 2004, net of unamortized discount of $1,515,484 and
$996,059, respectively
    
    
    7,334,516
    
    
    
    8,087,274Stockholders equity:Preferred stock, $.01 par value; 5,000,000 shares authorized; 885,000 shares
issued and outstanding as of June 30, 2005 included in redeemable
convertible preferred stock above, and 908,333 shares issued
and outstanding as of December 31, 2004
    
    
    
    
    
    
    Common stock, $.01 par value; 80,000,000 shares authorized; 35,207,017
shares issued and outstanding as of June 30, 2005 and 31,376,735 shares
issued and outstanding as of December 31, 2004
    
    
    352,070
    
    
    
    313,767Additional-paid in capital
    
    
    76,344,975
    
    
    
    70,087,057Accumulated deficit
    
    
    (69,561,948
    )
    
    
    (65,298,899
    )Total stockholders equity
    
    
    7,135,097
    
    
    
    5,101,925TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    17,682,315
    
    
    $
    17,426,098
  2




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JMAR TECHNOLOGIES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months Ended June 30, 2005 and 2004
and Six Months Ended June 30, 2005 and 2004
(Unaudited)
 Three Months Ended
    
    Six Months EndedJune 30, 2005
    
    June 30, 2004
    
    June 30, 2005
    
    June 30, 2004Revenues
    
    $
    2,714,680
    
    
    $
    3,011,437
    
    
    $
    4,582,011
    
    
    $
    6,046,813Costs of revenues
    
    
    2,043,021
    
    
    
    2,341,595
    
    
    
    3,349,896
    
    
    
    4,711,518Gross profit
    
    
    671,659
    
    
    
    669,842
    
    
    
    1,232,115
    
    
    
    1,335,295Operating expenses:Selling, general and administrative
    
    
    1,704,713
    
    
    
    1,285,012
    
    
    
    3,116,014
    
    
    
    2,452,754Research and development
    
    
    595,495
    
    
    
    139,815
    
    
    
    1,397,477
    
    
    
    193,912Asset writedowns
    
    
    99,218
    
    
    
    49,576
    
    
    
    99,218
    
    
    
    49,576Total operating expenses
    
    
    2,399,426
    
    
    
    1,474,403
    
    
    
    4,612,709
    
    
    
    2,696,242Loss from operations
    
    
    (1,727,767
    )
    
    
    (804,561
    )
    
    
    (3,380,594
    )
    
    
    (1,360,947
    )Interest and other income
    
    
    43,815
    
    
    
    21,677
    
    
    
    81,106
    
    
    
    93,508Interest and other expense
    
    
    (73,844
    )
    
    
    (78,565
    )
    
    
    (149,757
    )
    
    
    (486,588
    )Loss from continuing operations
    
    
    (1,757,796
    )
    
    
    (861,449
    )
    
    
    (3,449,245
    )
    
    
    (1,754,027
    )Income from operations of discontinued
operations
    
    
    
    
    
    
    74,546
    
    
    
    
    
    
    
    12,449Net loss
    
    
    (1,757,796
    )
    
    
    (786,903
    )
    
    
    (3,449,245
    )
    
    
    (1,741,578
    )Deemed preferred stock dividends
    
    
    (432,186
    )
    
    
    (535,098
    )
    
    
    (813,804
    )
    
    
    (1,704,381
    )Loss applicable to common stock
    
    $
    (2,189,982
    )
    
    $
    (1,322,001
    )
    
    $
    (4,263,049
    )
    
    $
    (3,445,959
    )Basic and diluted income (loss) per share:Loss per share from continuing
operations
    
    $
    (0.06
    )
    
    $
    (0.04
    )
    
    $
    (0.12
    )
    
    $
    (0.11
    )Income per share from discontinued
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Basic and diluted loss per share applicable to
common stock
    
    $
    (0.06
    )
    
    $
    (0.04
    )
    
    $
    (0.12
    )
    
    $
    (0.11
    )Shares used in computation of basic and
diluted income (loss) per share:Basic
    
    
    35,199,784
    
    
    
    30,885,182
    
    
    
    34,454,218
    
    
    
    30,286,846Diluted
    
    
    35,199,784
    
    
    
    33,368,351
    
    
    
    34,454,218
    
    
    
    32,770,014
  3




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JMAR TECHNOLOGIES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Six Months Ended June 30, 2005 and 2004
(Unaudited)
 2005
    
    2004Cash flows from operating activities:Loss from continuing operations
    
    $
    (3,449,245
    )
    
    $
    (1,754,027
    )Adjustments to reconcile loss from continuing operations
to net cash used in continuing operations:Depreciation, amortization and debt discount
    
    
    314,771
    
    
    
    676,858Asset writedowns
    
    
    99,218
    
    
    
    49,576Services received in exchange for common stock or warrants
    
    
    55,700
    
    
    
    4,499Change in assets and liabilities:Accounts receivable
    
    
    657,675
    
    
    
    (1,782,092
    )Inventories
    
    
    7,361
    
    
    
    43,141Prepaid expenses and other
    
    
    495,903
    
    
    
    106,029Billings in excess of costs incurred
    
    
    (500,039
    )
    
    
    378,368Accounts payable and accrued liabilities
    
    
    (221,151
    )
    
    
    (476,224
    )Net cash used in continuing operations operating activities
    
    
    (2,539,807
    )
    
    
    (2,753,872
    )Income from discontinued operations
    
    
    
    
    
    
    12,449Changes in net assets and liabilities of discontinued operations
    
    
    (249,643
    )
    
    
    (560,345
    )Net cash used in discontinued operations
    
    
    (249,643
    )
    
    
    (547,896
    )Net cash used in operating activities
    
    
    (2,789,450
    )
    
    
    (3,301,768
    )Cash flows from investing activities:Capital expenditures
    
    
    (179,029
    )
    
    
    (62,775
    )Additions of intangible assets and other assets
    
    
    (133,988
    )
    
    
    (112,601
    )Net cash used in investing activities
    
    
    (313,017
    )
    
    
    (175,376
    )Cash flows from financing activities:Net proceeds from the issuance of preferred stock
    
    
    
    
    
    
    9,065,093Net proceeds from the issuance of common stock
    
    
    3,866,168
    
    
    
    Payments of notes payable and other long-term liabilities
    
    
    
    
    
    
    (835,761
    )Cash payments of preferred stock dividends
    
    
    (319,806
    )
    
    
    (127,197
    )Preferred stock redemptions
    
    
    (233,333
    )
    
    
    Net proceeds from the exercise of options
    
    
    
    
    
    
    157,275Net borrowings under line of credit
    
    
    
    
    
    
    (216,144
    )Net cash provided by financing activities
    
    
    3,313,029
    
    
    
    8,043,266Net increase in cash and cash equivalents
    
    
    210,562
    
    
    
    4,566,122Cash and cash equivalents, beginning of period
    
    
    6,599,588
    
    
    
    4,171,179Cash and cash equivalents, end of period
    
    $
    6,810,150
    
    
    $
    8,737,301Cash paid for interest
    
    $
    14,934
    
    
    $
    19,657
   4




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JMAR TECHNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 (1) Basis of Presentation and Financial Condition
  TM TM
    (2) Recent Accounting Pronouncements
  5




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JMAR TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
(Unaudited)
  ,
  (3) Stock-Based Compensation Plans
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Loss applicable to common stock:
    
    As Reported
    
    $
    (2,189,982
    )
    
    $
    (1,322,001
    )
    
    $
    (4,263,049
    )
    
    $
    (3,445,959
    )Stock based compensation expense
    
    
    
    
    (140,802
    )
    
    
    (175,067
    )
    
    
    (262,934
    )
    
    
    (342,502
    )Pro Forma
    
    $
    (2,330,784
    )
    
    $
    (1,497,068
    )
    
    $
    (4,525,983
    )
    
    $
    (3,788,461
    )Basic and diluted loss per share:
    
    As Reported
    
    $
    (0.06
    )
    
    $
    (0.04
    )
    
    $
    (0.12
    )
    
    $
    (0.11
    )Stock based compensation expense
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.02
    )Pro Forma
    
    $
    (0.07
    )
    
    $
    (0.05
    )
    
    $
    (0.13
    )
    
    $
    (0.13
    )
  6




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##### Table of Contents



JMAR TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
(Unaudited)
   (4) Accounts Receivable
  June 30, 2005
    
    December 31, 2004Billed
    
    $
    1,359,007
    
    
    $
    944,046Unbilled
    
    
    1,074,240
    
    
    
    2,146,876$
    2,433,247
    
    
    $
    3,090,922
  (5) Inventories
  June 30, 2005
    
    December 31, 2004Raw materials, components and sub-assemblies
    
    $
    86,800
    
    
    $
    88,684Work-in-process
    
    
    
    
    
    
    245,498Finished goods and demonstration units
    
    
    241,175
    
    
    
    1,154$
    327,975
    
    
    $
    335,336
 7




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##### Table of Contents



JMAR TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
 (6) Property and Equipment
  June 30, 2005
    
    December 31, 2004Equipment, machinery and software
    
    $
    3,311,786
    
    
    $
    3,156,252Furniture and fixtures
    
    
    391,501
    
    
    
    440,990Leasehold improvements
    
    
    314,973
    
    
    
    283,2184,018,260
    
    
    
    3,880,460Less-accumulated depreciation
    
    
    (3,117,012
    )
    
    
    (3,001,448
    )$
    901,248
    
    
    $
    879,012
 (7) Segment Information
  Research Division/Vermont Operations
     8




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##### Table of Contents



JMAR TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
 Microelectronics Division (formerly JMAR Semiconductor)
  Sensor Products Group
 TM
   SensorResearch
    
    Vermont
    
    Microelectronics
    
    ProductsDivision
    
    Operations
    
    Division
    
    Group
    
    Corporate
    
    TotalSix Months Ended June 30, 2005:Revenues
    
    $
    1,140,332
    
    
    $
    1,714,224
    
    
    $
    1,727,455
    
    
    $
    
    
    
    $
    
    
    
    $
    4,582,011Operating loss
    
    
    (984,540
    )
    
    
    (465,277
    )
    
    
    (652,482
    )
    
    
    (1,179,068
    )
    
    
    (99,227
    )
    
    
    (3,380,594
    )Asset writedowns
    
    
    (99,218
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (99,218
    )Depreciation & amortization
    
    
    50,654
    
    
    
    14,320
    
    
    
    49,616
    
    
    
    3,534
    
    
    
    196,647
    
    
    
    314,771Total assets
    
    
    1,665,109
    
    
    
    4,318,915
    
    
    
    1,746,190
    
    
    
    2,926,827
    
    
    
    7,025,274
    
    
    
    17,682,315Goodwill
    
    
    
    
    
    
    4,415,932
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,415,932Capital expenditures
    
    
    9,275
    
    
    
    50,221
    
    
    
    3,630
    
    
    
    12,277
    
    
    
    103,626
    
    
    
    179,029Three Months Ended June 30, 2005:Revenues
    
    
    660,903
    
    
    
    1,076,966
    
    
    
    976,811
    
    
    
    
    
    
    
    
    
    
    
    2,714,680Operating loss
    
    
    (538,165
    )
    
    
    (162,410
    )
    
    
    (306,333
    )
    
    
    (662,538
    )
    
    
    (58,321
    )
    
    
    (1,727,767
    )Asset writedowns
    
    
    (99,218
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (99,218
    )Depreciation & amortization
    
    
    25,842
    
    
    
    6,718
    
    
    
    25,683
    
    
    
    1,980
    
    
    
    96,523
    
    
    
    156,746Capital expenditures
    
    
    7,560
    
    
    
    50,221
    
    
    
    3,630
    
    
    
    10,760
    
    
    
    59,994
    
    
    
    132,165Six Months Ended June 30, 2004:Revenues
    
    
    2,393,380
    
    
    
    1,697,273
    
    
    
    1,956,160
    
    
    
    
    
    
    
    
    
    
    
    6,046,813Operating loss
    
    
    (69,504
    )
    
    
    (822,164
    )
    
    
    (177,236
    )
    
    
    (213,520
    )
    
    
    (78,523
    )
    
    
    (1,360,947
    )Asset writedowns
    
    
    (49,576
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49,576
    )Depreciation and amortization
    
    
    82,300
    
    
    
    149,134
    
    
    
    14,342
    
    
    
    
    
    
    
    431,082
    
    
    
    676,858Total assets
    
    
    4,373,871
    
    
    
    4,158,080
    
    
    
    1,522,999
    
    
    
    5,391
    
    
    
    9,938,569
    
    
    
    19,998,910Goodwill
    
    
    
    
    
    
    3,790,907
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,790,907Capital expenditures
    
    
    4,243
    
    
    
    18,978
    
    
    
    26,739
    
    
    
    
    
    
    
    12,815
    
    
    
    62,775Three Months Ended June 30, 2004:Revenues
    
    
    1,289,573
    
    
    
    806,539
    
    
    
    915,325
    
    
    
    
    
    
    
    
    
    
    
    3,011,437Operating income (loss)
    
    
    71
    
    
    
    (432,383
    )
    
    
    (122,174
    )
    
    
    (213,520
    )
    
    
    (36,555
    )
    
    
    (804,561
    )Asset writedowns
    
    
    (49,576
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49,576
    )Depreciation and amortization
    
    
    40,707
    
    
    
    75,100
    
    
    
    7,449
    
    
    
    
    
    
    
    86,294
    
    
    
    209,550Capital expenditures
    
    
    
    
    
    
    16,129
    
    
    
    24,106
    
    
    
    
    
    
    
    3,529
    
    
    
    43,764
 9




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##### Table of Contents



JMAR TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
   (8) Discontinued Operations
     June 30,
    
    December 31,2005
    
    2004Current Liabilities:Facility lease accrual
    
    $
    56,618
    
    
    $
    275,221Accounts payable and accruals
    
    
    107,686
    
    
    
    103,726Note payable
    
    
    2,444
    
    
    
    37,444$
    166,748
    
    
    $
    416,391
 (9) Line of Credit and Notes Payable
  10




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##### Table of Contents



JMAR TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
    (10) Equity Transactions
   11




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##### Table of Contents



JMAR TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
     GrossAmountOutstandingat June 30,
    
    Scheduled RedemptionsDescription
    
    2005
    
    2006
    
    2007
    
    TotalSeries E Preferred
    
    $
    1,000,000
    
    
    $
    1,000,000
    
    
    $
    
    
    
    $
    1,000,000Series F Preferred
    
    $
    1,962,500
    
    
    
    187,500
    
    
    
    1,775,000
    
    
    
    1,962,500Series G Preferred
    
    $
    1,962,500
    
    
    
    187,500
    
    
    
    1,775,000
    
    
    
    1,962,500Series H Preferred
    
    $
    3,925,000
    
    
    
    375,000
    
    
    
    3,550,000
    
    
    
    3,925,000$
    1,750,000
    
    
    $
    7,100,000
    
    
    $
    8,850,000
   12




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##### Table of Contents



JMAR TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
  Net Balance at
    
    
    
    
    
    Discount
    
    
    
    
    
    Net Balance at JuneSeries
    
    December 31, 2004
    
    Amendment Fair Value
    
    Amortization
    
    Redemptions
    
    30, 2005E
    
    $
    752,306
    
    
    $
    79,390
    
    
    $
    182,056
    
    
    $
    83,333
    
    
    $
    771,639F
    
    
    1,812,092
    
    
    
    215,717
    
    
    
    90,042
    
    
    
    37,500
    
    
    
    1,648,917G
    
    
    1,844,699
    
    
    
    234,696
    
    
    
    86,167
    
    
    
    37,500
    
    
    
    1,658,670H
    
    
    3,678,177
    
    
    
    537,000
    
    
    
    189,113
    
    
    
    75,000
    
    
    
    3,255,290$
    8,087,274
    
    
    $
    1,066,803
    
    
    $
    547,378
    
    
    $
    233,333
    
    
    $
    7,334,516
  FinancingNet Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net BalanceDecember 31,
    
    
    
    
    
    
    
    
    
    Fair Value of
    
    
    
    
    
    Discount
    
    
    
    
    
    atSeries
    
    2003
    
    Gross Amount
    
    BCF
    
    Warrants
    
    Fees and Costs
    
    Amortization
    
    Conversions
    
    June 30, 2004C
    
    $
    875,223
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    624,777
    
    
    $
    1,500,000
    
    
    $
    D
    
    
    1,341,927
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    658,073
    
    
    
    2,000,000
    
    
    
    E
    
    
    
    
    
    
    1,500,000
    
    
    
    381,609
    
    
    
    218,451
    
    
    
    59,534
    
    
    
    165,515
    
    
    
    
    
    
    
    1,005,921F
    
    
    
    
    
    
    2,000,000
    
    
    
    54,250
    
    
    
    144,282
    
    
    
    72,062
    
    
    
    35,119
    
    
    
    
    
    
    
    1,764,525G
    
    
    
    
    
    
    2,000,000
    
    
    
    
    
    
    
    151,571
    
    
    
    72,062
    
    
    
    31,060
    
    
    
    
    
    
    
    1,807,427H
    
    
    
    
    
    
    4,000,000
    
    
    
    
    
    
    
    319,301
    
    
    
    144,125
    
    
    
    64,365
    
    
    
    
    
    
    
    3,600,939$
    2,217,150
    
    
    $
    9,500,000
    
    
    $
    435,859
    
    
    $
    833,605
    
    
    $
    347,783
    
    
    $
    1,578,909
    
    
    $
    3,500,000
    
    
    $
    8,178,812
    13




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##### Table of Contents



JMAR TECHNOLOGIES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
(Unaudited)
   (11) Earnings Per Share
  (12) Intangible Assets
  June 30, 2005
    
    December 31, 2004Gross
    
    
    
    
    
    Net
    
    Gross
    
    
    
    
    
    NetCarrying
    
    Accumulated
    
    Intangible
    
    Carrying
    
    Accumulated
    
    IntangibleAmount
    
    Amortization
    
    Assets
    
    Amount
    
    Amortization
    
    AssetsPatents
    
    $
    931,245
    
    
    $
    494,318
    
    
    $
    436,927
    
    
    $
    908,032
    
    
    $
    489,174
    
    
    $
    418,858Unpatented Technology
    
    
    450,000
    
    
    
    450,000
    
    
    
    
    
    
    
    450,000
    
    
    
    450,000
    
    
    
    Licenses
    
    
    1,462,016
    
    
    
    8,333
    
    
    
    1,453,683
    
    
    
    126,250
    
    
    
    7,917
    
    
    
    118,333$
    1,890,610
    
    
    
    
    
    
    
    
    
    
    $
    537,191
   14




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##### Table of Contents



JMAR TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
(Unaudited)
   For the Year Ended
    
    Estimated AmortizationDecember 31,
    
    Expense2005
    
    $
    140,0162006
    
    
    449,5202007
    
    
    449,5202008
    
    
    431,1862009
    
    
    149,4172010
    
    
    56,050Beyond
    
    
    214,901$
    1,890,610
 15




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 Item 2.
 Overview
    Sources of Revenue
 Contract Research and Development, Technical Support, and Production Programs
     16




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##### Table of Contents



Standard Products
 Britelight 
 VersaCAM 
 BioSentry 
 New Products Under Development
   17




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##### Table of Contents



Results of Operations
 Revenues
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Research Division/Vermont Operations
    
    $
    1,737,869
    
    
    $
    2,096,112
    
    
    $
    2,854,556
    
    
    $
    4,090,653Microelectronics Division
    
    
    976,811
    
    
    
    915,325
    
    
    
    1,727,455
    
    
    
    1,956,160Sensor Products Group
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,714,680
    
    
    $
    3,011,437
    
    
    $
    4,582,011
    
    
    $
    6,046,813
  Losses
  Gross Margins
 18




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##### Table of Contents



Selling, General and Administrative (SG&A).
 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 $901,447 and $1,394,040
for the three months ended June 30, 2005 and 2004, respectively, and $1,351,528 and
$2,724,722 for the six-month periods ended June 30, 2005 and 2004, respectively. The
decrease in customer-funded RD&E expenditures for the three and six months ended June 30,
2005 consists of a decrease of $559,166 and $1,516,023, respectively, related to the DARPA
Contract and decreases in two contracts completed in 2004 at the Vermont Operations of
$275,140 and $494,843, respectively. These decreases were offset in part by an increase in
2005 of $357,926 and $653,885, respectively, related to the NAVAIR Contract.
    
    Company-funded RD&E costs associated with product development are shown in Operating
Expenses and totaled $595,495 and $139,815 for the three months ended June 30, 2005 and
2004, respectively, and $1,397,477 and $193,912 for the six months ended June 30, 2005 and
2004, respectively. The increase in 2005 is primarily due to product development started
later in 2004 for our XRM, XNP, BioSentry and VersaCAM (formerly OASIS) new products.
   19




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##### Table of Contents



Discontinued Operations.
 Interest and Other Expense.
 Preferred Stock Dividends.
 Consolidated Liquidity and Financial Condition
 General.
  20




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##### Table of Contents



Sale of Common Stock
  Issuances of Preferred Stock.
 ConversionIssuance Date
    
    Series
    
    Amount
    
    Dividend
    
    PriceJanuary, 2004
    
    
    E
    
    
    $
    1,500,000
    
    
    
    8
    %
    
    $
    2.85
    (1)February, 2004
    
    
    F
    
    
    $
    2,000,000
    
    
    Prime (2)
    
    $
    3.11
    (1)February, 2004
    
    
    G
    
    
    $
    2,000,000
    
    
    Prime (2)
    
    $
    3.28
    (1)February, 2004
    
    
    H
    
    
    $
    4,000,000
    
    
    Prime (2)
    
    $
    3.47
    (1)
 
 (1)
    
    Reduced to $2.00 pursuant to February 1, 2005 agreement (see below)(2)
    
    Prime rate at June 30, 2005 was 6.25 percent   21




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##### Table of Contents



Working Capital Line.
  Cash Used in Continuing Operations
 Cash Used in Discontinued Operations
 22




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##### Table of Contents



Cash Used in Investing Activities
 Cash Provided by Financing Activities
 Stockholders Equity.
 Commitments
  2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter
    
    TotalLeases
    
    $
    398,571
    
    
    $
    452,603
    
    
    $
    342,935
    
    
    $
    354,537
    
    
    $
    359,277
    
    
    $
    1,085,222
    
    
    $
    2,993,145Deferred
compensation
    
    
    105,586
    
    
    
    267,175
    
    
    
    275,297
    
    
    
    185,955
    
    
    
    56,003
    
    
    
    
    
    
    
    890,016$
    504,157
    
    
    $
    719,778
    
    
    $
    618,232
    
    
    $
    540,492
    
    
    $
    415,280
    
    
    $
    1,085,222
    
    
    $
    3,883,161
  Preferred Stock Redemption Obligations
  23




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##### Table of Contents



GrossAmountOutstandingat June 30,
    
    Scheduled RedemptionsDescription
    
    2005
    
    2006
    
    2007
    
    TotalSeries E Preferred
    
    $
    1,000,000
    
    
    $
    1,000,000
    
    
    $
    
    
    
    $
    1,000,000Series F Preferred
    
    $
    1,962,500
    
    
    
    187,500
    
    
    
    1,775,000
    
    
    
    1,962,500Series G Preferred
    
    $
    1,962,500
    
    
    
    187,500
    
    
    
    1,775,000
    
    
    
    1,962,500Series H Preferred
    
    $
    3,925,000
    
    
    
    375,000
    
    
    
    3,550,000
    
    
    
    3,925,000$
    1,750,000
    
    
    $
    7,100,000
    
    
    $
    8,850,000
 PointSource License Agreement
  LXT Alliance Agreement (BioSentry)
   24




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##### Table of Contents



Net Operating Loss Carryforward
  Critical Accounting Policies and Estimates
   Revenues
  25




---



##### Table of Contents



Goodwill and Intangible Assets
      Beneficial Conversion Feature and Warrant Valuation
  26




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##### Table of Contents



Deferred Taxes
  Stock-Based Compensation Plans
  Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
   
    
    delays and unanticipated technological or engineering difficulties in the Companys new
product development efforts, which involve lengthy and capital intensive programs that are
subject to many unforeseen risks, delays, problems and costs and uncertainties as to the
markets demand for such new products;
    
    the risk that the performance validation tests of the BioSentry Beta units are not
successfully completed due to unforeseen issues with the installation or operation of the
units outside the controlled environment of JMARs facility;
 27




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##### Table of Contents




    
    the risk that competitors with greater resources enter the markets for the Companys new
products;
    
    the risk that the Company will not be able to convince customers to substitute the
BioSentry for existing products, such as particle detection, filtering and other water
decontamination technologies;
    
    the risk that our portfolio of intellectual property does not contain all of the
intellectual property rights that may be required to develop, manufacture and commercialize
our new products and that we may be unable to license such technologies on reasonable
terms;
    
    the effect of government regulations and required approvals on the BioSentry and X-ray
products;
    
    longer than anticipated purchase approval cycles and more extensive selling efforts in
connection with the sale of the Companys new products to utilities and other regulated
customers;
    
    the risk that the Company is subject to claims for product liability arising from the
sale of its new products and, specifically with regard to its BioSentry system, that the
Company is unable to obtain adequate product liability insurance to cover these risks at a
reasonable cost, and that the Company is unable to obtain indemnification agreements from
its customers to hold the Company harmless from such claims;
    
    delays in securing, or inability to secure other financing, whether from the public or
private debt or equity markets or from commercial lenders or otherwise, for working capital
needs, preferred stock redemptions or for development of the Companys new products;
    
    the continued dilution to current shareholders resulting from the sale of additional
equity interests to finance the Companys product development and commercialization
efforts;
    
    unanticipated difficulties and costs in establishing the Companys Vermont operations as
the manufacturing center for the Companys new products;
    
    the lack of availability of critical components from third party suppliers, including
laser diodes, X-ray optics (including zone plates), holographic optical elements and other
optics or the inability to obtain such components at acceptable costs;
    
    fluctuations in margins, or the failure to lower manufacturing costs sufficiently to
achieve acceptable margins;
    
    the failure of pending patents to be issued and uncertainties as to the breadth or
degree of protection of existing or future patents covering the Companys X-ray, BioSentry
and other technologies and applications; and
    
    other risks detailed in the Companys Form 8-K, filed March 30, 2005, and in other
filings with the Securities and Exchange Commission.
 
 Item 3.
  28




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##### Table of Contents



Item 4.
     
 PART II  OTHER INFORMATION
 
 Item 2.
  Total Number of Shares
    
    Approximate Dollar ValuePurchased as Part of
    
    of Shares that may yetTotal Number of
    
    Average Price
    
    Publicly Announced
    
    be Purchased UnderPeriod
    
    Shares Purchased
    
    Paid per Share
    
    Plans or Programs
    
    the Plans or Programs04/01/2005 - 04/30/2005
    
    
    12,699
    
    
    $
    1.41
    
    
    
    
    
    
    $
    2,128
    
    
    $
    1.21
    
    
    
    
    
    
    $
    05/01/2005 - 05/31/2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    06/01/2005 - 06/30/2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Total
    
    
    14,827
    
    
    $
    1.38
    
    
    
    
    
    
    $
    
 29




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##### Table of Contents



Item 4.
  (a)
    
    The following directors were elected: C. Neil Beer (28,322,957 affirmative
votes and 1,202,638 votes withheld); Vernon H. Blackman (28,314,057 affirmative votes
and 1,211,538 votes withheld); Charles A. Dickinson (28,324,101 affirmative votes and
1,201,494 votes withheld); J. Paul Gilman (29,227,748 affirmative votes and 297,847
votes withheld); Edward P. OSullivan II (28,339,891 affirmative votes and 1,185,704 votes withheld); Barry Ressler (28,316,765 affirmative votes and 1,208,830 votes
withheld); and Ronald A. Walrod (28,316,059 affirmative votes and 1,209,536 votes
withheld).(b)
    
    The proposal to ratify the selection of Grant Thornton, LLP as the Companys
independent auditor for the fiscal year ending December 31, 2005 was approved with
29,277,190 affirmative votes, 122,698 negative votes and 125,705 abstaining votes.
 
 Item 6.
 Exhibit 10.1
    
    Amendment of Solicitation/Modification of contract, dated June 28, 2005,
between Naval Air Warfare Center AD and JMAR Technologies, Inc.
Systems Division.Exhibit 10.2
    
    Purchase Orders, dated June 28, 2005 and July 27, 2005, between
FemtoTrace, Inc. and JMAR Technologies, 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.
 30




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##### Table of Contents



JMAR TECHNOLOGIES, INC.August 12, 2005
    
    
    
    By:
    
    /s/ Ronald A. WalrodRonald A. Walrod, Chief Executive Officerand Authorized OfficerBy:
    
    /s/ Dennis E. ValentineDennis E. Valentine, Chief Accounting Officer
 31