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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549-1004



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FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended March 31, 2002
Commission File Number 1-10515

JMAR TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 68-0131180                             
|                                                               |  |                                        
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. employer
identification number)

5800 Armada Drive
Carlsbad, CA 92008
(760) 602-3292




(Address, including zip code and telephone number including
area code of registrants principal executive office)


Indicate by check mark whether the registrant 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, and has been subject to the filing requirements for at
least 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 the latest practicable date (May 6, 2002).

Common Stock, $.01 par value: 23,842,677 shares



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TABLE OF CONTENTS



|                               |                                                                                               |                                               |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | --------------------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               |                                                                                               | CONSOLIDATED BALANCE SHEETS                  
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS        
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS        
|                               |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   
|                               | Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                               | Item 3. Quantitative and Qualitative Disclosures About Market Risk.                          
|PART II  OTHER INFORMATION   
|                               | Item 2. Changes in Securities                                                                
|                               | Item 6. Reports on Form 8-K                                                                  
|SIGNATURE                     



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INDEX

|        |  |                                                                                                        |  |       
|------- |  | ------------------------------------------------------------------------------------------------------ |  | ------
|        |  |                                                                                                        |  | Page #
|        |  |                                                                                                        |  |       
|PART I  |  | FINANCIAL INFORMATION                                                                                  |  |       
|       
|       
|       
|       
|Item 1. |  | Financial Statements                                                                                   |  |       
|       
|       
|       
|       
|        |  | Consolidated Balance Sheets  March 31, 2002 (unaudited) and December 31, 2001                         |  | 2     
|       
|       
|       
|       
|        |  | Consolidated Statements of Operations  Three months ended March 31, 2002 and 2001
(unaudited)         |  | 3     
|       
|       
|       
|       
|        |  | Consolidated Statements of Comprehensive Loss  Three months ended March 31, 2002
and 2001 (unaudited) |  | 4     
|       
|       
|       
|       
|        |  | Consolidated Statements of Cash Flows  Three months ended March 31, 2002 and 2001
(unaudited)         |  | 5     
|       
|       
|       
|       
|        |  | Notes to Consolidated Financial Statements (unaudited)                                                 |  | 6     
|       
|       
|       
|       
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                  |  | 11    
|       
|       
|       
|       
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                             |  | 16    
|       
|       
|       
|       
|PART II |  | OTHER INFORMATION                                                                                      |  |       
|       
|       
|       
|       
|Item 1. |  | N/A                                                                                                    |  |       
|       
|       
|       
|       
|Item 2. |  | Changes in Securities                                                                                  |  | 17    
|       
|       
|       
|       
|Item 3. |  | N/A                                                                                                    |  |       
|       
|       
|       
|       
|Item 4. |  | N/A                                                                                                    |  |       
|       
|       
|       
|       
|Item 5. |  | N/A                                                                                                    |  |       
|       
|       
|       
|       
|Item 6. |  | Reports on Form 8-K                                                                                    |  | 17    

1



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##### Table of Contents






PART I  FINANCIAL INFORMATION




JMAR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
As of March 31, 2002 and December 31, 2001

|                                                                      |                                                                                                                                                                  |                                            |           |                |            |                   |           |             |            | 
|--------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | -------------- | ---------- | ----------------- | --------- | ----------- | ---------- | 
|                                                                      |                                                                                                                                                                  |                                            |           | March 31, 2002 |            | December 31, 2001
|                                                                      |                                                                                                                                                                  |                                            |           |                |            |                  
|                                                                      |                                                                                                                                                                  |                                            |           | (Unaudited)    |            |                   |           |            
|ASSETS                                                                |                                                                                                                                                                  |                                            |           |                |            |                   |           |            
|Current Assets:                                                       |                                                                                                                                                                  |                                            |           |                |            |                   |           |            
|                                                                      | Cash and cash equivalents                                                                                                                                        |                                            | $         | 5,856,541      |            |                   | $         | 4,115,129   |           
|                                                                      | Restricted cash                                                                                                                                                  |                                            |           | 2,000,000      |            |                   |           | 3,000,000   |           
|                                                                      | Accounts receivable, net                                                                                                                                         |                                            |           | 4,472,072      |            |                   |           | 5,101,742   |           
|                                                                      | Notes and other receivables                                                                                                                                      |                                            |           | 16,334         |            |                   |           | 19,481      |           
|                                                                      | Inventories, net                                                                                                                                                 |                                            |           | 4,274,030      |            |                   |           | 4,517,146   |           
|                                                                      | Marketable securities available for sale                                                                                                                         |                                            |           |               |            |                   |           | 1,474,889   |           
|                                                                      | Prepaid expenses and other                                                                                                                                       |                                            |           | 508,913        |            |                   |           | 514,416     |           
|                                                                      |                                                                                                                                                                  |                                            |           |                |            |                   |           |            
|                                                                      |                                                                                                                                                                  | Total current assets                       |           |                | 17,127,890 |                   |           |             | 18,742,803 | 
|Property and equipment, net                                           |                                                                                                                                                                  |                                            | 1,743,536 |                |            |                   | 1,770,628 |            
|Other assets, net                                                     |                                                                                                                                                                  |                                            | 2,051,982 |                |            |                   | 2,147,462 |            
|Goodwill, net                                                         |                                                                                                                                                                  |                                            | 3,957,732 |                |            |                   | 3,957,732 |            
|                                                                      |                                                                                                                                                                  |                                            |           |                |            |                   |           |            
|                                                                      |                                                                                                                                                                  | TOTAL ASSETS                               |           | $              | 24,881,140 |                   |           | $           | 26,618,625 | 
|                                                                      |                                                                                                                                                                  |                                            |           |                |            |                   |           |            
|LIABILITIES AND STOCKHOLDERS EQUITY                                  |                                                                                                                                                                  |                                            |           |                |            |                   |           |            
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Current Liabilities:                                                  |                                                                                                                                                                  |                                            |           |                |            |                   |           |            
|                                                                      | Accounts payable                                                                                                                                                 |                                            | $         | 1,807,015      |            |                   | $         | 2,086,552   |           
|                                                                      | Accrued liabilities                                                                                                                                              |                                            |           | 1,542,113      |            |                   |           | 1,395,003   |           
|                                                                      | Accrued payroll and related costs                                                                                                                                |                                            |           | 902,607        |            |                   |           | 985,315     |           
|                                                                      | Customer deposits                                                                                                                                                |                                            |           | 1,322,041      |            |                   |           | 1,483,804   |           
|                                                                      | Line of credit                                                                                                                                                   |                                            |           | 2,000,000      |            |                   |           | 3,000,000   |           
|                                                                      | Notes payable                                                                                                                                                    |                                            |           | 95,694         |            |                   |           | 142,257     |           
|                                                                      | Net
current liabilities of discontinued operations                                                                                                               |                                            |           | 1,915,362      |            |                   |           | 1,806,407   |           
|                                                                      |                                                                                                                                                                  |                                            |           |                |            |                   |           |            
|                                                                      |                                                                                                                                                                  | Total current liabilities                  |           |                | 9,584,832  |                   |           |             | 10,899,338 | 
|                                                                      |                                                                                                                                                                  |                                            |           |                |            |                   |           |            
|Notes payable and other long-term liabilities, net of current portion |                                                                                                                                                                  |                                            | 1,400,532 |                |            |                   | 1,419,632 |            
|                                                                      |                                                                                                                                                                  |                                            |           |                |            |                   |           |            
|Stockholders equity:                                                 |                                                                                                                                                                  |                                            |           |                |            |                   |           |            
|                                                                      | Preferred stock, $.01 par value;
5,000,000 shares authorized; none issued and outstanding
as of March 31, 2002 and December 31, 2001                             |                                            |           |               |            |                   |           |            |           
|                                                                      | Common stock, $.01 par value; 40,000,000 shares authorized;
Issued and outstanding 23,841,272 as of March 31, 2002 and
22,840,392 shares as of December 31, 2001 |                                            |           | 238,413        |            |                   |           | 228,404     |           
|                                                                      | Additional-paid in capital                                                                                                                                       |                                            |           | 56,101,808     |            |                   |           | 54,343,211  |           
|                                                                      | Accumulated other comprehensive income                                                                                                                           |                                            |           |               |            |                   |           | 1,424,864   |           
|                                                                      | Accumulated deficit                                                                                                                                              |                                            |           | (42,444,445    | )          |                   |           | (41,696,824 | )         
|                                                                      |                                                                                                                                                                  |                                            |           |                |            |                   |           |            
|                                                                      |                                                                                                                                                                  | Total stockholders equity                 |           |                | 13,895,776 |                   |           |             | 14,299,655 | 
|                                                                      |                                                                                                                                                                  |                                            |           |                |            |                   |           |            
|                                                                      |                                                                                                                                                                  | TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |           | $              | 24,881,140 |                   |           | $           | 26,618,625 | 
|                                                                      |                                                                                                                                                                  |                                            |           |                |            |                   |           |            

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JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2002 and 2001
(Unaudited)

|                                                      |                                                    |              |            |                    |           |                |           |            |           | 
|----------------------------------------------------- | -------------------------------------------------- | ------------ | ---------- | ------------------ | --------- | -------------- | --------- | ---------- | --------- | 
|                                                      |                                                    |              |            | Three Months Ended
|                                                      |                                                    |              |            |                   
|                                                      |                                                    |              |            | March 31, 2002     |           | March 31, 2001
|                                                      |                                                    |              |            |                    |           |               
|Sales                                                 |                                                    | $            | 4,536,516  |                    |           | $              | 4,546,163 |           
|Costs of sales                                        |                                                    |              | 3,445,331  |                    |           |                | 3,256,342 |           
|                                                      |                                                    |              |            |                    |           |                |           |           
|                                                      |                                                    | Gross profit |            |                    | 1,091,185 |                |           |            | 1,289,821 | 
|                                                      |                                                    |              |            |                    |           |                |           |           
|Operating expenses:                                   |                                                    |              |            |                    |           |                |           |           
|                                                      | Selling, general and
administrative                |              |            | 1,544,086          |           |                |           | 1,430,949  |          
|                                                      | Research, development and
engineering              |              |            | 419,017            |           |                |           | 443,428    |          
|                                                      |                                                    |              |            |                    |           |                |           |           
|                                                      | Total operating expenses                           |              |            | 1,963,103          |           |                |           | 1,874,377  |          
|                                                      |                                                    |              |            |                    |           |                |           |           
|Loss from operations                                  |                                                    |              | (871,918   | )                  |           |                | (584,556  | )         
|Realized gain on sale of
marketable securities        |                                                    |              | 1,349,721  |                    |           |                |          |           
|Interest and other income (expense), net              |                                                    |              | 4,019      |                    |           |                | 99,529    |           
|Interest expense                                      |                                                    |              | (43,582    | )                  |           |                | (7,818    | )         
|                                                      |                                                    |              |            |                    |           |                |           |           
|Income (loss) from continuing operations              |                                                    |              | 438,240    |                    |           |                | (492,845  | )         
|Loss from operations of discontinued
operations       |                                                    |              | (1,185,861 | )                  |           |                | (501,596  | )         
|                                                      |                                                    |              |            |                    |           |                |           |           
|Net loss                                              |                                                    | $            | (747,621   | )                  |           | $              | (994,441  | )         
|                                                      |                                                    |              |            |                    |           |                |           |           
|Basic
and diluted income (loss) per share:            |                                                    |              |            |                    |           |                |           |           
|                                                      | Income (loss) per share from continuing
operations |              | $          | .02                |           |                | $         | (.02       | )        
|                                                      | Loss per share from discontinued
operations        |              |            | (.05               | )         |                |           | (.02       | )        
|                                                      |                                                    |              |            |                    |           |                |           |           
|Basic and diluted net loss per share                  |                                                    | $            | (.03       | )                  |           | $              | (.04      | )         
|                                                      |                                                    |              |            |                    |           |                |           |           
|Share
used in computation of income (loss) per share: |                                                    |              |            |                    |           |                |           |           
|                                                      |                                                    | Basic        |            | 22,879,711         |           |                |           | 22,229,645 |          
|                                                      |                                                    |              |            |                    |           |                |           |           
|                                                      |                                                    | Diluted      |            | 24,408,929         |           |                |           | 22,229,645 |          
|                                                      |                                                    |              |            |                    |           |                |           |           

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JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the Three Months Ended March 31, 2002 and 2001
(Unaudited)

|                          |                                          |   |                    |   |                |   |            |          |  
|------------------------- | ---------------------------------------- | - | ------------------ | - | -------------- | - | ---------- | -------- | -
|                          |                                          |   | Three Months Ended
|                          |                                          |   |                   
|                          |                                          |   | March 31, 2002     |   | March 31, 2001
|                          |                                          |   |                    |   |               
|Net loss                  |                                          | $ | (747,621           | ) |                | $ | (994,441   | )       
|Other comprehensive loss: |                                          |   |                    |   |                |   |            |         
|                          | Unrealized loss on
marketable securities |   |                    |  |                |   |            | (990,800 | )
|                          |                                          |   |                    |   |                |   |            |         
|Comprehensive loss        |                                          | $ | (747,621           | ) |                | $ | (1,985,241 | )       
|                          |                                          |   |                    |   |                |   |            |         

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JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2002 and 2001
(Unaudited)

|                                                                 |                                                                                                              |                                          |                                                     |            |                    |            |                |           |          |            |  
|---------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | ---------------------------------------- | --------------------------------------------------- | ---------- | ------------------ | ---------- | -------------- | --------- | -------- | ---------- | -
|                                                                 |                                                                                                              |                                          |                                                     |            | Three Months Ended
|                                                                 |                                                                                                              |                                          |                                                     |            |                   
|                                                                 |                                                                                                              |                                          |                                                     |            | March 31, 2002     |            | March 31, 2001
|                                                                 |                                                                                                              |                                          |                                                     |            |                    |            |               
|Cash flows from operating activities:                            |                                                                                                              |                                          |                                                     |            |                    |            |                |          
|                                                                 | Income
(loss) from continuing operations                                                                     |                                          | $                                                   | 438,240    |                    |            | $              | (492,845  | )       
|                                                                 | Adjustments to reconcile income (loss) from continuing operations to
net cash used in continuing operations: |                                          |                                                     |            |                    |            |                |           |         
|                                                                 | Depreciation and amortization                                                                                |                                          |                                                     | 234,772    |                    |            |                | 141,783   |         
|                                                                 | Services received in exchange for common stock                                                               |                                          |                                                     | 1,500      |                    |            |                | 1,200     |         
|                                                                 | Gain on sale of marketable securities                                                                        |                                          |                                                     | (1,349,721 | )                  |            |                |          |         
|                                                                 | Change in assets and liabilities:                                                                            |                                          |                                                     |            |                    |            |                |           |         
|                                                                 |                                                                                                              | (Increase) decrease in:                  |                                                     |            |                    |            |                |           |          |           
|                                                                 |                                                                                                              | Accounts receivable, net                 |                                                     |            | 629,670            |            |                |           | 704,802  |           
|                                                                 |                                                                                                              | Inventories                              |                                                     |            | 243,116            |            |                |           | (92,936  | )         
|                                                                 |                                                                                                              | Prepaid expenses and other               |                                                     |            | 8,647              |            |                |           | 27,243   |           
|                                                                 |                                                                                                              | Other assets                             |                                                     |            | (5,686             | )          |                |           |         |           
|                                                                 |                                                                                                              | Increase (decrease) in:                  |                                                     |            |                    |            |                |           |          |           
|                                                                 |                                                                                                              | Customer deposits                        |                                                     |            | (161,763           | )          |                |           | 1,638    |           
|                                                                 |                                                                                                              | Accounts payable and accrued liabilities |                                                     |            | (215,130           | )          |                |           | (918,468 | )         
|                                                                 |                                                                                                              |                                          |                                                     |            |                    |            |                |          
|                                                                 |                                                                                                              |                                          | Net cash used in continuing operations              |            |                    | (176,355   | )              |           |          | (627,583   | )
|                                                                 |                                                                                                              |                                          |                                                     |            |                    |            |                |          
|Loss
from discontinued operations                                |                                                                                                              |                                          | (1,185,861                                          | )          |                    |            | (501,596       | )        
|Changes
in net assets and liabilities of discontinued operations |                                                                                                              |                                          | 108,955                                             |            |                    |            | (408,013       | )        
|                                                                 |                                                                                                              |                                          |                                                     |            |                    |            |                |          
|                                                                 |                                                                                                              |                                          | Net
cash used in discontinued operations            |            |                    | (1,076,906 | )              |           |          | (909,609   | )
|                                                                 |                                                                                                              |                                          |                                                     |            |                    |            |                |          
|                                                                 |                                                                                                              |                                          | Net
cash used in operating activities               |            |                    | (1,253,261 | )              |           |          | (1,537,192 | )
|                                                                 |                                                                                                              |                                          |                                                     |            |                    |            |                |          
|Cash flows from investing activities:                            |                                                                                                              |                                          |                                                     |            |                    |            |                |          
|                                                                 | Proceeds from sale of marketable securities                                                                  |                                          |                                                     | 1,399,746  |                    |            |                |          |         
|                                                                 | Capital expenditures                                                                                         |                                          |                                                     | (86,527    | )                  |            |                | (241,816  | )       
|                                                                 | Other assets                                                                                                 |                                          |                                                     | (19,987    | )                  |            |                | (597      | )       
|                                                                 | Payments received on notes receivable                                                                        |                                          |                                                     |           |                    |            |                | 5,339     |         
|                                                                 | Patent costs                                                                                                 |                                          |                                                     |           |                    |            |                | (37,365   | )       
|                                                                 |                                                                                                              |                                          |                                                     |            |                    |            |                |          
|                                                                 |                                                                                                              |                                          | Net
cash provided by (used in) investing activities |            |                    | 1,293,232  |                |           |          | (274,439   | )
|                                                                 |                                                                                                              |                                          |                                                     |            |                    |            |                |          
|Cash flows from financing activities:                            |                                                                                                              |                                          |                                                     |            |                    |            |                |          
|                                                                 | Net proceeds from the issuance of common stock                                                               |                                          |                                                     | 1,767,105  |                    |            |                |          |         
|                                                                 | Net borrowings (payments) under line of credit                                                               |                                          |                                                     | (1,000,000 | )                  |            |                | 1,900,000 |         
|                                                                 | Decrease in restricted cash                                                                                  |                                          |                                                     | 1,000,000  |                    |            |                |          |         
|                                                                 | Payments of notes payable and other long-term liabilities                                                    |                                          |                                                     | (65,664    | )                  |            |                | (13,067   | )       
|                                                                 | Net proceeds from the exercise of options and warrants                                                       |                                          |                                                     |           |                    |            |                | 14,848    |         
|                                                                 |                                                                                                              |                                          |                                                     |            |                    |            |                |          
|                                                                 |                                                                                                              |                                          | Net cash provided by financing activities           |            |                    | 1,701,441  |                |           |          | 1,901,781  |  
|                                                                 |                                                                                                              |                                          |                                                     |            |                    |            |                |          
|Net increase in cash and cash equivalents                        |                                                                                                              |                                          | 1,741,412                                           |            |                    |            | 90,150         |          
|Cash and cash equivalents, beginning of period                   |                                                                                                              |                                          | 4,115,129                                           |            |                    |            | 9,856,768      |          
|                                                                 |                                                                                                              |                                          |                                                     |            |                    |            |                |          
|Cash and cash equivalents, end of period                         |                                                                                                              | $                                        | 5,856,541                                           |            |                    | $          | 9,946,918      |          
|                                                                 |                                                                                                              |                                          |                                                     |            |                    |            |                |          
|Non-cash Item:                                                   |                                                                                                              |                                          |                                                     |            |                    |            |                |          
|                                                                 | Change in unrealized gains in
marketable securities                                                          |                                          | $                                                   |           |                    |            | $              | 990,800   |         
|                                                                 |                                                                                                              |                                          |                                                     |            |                    |            |                |          
|Cash paid for interest                                           |                                                                                                              |                                          | 42,805                                              |            |                    | $          | 5,644          |          
|                                                                 |                                                                                                              |                                          |                                                     |            |                    |            |                |          

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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) Basis of Presentation and Financial Condition

The accompanying consolidated financial statements include the accounts of
JMAR Technologies, Inc. (the Company) and its subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
In the first quarter of 2002, the Company decided to discontinue and sell its
standard semiconductor products business. This portion of
JMAR Semiconductor Inc.s (JSI) business has been a developmental effort,
involving the design, manufacture and introduction of new standard product
semiconductor chips. With the severe downturn in the worldwide semiconductor
market, JSI has had little success in selling its new standard product chips to
date. Given the required substantial additional capital to get these chips
established in the market, as well as to develop newer, higher value chips,
JMAR has determined it is in the best interests of the Company and its
shareholders to focus its principal efforts on its other business areas. The
standard semiconductor products business of JSI has been accounted for in the
accompanying financial statements as discontinued operations and the statement
of operations for the three months ended March 31, 2001 has been restated to
reflect the discontinuation of this business.

The accompanying consolidated financial statements have been prepared by
the Company and are unaudited except for the balance sheet as of December 31,
2001. The financial statements have been prepared in accordance with generally
accepted accounting principles, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
accompanying consolidated financial statements include all adjustments of a
normal recurring nature which are necessary for a fair presentation of the
results for the interim periods presented. Certain information and footnote
disclosures normally included in financial statements have been condensed or
omitted pursuant to such rules and regulations.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Although the Company believes that the disclosures are adequate to make the
information presented not misleading, it is suggested that these consolidated
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Companys Form 10-K for the year ended
December 31, 2001. The results of operations for the three months ended March
31, 2002 are not necessarily indicative of the results to be expected for the
full year.

(2) Inventories

Inventories are carried at the lower of cost on the first-in, first-out
basis or market and are comprised of materials, direct labor and applicable
manufacturing overhead. At March 31, 2002 and December 31, 2001, inventories
consisted of the following:

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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

|                                                 |  |                |            |                   |  |           |            |  
|------------------------------------------------ |  | -------------- | ---------- | ----------------- |  | --------- | ---------- | -
|                                                 |  | March 31, 2002 |            | December 31, 2001
|                                                 |  |                |            |                  
|                                                 |  |                |            |                   |  | (Audited)
|Raw materials, components and sub-assemblies     |  | $              | 4,304,198  |                   |  | $         | 4,449,071  |  
|Work-in-process                                  |  |                | 1,518,620  |                   |  |           | 1,422,452  |  
|Finished goods                                   |  |                | 343,275    |                   |  |           | 760,766    |  
|                                                 |  |                |            |                   |  |           |            |  
|                                                 |  |                | 6,166,093  |                   |  |           | 6,632,289  |  
|Less  Reserve for excess and obsolete inventory |  |                | (1,892,063 | )                 |  |           | (2,115,143 | )
|                                                 |  |                |            |                   |  |           |            |  
|                                                 |  | $              | 4,274,030  |                   |  | $         | 4,517,146  |  
|                                                 |  |                |            |                   |  |           |            |  

(3) Property and Equipment

At March 31, 2002 and December 31, 2001, property and equipment consisted
of the following:

|                                |  |                |            |                   |  |           |            |  
|------------------------------- |  | -------------- | ---------- | ----------------- |  | --------- | ---------- | -
|                                |  | March 31, 2002 |            | December 31, 2001
|                                |  |                |            |                  
|                                |  |                |            |                   |  | (Audited)
|Equipment and machinery         |  | $              | 4,348,535  |                   |  | $         | 4,330,415  |  
|Furniture and fixtures          |  |                | 633,041    |                   |  |           | 560,594    |  
|Leasehold improvements          |  |                | 367,520    |                   |  |           | 387,901    |  
|                                |  |                |            |                   |  |           |            |  
|                                |  |                | 5,349,096  |                   |  |           | 5,278,910  |  
|Less
 accumulated depreciation |  |                | (3,605,560 | )                 |  |           | (3,508,282 | )
|                                |  |                |            |                   |  |           |            |  
|                                |  | $              | 1,743,536  |                   |  | $         | 1,770,628  |  
|                                |  |                |            |                   |  |           |            |  

(4) Segment Information

In the Companys Form 10-K for the year ended December 31, 2001, three
segments were reported. These three segments were the Front-end Semiconductor
Equipment and Services Segment, the Precision Equipment Segment and the
Semiconductor Products and Processes Segment. In the first quarter of 2002,
the Company decided to discontinue and sell its standard semiconductor products
business. Accordingly, this business component has been accounted for in the
accompanying financial statements as discontinued operations and the other business component
of JSI, which represented the majority of the revenues in 2001, 2000
and 1999 of the Semiconductor Products and Processes Segment, is now included
in the Front-end Semiconductor Equipment and Services Segment.

The Companys two Segments offer varying products and services that are
affected by different economic conditions. Further, the Segments reflect the
manner in which the Company views the operating units.

Front-end Semiconductor Equipment and Services: This segment includes the
operations of JMAR Research, Inc. (JRI) and JMAR/SAL NanoLithography, Inc.
(JSAL). In our JRI and JSAL businesses, we conceive and create leading-edge
microelectronics manufacturing systems based on our patented X-ray and other
advanced light sources for higher-performance semiconductor manufacturing and
inspection. With the Companys acquisition of JSAL, we are now the leading
supplier of X-ray lithography steppers. This segment also includes the
Semiconductor Process Technology Services business of JMAR Semiconductor, Inc.
(JSI).

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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

Precision Equipment: This segment consists of the operations of JMAR
Precision Systems, Inc. (JPSI). In our JPSI division, we manufacture
state-of-the-art precision inspection, motion control and light-based
manufacturing and metrology systems for the microelectronics industry,
including high-performance laser-light based precision systems for repairing
defective semiconductors and systems for fabricating advanced bio-chip
products.

Segment information for the three months ended March 31, 2002 and 2001 was
as follows:

|                                   |                         |  |               |            |           |  |           |            |       |  |   |            |  |  |   |            |  
|---------------------------------- | ----------------------- |  | ------------- | ---------- | --------- |  | --------- | ---------- | ----- |  | - | ---------- |  |  | - | ---------- | -
|                                   |                         |  | Front-end     |            |           |  |           |            |       |  |   |            |  |  |  
|                                   |                         |  | Semiconductor |            |           |  |           |            |       |  |   |            |  |  |  
|                                   |                         |  | Equipment and |            | Precision |  |           |            |       |  |   |            | 
|                                   |                         |  | Services      |            | Equipment |  | Corporate |            | Total
|                                   |                         |  |               |            |           |  |           |            |      
|Three Months Ended
March 31, 2002: |                         |  |               |            |           |  |           |            |       |  |   |            |  |  |   |           
|                                   | Revenues                |  | $             | 3,608,655  |           |  | $         | 927,861    |       |  | $ |           |  |  | $ | 4,536,516  |  
|                                   | Operating income (loss) |  |               | 111,984    |           |  |           | (983,902   | )     |  |   |           |  |  |   | (871,918   | )
|                                   | Total assets            |  |               | 12,010,001 |           |  |           | 6,420,054  |       |  |   | 6,451,085  |  |  |   | 24,881,140 |  
|Three Months Ended
March 31, 2001: |                         |  |               |            |           |  |           |            |       |  |   |            |  |  |   |           
|                                   | Revenues                |  |               | 2,269,534  |           |  |           | 2,276,629  |       |  |   |           |  |  |   | 4,546,163  |  
|                                   | Operating income (loss) |  |               | 270,333    |           |  |           | (854,889   | )     |  |   |           |  |  |   | (584,556   | )
|                                   | Total assets            |  |               | 8,022,360  |           |  |           | 10,679,795 |       |  |   | 15,410,005 |  |  |   | 34,112,160 |  

Corporate assets are principally cash, deferred income
taxes, other assets and assets of discontinued operations.

(5) Comprehensive Loss

SFAS No. 130 Reporting Comprehensive Income, establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses). This statement requires that an enterprise: (a)
classify the items of other comprehensive income by their nature in a financial
statement; and (b) display the accumulated balance of other comprehensive
income separately from stockholders equity in the equity section of the
balance sheet. In accordance with SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, for the three months ended March
31, 2001, the Company had an unrealized loss on marketable securities of
$990,800, resulting in a comprehensive loss for the three months ended March
31, 2001 of $1,985,241. The unrealized loss for the three months ended March
31, 2001 represents the difference in market value of the Companys investment
in Bede plc (Bede) between December 31, 2000 and March 31, 2001.

In January 2002, the Company sold its remaining 545,500 shares of its
investment in Bede for net proceeds of approximately $1.4 million. The net
proceeds and gain from that transaction are included in this Consolidated
Statement of Operations for the three months ended March 31, 2002.
Accordingly, for the three months ended March 31, 2002, the Company did not
have any elements of comprehensive income or loss, and therefore, there was no
difference in the Companys net loss and comprehensive loss for those periods.
For the three months ended March 31, 2002, the Company had an additional unrealized
loss on marketable securities of $75,143 for the period from
January 1, 2002 to the sale date of the securities, however, that loss
was realized as a result of the sale of the securities.

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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

(6)  Acquisition of Semiconductor Advanced Lithography, Inc.

On August 7, 2001, the Companys wholly owned subsidiary, JMAR/SAL
NanoLithography, Inc. (Subsidiary) acquired (the Acquisition) all of the
outstanding equity of Semiconductor Advanced Lithography, Inc. (SAL), a
Delaware corporation, in a merger of SAL with and into Subsidiary (Merger).
SAL (subsequently renamed JMAR/SAL NanoLithography, Inc. or JSAL) is a
provider of XRL stepper systems. Consideration for the Merger consisted of an
aggregate of 603,051 shares of the Companys Common Stock valued at $1.7
million, $1.2 million in cash and $1.2 million in notes (the Notes). The
Notes are convertible into shares of the Companys Common Stock at a price of
$4.302. The Notes, bearing interest at 8%, are convertible by the holders at
any time and, after six months from the closing, the Company can force
conversion if the average price, as defined, of the Companys Common Stock
during any ten day trading period exceeds $6.45. All stock options and warrants
issued by SAL which were outstanding immediately prior to the Acquisition were
either exercised pursuant to their terms or were terminated. There were no
settlements of options or warrants and there was no increase to JMARs purchase
price as a result of the issuance of additional SAL shares upon exercise of the
outstanding options and warrants. In connection with the Merger, JMAR agreed to provide
working capital loans to SAL from time to time up to a maximum of
$1.2 million through June 30, 2002 for working capital to build
its X-ray steppers to be integrated with JMARs X-ray sources. In addition,
SALs former shareholders and
creditors could receive as contingent earnout consideration up to 354,736
shares of the Companys Common Stock and up to $2.2 million of Convertible
Notes upon achievement of certain technical and market milestones. The earnout consideration will increase goodwill when and if it is
paid. The Company has accounted for the Acquisition as a purchase and,
accordingly, results of operations of JSAL have been included as of August 7,
2001. The allocation of the purchase price of $4,246,284 is as follows:

|                                       |  |   |           |  
|-------------------------------------- |  | - | --------- | -
|Goodwill                               |  | $ | 3,739,777 |  
|Identifiable intangibles               |  |   | 785,000   |  
|Fair value of tangible assets acquired |  |   | 671,593   |  
|Liabilities assumed                    |  |   | (950,086  | )
|                                       |  |   |           |  
|                                       |  | $ | 4,246,284 |  
|                                       |  |   |           |  

The following unaudited proforma information gives effect to the
acquisition of SAL as if the acquisition occurred on January 1,
2001. In
connection with the Acquisition, SAL entered into agreements with several of
its creditors which reduced the related liabilities due those creditors by
approximately $8,000,000 through a combination of debt forgiveness and by
payment of the $1.2 million cash purchase price by the Company. Such debt
reductions are not reflected in the statement of operations of the Company.
The proforma loss from continuing operations excludes any impact, other than
interest expense, from the debt settlements of SAL directly attributable to the
Acquisition. The Company has recorded the transaction in accordance with SFAS
No. 141 during the third quarter of 2001. Pursuant to SFAS No. 141, goodwill
resulting from the SAL acquisition will not be amortized. The identifiable
intangibles acquired in the Acquisition will be amortized over three years
using the straight line method. Identifiable assets include patents and
technological know-how. Patents were valued based on a discounted cash flow
model and technological know-how was valued based on replacement cost of
underlying documentation. These statements do not purport to be indicative of
the results of operations which actually would have occurred had the
acquisition of SAL occurred on January 1, 2001 or which may be expected to
occur in the future.

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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

|                                |  |                      |            |  
|------------------------------- |  | -------------------- | ---------- | -
|                                |  | For the Three Months
|                                |  | ended March 31, 2001
|                                |  |                     
|Total revenues                  |  | $                    | 4,740,000  |  
|                                |  |                      |            |  
|Loss from continuing operations |  | $                    | (1,104,000 | )
|                                |  |                      |            |  
|Loss per share                  |  | $                    | (.05       | )
|                                |  |                      |            |  

(7) Discontinued Operations

During the first quarter of 2002, the Company decided to discontinue and
sell its standard semiconductor products business and shift more of its
resources to accelerate the market entry of its X-ray lithography products.
This portion of JMAR Semiconductor Inc.s (JSI) business has been a
developmental effort, involving the design, manufacture and introduction of new
standard product semiconductor chips. With the severe downturn in the
worldwide semiconductor market, JSI has had little success in selling its new
standard product chips to date. These products would require substantial
additional capital to get these chips established in the market, as well as to
develop newer, higher value chips.

The loss from operations of discontinued operations of $1,185,861 for the
three months ended March 31, 2002 includes $400,000 related to the writedown of
inventory shipped to JSI in the first quarter or held by vendors but not yet
shipped to JSI and $205,000 in operating losses expected to be incurred through the sale
of this product line.

As a result of the Companys decision to discontinue this business, the
Company may have an acceleration of the payment of liabilities, disputed
liabilities may arise, and the Company may incur liabilities that it otherwise
would not have incurred. Included in current liabilities in the accompanying
balance sheet as of March 31, 2002 is $1,915,000 of liabilities related to the discontinued
operations. These liabilities include amounts owed to JSIs
distributor, vendors and employees, and the amount accrued related to the facility.

In September 2000, JSI moved into a significantly larger facility in
anticipation of realizing its growth plans. Prior to December 31, 2001, the
Company decided to sublease the facility used by JSI and move JSI into a
smaller facility. Accordingly, in the fourth quarter of 2001 the Company
accrued $547,000, its estimated loss under that lease. The lease
provides for rent and related expenses of approximately $34,000 per
month through August 2005. The Company does not yet
have a subtenant for that facility and if it is unsuccessful in
obtaining a subtenant on acceptable terms, there could be further losses
related to that lease.

(8) Equity Transactions

In March 2002, under its Universal Blank Shelf Registration Statement, the
Company sold 1 million shares of its Common Stock for gross proceeds of $2
million. In connection with this transaction, the Company issued to the
purchasers warrants to purchase 150,000 shares of its Common Stock at an
exercise price of $2.50 per share, expiring in four years. Also, the Company
paid a placement agent a fee of 6% of the gross proceeds, a $25,000
non-accountable expense allowance and warrants to purchase 20,000 shares of the
Companys Common Stock at an exercise price of $2.40 per share.
Out of the gross proceeds of $2 million, the warrants to purchase 170,000 shares of the Companys Common
Stock have been valued based on the Black-Scholes method at
approximately $305,000 in the accompanying financial statements as
paid-in-capital with a corresponding reduction in the amount assigned
to the stock sold.

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MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2.

Through December 31, 2001, the Company operated in three segments as
follows: Front-end Semiconductor Equipment and Services, Precision Equipment,
and Semiconductor Products and Processes. In the first quarter of 2002, the
Company decided to discontinue and sell its standard semiconductor products
business and shift more of its resources to accelerate the market entry of its
X-ray lithography products. This portion of JMAR Semiconductor Inc.s (JSI)
business has been a developmental effort, involving the design, manufacture and
introduction of new standard product semiconductor chips. With the severe
downturn in the worldwide semiconductor market, JSI has had little success in
selling its new standard product chips to date. These products would require
substantial additional capital to become established in the market, as well as
to develop newer, higher value chips. The Company has concluded that it will
not continue to invest its resources in this business. As a result of this
decision, as of January 1, 2002, the Company will operate in two segments, the
Front-end Semiconductor Equipment and Services segment and the Precision
Equipment segment. The standard semiconductor products business
component has been
reflected in these financial statements as a discontinued operation and the
other business component of JSIs business included in the Semiconductor Products and
Processes Segment has been included in the Front-end Semiconductor Equipment
and Services Segment.

Results of Consolidated Operations

The net loss for the three months ended March 31, 2002 and 2001 was
$(747,621) and $(994,441), respectively. Income (loss) from continuing
operations for those same periods was $438,240 and $(492, 845), respectively,
while loss from operations for those same periods was $(871,918) and
$(584,556), respectively. Total revenues for the three months ended March 31,
2002 and 2001 were $4,536,516 and $4,546,163, respectively. Contract revenues
for the three months ended March 31, 2002 and 2001 were $3,292,293 and
$2,211,849, respectively. Included in the net loss for the three months ended
March 31, 2002 is a gain on the sale of marketable securities of $1,349,721.

Although the revenues were substantially the same for the three months
ended March 31, 2002 compared to the three months ended March 31, 2001, there
was a significant increase in X-ray lithography revenues in 2002 of $975,707
offset in part by a decrease in revenues of $1,348,768 of the Companys
precision instrument products. In addition, there was $483,829 of other
contract revenues from JMAR/SAL NanoLithography, Inc. (JSAL), acquired in
August 2001. The decrease in revenue of precision instrument products is a
result of the continued severe economic downturn which has caused our target customers to
curtail capital equipment purchases.

The Companys ability to forecast orders for its precision instrument
products continues to be limited due to continuing marketplace uncertainties
which often impedes our customers abilities to accurately forecast their needs.
As a result, the timing of receipt and shipment of orders could have a material
impact on quarterly results in 2002.

Total gross margins for the three months ended March 31, 2002 and 2001
were 24.1% and 28.4%, respectively. Gross margin for product sales for the
three months ended March 31, 2002 and 2001 were 21.5% and 25.7%, respectively,
and gross margins for contract sales for those two quarters were 25.0% and
30.5%, respectively. The decrease in the gross margin for contract
sales is due to a higher utilization of labor on the Companys X-ray
lithography contract at JMAR Research, Inc. The decrease in the gross margin for product sales in
2002 was due primarily to underutilized manufacturing capacity and competitive
pressures on product pricing. The Company continues to experience competitive
pressures on certain precision instrument products, which may impact gross
margins in the future. The Company is currently
integrating its X-ray source and stepper and anticipates conducting wafer
exposures

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##### Table of Contents



using this integrated system by the end of the third quarter of 2002.
Additional efforts are ongoing to increase the X-ray power output of our X-ray
sources to meet commercially viable requirements for the gallium
arsenide (GaAs) chip
manufacturing industry with the expectation of meeting the SAL earnout milestone of receiving an order for a
commercial system by the end of 2002. The Company expects that as its
patented, laser-driven advanced light products enter the marketplace
and gain acceptance, they will substantially improve gross profit
margins.

Selling, general and administrative (SG&A) expenses for the three months
ended March 31, 2002 and 2001 were $1,544,086 and $1,430,949, respectively. The
increase in SG&A expenses in 2002 is primarily due to $363,923 in SG&A costs
related to JSAL, which the Company acquired in August 2001 offset in part by a
reduction in SG&A costs in the Precision Equipment segment primarily related to
a reduction of employees in that segment and other cost cutting
efforts.

The Companys research, development and engineering program (RD&E)
consists of two types: Customer-Funded RD&E (U.S. government and other
companies) and Company-Funded RD&E. Both types of RD&E are expensed when
incurred. Customer-Funded RD&E costs incurred, included in Costs of Sales,
totaled $2,144,964 and $1,045,767 for the three months ended March 31, 2002 and
2001, respectively. The increase in Customer-Funded RD&E expenditures for the
three months ended March 31, 2002 is related to an increase of approximately
$897,411 in the X-ray lithography program contract funding provided by the
Defense Advanced Research Projects Agency, most of which is directed toward
development of JMARs X-ray lithography source technology for the commercial
semiconductor market and contract costs of $207,376 incurred by JSAL which was
acquired in August 2001. Company-Funded RD&E costs are shown in Operating
Expenses and totaled $419,017 and $443,428 for the three months ended March
31, 2002 and 2001, respectively. Hence, total RD&E expenditures for the three
month periods were $2,563,981 and $1,489,195 for 2002 and 2001, respectively.
RD&E expenditures as a percentage of sales were 56.5% and 32.8% for the three
months ended March 31, 2002 and 2001, respectively. These expenditures are
primarily related to the continued development of point X-ray sources for
lithography for the semiconductor industry and other metrology applications,
development of a high efficiency EUV generation system for advanced
semiconductor lithography and the engineering development of higher
performance test, measurement and inspection systems for the semiconductor,
optical network and biomedical industries.

During the first quarter of 2002, the Company decided to discontinue and
sell its standard semiconductor products business and shift more of its
resources to accelerate the market entry of its X-ray lithography products.
This portion of JMAR Semiconductor Inc.s (JSI) business has been a
developmental effort, involving the design, manufacture and introduction of new
standard product semiconductor chips. With the severe downturn in the
worldwide semiconductor market, JSI has had little success in selling its new
standard product chips to date. These products would require substantial
additional capital to get these chips established in the market, as well as to
develop newer, higher value chips.

The loss from operations of discontinued operations of $1,185,861 for the
three months ended March 31, 2002 includes $400,000 related to the writedown of
inventory shipped to JSI in the first quarter or held by vendors but not yet
shipped to JSI and $205,000 in costs expected to be incurred through the sale
of this product line.

As a result of the Companys decision to discontinue this business, the
Company may have an acceleration of the payment of liabilities, disputed
liabilities may arise, and the Company may incur liabilities that it otherwise
would not have incurred. Included in current liabilities in the accompanying
balance sheet as of March 31, 2002 is $1,915,000 of liabilities related to the discontinued
operations.

In September 2000, JSI moved into a significantly larger facility in
anticipation of realizing its growth plans. Prior to December 31, 2001, the
Company decided to sublease the facility used by JSI and move JSI into a
smaller facility. Accordingly, in the fourth quarter of 2001 the Company
accrued $547,000, its estimated loss under that lease. The lease
provides for rent and related expenses of approximately $34,000 per
month through August 2005. The Company does not yet
have a subtenant for that facility and if it is unsuccessful in
obtaining a subtenant on acceptable terms, there could be further losses
related to that lease.

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##### Table of Contents



Interest expense is higher for 2002 versus 2001 due to interest on the
$1.2 million notes issued to the former shareholders of SAL and higher average
borrowings in 2002 of the Companys working capital line (the Line) with
Comerica Bank.

The gain on sale of marketable securities of $1,349,721 for 2002 is
related to the sale of the Companys remaining 545,500 shares of its investment
in Bede plc in January 2002.

Interest and other income (expense) is lower for 2002 versus 2001 due to
lower average cash balances and lower interest rates.

Results of Segment Operations

Front-end Semiconductor Equipment and Services Segment

Revenue for the three months ended March 31, 2002 as compared to the three
months ended March 31, 2001 for the Front-end Semiconductor Equipment and
Services Segment increased $1,339,121 from $2,269,534 to $3,608,655. This
increase is primarily attributable to a significant increase in X-ray
lithography contract revenue of $975,707, as well as other contract revenues
from JSAL of $483,829, acquired in August 2001. Operating income of the
Front-end Semiconductor Equipment and Services Segment for the three months
ended March 31, 2002 as compared to the three months ended March 31, 2001
decreased $158,349 from income of $270,333 to income of $111,984. Despite the
increase in revenues in 2002 compared to 2001, operating income decreased
primarily due to an operating loss of $93,697 at JSAL, acquired in
August 2001 and increased R&D spending at JRI.

Precision Equipment Segment

Revenue for the three months ended March 31, 2002 as compared to the three
months ended March 31, 2001 for the Precision Equipment Segment decreased
$1,348,768, from $2,276,629 to $927,861. This decrease in revenue was related
to the continuing severe economic downturn primarily in the semiconductor industry
which has caused our target companies to curtail capital
equipment purchases. The operating loss of the Precision Equipment Segment for the three
months ended March 31, 2002 as compared to the three months ended March 31,
2001 was adversely affected as well, increasing $129,013 from a loss of $854,889
to a loss of $983,902. Despite the significantly lower revenues, the operating
loss was not impacted as significantly due to the reduction of employees and
other cost cutting efforts.

Consolidated Liquidity and Financial Condition

Unrestricted cash and cash equivalents at March 31, 2002 and December 31,
2001 were $5,856,541 and $4,115,129, respectively. The increase in
unrestricted cash and cash equivalents during the three months ended March 31,
2002 was $1,741,412. That increase resulted primarily from net proceeds from
the issuance of common stock of $1,767,105, proceeds from the sale of
marketable securities of $1,399,746 and a decrease in restricted cash of
$1,000,000 offset in part by payments under the Companys working capital bank
line of $1,000,000, cash used in continuing operations of $176,355 primarily related to
operating losses (exclusive of the gain on the sale of the Bede stock) and cash used in
discontinued operations of $1,076,906.

During the first quarter of 2002, the Company decided to discontinue and
sell its standard semiconductor products business and shift more of its
resources to accelerate the market entry of its X-ray lithography products.
This portion of JMAR Semiconductor Inc.s (JSI) business has been a
developmental effort, involving the design, manufacture and introduction of new
standard product semiconductor chips. With the severe downturn in the
worldwide semiconductor market, JSI has had little success in selling its new
standard product chips to date. These products would require substantial
additional capital to get these chips

13



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established in the market, as well as to develop newer, higher value
chips. As a result of the Companys decision to discontinue this business, the
Company may have an acceleration of the payment of liabilities, disputed
liabilities may arise, and the Company may incur liabilities that it otherwise
would not have incurred. Included in current liabilities in the accompanying
balance sheet as of March 31, 2002 is $1,915,000 of liabilities related to the discontinued
operations. In September 2000, JSI moved into a significantly larger facility
in anticipation of realizing its growth plans. Prior to December 31, 2001, the
Company decided to sublease the facility used by JSI and move JSI into a
smaller facility. Accordingly, in the fourth quarter of 2001 the Company
accrued $547,000, its estimated loss under that lease. The lease provides for
rent and related expenses of approximately $34,000 per month through August 2005.
The Company does not yet have a subtenant for that facility and if it is unsuccessful in
obtaining a subtenant on acceptable terms, there could be further losses
related to that lease.

JMARs operations will continue to require the use of working capital.
Working capital as of March 31, 2002 and December 31, 2001 was $7,543,058 and
$7,843,465, respectively. The decrease in working capital is primarily due to
the Companys losses, decrease in receivables and paydown of the Companys
working capital bank line offset in part by net proceeds from the issuance of
common stock. The working capital of the Company had generally been funded
through its working capital line (the Line) with Comerica Bank (the Bank)
with interest at prime rate and through third-party contracts. Due to the
Companys continued losses, in November 2001, the Bank reduced the amount of
the Line to $3 million and requires a $3 million compensating balance.
Pursuant to this new line of credit, there are no financial covenants or
ratios. The Line expires March 31, 2003. The Company is pursuing alternative
banking arrangements.

In March 2002, under its Universal Blank Shelf Registration Statement (see
below), the Company sold 1 million shares of its Common Stock for gross
proceeds of $2 million. With this financing, management believes that the
Company has adequate resources to fund operations and working capital
requirements for the next twelve months. However, the Company has determined
that it will require additional financing to complete or accelerate the
development of some of its high value emerging new products, including its
patented X-ray lithography systems for the manufacture of high performance semiconductors.
The Company believes that it has available
to it several potential sources of capital, including private offerings to
individual investors and additional debt or equity sales in the public market,
as well as additional contract funding from both current and new customers for
its research and development programs. The Company also intends to pursue
opportunities for strategic relationships, which may include additional
funding, in order to accelerate the commercialization of its emerging products.
However, there can be no assurance that additional financings will be
available when needed, on favorable terms, or at all.

On August 8, 2001, the Company filed a Universal Blank Shelf
Registration Statement with respect to $25 million of Company securities. The
registration statement was declared effective by the Securities and Exchange
Commission on October 11, 2001. The securities that may be sold under this
registration statement may be common stock, preferred stock, debt or warrants.
The Company may sell registered securities in the public market from
time-to-time at its discretion when market conditions are favorable and at
prices that will be negotiated at those times. In connection with the sale of
stock mentioned above, the Company issued to the purchasers warrants to
purchase 150,000 shares of its Common Stock at an exercise price of $2.50 per
share, expiring in four years. Also, the Company paid a placement agent fee of
6% of the gross proceeds, a $25,000 non-accountable expense allowance and
warrants to purchase 20,000 shares of the Companys Common Stock at an exercise
price of $2.40 per share.

On August 7, 2001, the Companys wholly owned subsidiary, JMAR/SAL
NanoLithography, Inc. (Subsidiary) acquired (the Acquisition) all of the
outstanding equity of Semiconductor Advanced Lithography, Inc. (SAL), a
Delaware corporation, in a merger of SAL with and into Subsidiary (Merger).
Consideration for the Merger consisted of an aggregate of 603,051 shares of its
Common Stock, $1.2 million in cash and $1.2 million in notes (the Notes).
The Notes are convertible into shares of the Companys Common Stock at a price
of $4.302. The Notes are convertible by the holders at any time and the
Company can force conversion if the average price, as defined, of the Companys
Common Stock during any ten day trading period exceeds $6.45. The shares
issued by the Company are unregistered; however, pursuant to an

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agreement with the SAL shareholders, the Company filed a registration
statement with the Securities and Exchange Commission on November 6, 2001 and
has agreed to use its reasonable efforts to obtain its effectiveness. The
holders have agreed to restrictions on their sale of those JMAR shares to no
more than 25% of their JMAR holdings in any quarter and to refrain from selling
any shares for 60 days upon notice from JMAR of its intention to negotiate an
underwritten public offering. In addition, SALs former shareholders and
creditors could receive as contingent earnout consideration up to 354,736
shares of the Companys Common Stock and up to $2.2 million of Convertible
Notes upon achievement of certain technical and market milestones. In connection with the Merger, JMAR agreed to provide working
capital loans to SAL from time to time up to a maximum of $1.2 million through
June 30, 2002 for working capital to build its X-ray steppers to be integrated
with JMARs X-ray sources.

In 2001, the Company was awarded an additional $9 million of contract
funding for its X-ray lithography program from the U.S. Army Research
Laboratory sponsored by the Defense Advanced Research Projects Agency
(DARPA). In addition, in February 2002, JMAR announced the receipt of a
Letter of Intent from the Department of the Army to execute a formal contract
funded by DARPA valued at up to $34.5 million. The contract directs JMAR to
proceed immediately to deliver with all diligence JMARs patented
first-of-a-kind, one-nanometer point source XRL system to produce
high-performance semiconductor integrated circuits needed to support a wide
range of critical military missions. As with all multi-year government
contracts, the amount and timing of the funding of this contract are dependent
upon the annual appropriation of funds by Congress.

In January 2002, the Company sold the remaining 545,500 shares of its
investment in Bede plc for net proceeds of approximately $1.4 million. The net
proceeds and gain from that transaction are reported in this 10-Q filing.

At December 31, 2001, the Company had approximately $39 million of Federal
net operating loss carryforwards subject to certain annual limitations, which
expire from 2004 through 2016. To the extent the Company has taxable income in
the future, these carryforwards may be used by the Company to reduce its cash
outlay for taxes.

Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995

Certain statements contained in this Form 10-Q which are not related to
historical results, including statements regarding JMARs future sales or
profit growth, competitive position or products, projects or processes
currently under development, the ability of the Company to successfully
introduce those products into the commercial marketplace or to apply those
products, projects or processes to alternative applications and the
availability of future bank or equity investor financing are forward-looking
statements that necessarily are based on certain assumptions and are subject to
certain risks and uncertainties that could cause actual future performance and
results to differ materially from those stated or implied in the
forward-looking statements. These risks and uncertainties include
concentration of sales to certain markets and customers, such as the
semiconductor industry, delays in shipments or cancellations of orders, failure
of expected orders to materialize, fluctuations in margins, timing of future
orders, lack of availability of critical components, customer reorganizations,
failure of advanced technology and new intellectual property to perform as
predicted, the failure of pending patents to be issued, uncertainties
associated with the timing of the funding of government contracts, fluctuations
in demand, delays in development, introduction and acceptance of new products,
changing business and economic conditions in various geographic regions,
technical obsolescence of existing products, technical problems in the
development or modification of current products or manufacturing processes, the
impact of competitive products and pricing, including the risk that the EUV LLC
is successful in developing an acceptable next generation lithography process
that becomes the process of choice for the semiconductor industry or that the
semiconductor industry fails to adopt X-ray lithography as the lithography
alternative, shifts in demand for the Companys products, the degree of success
of technology transfer (e.g., advanced lithography sources, etc.) to commercial
products, availability of working capital to support growth, continued
government funding of advanced lithography, successful integration of
acquisitions, declining credit markets, other competitive factors and temporary
cessation of operations at one

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or more of its division facilities due to natural events such as floods,
earthquakes and fires, and other risks detailed in the Companys Form 10-K for
the year ended December 31, 2001, in the Companys Form S-3/A filed on April
12, 2002 and in the Companys other filings with the Securities and Exchange
Commission.




Item 3.Quantitative and Qualitative Disclosures About Market Risk.

The Companys exposure to interest rate risk is minimal due to the
relatively small amount of investments and variable rate debt. The Company has
no investments in derivative financial instruments.

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PART II  OTHER INFORMATION




Item 2. Changes in Securities



| | (c)(i) Pursuant to the Board Member Compensation Program adopted by the
Company in August 1997, the Company issued a total of 880 shares of
Common Stock to its outside directors as compensation for services as
directors in February 2002. These transactions were exempt under
Section 4(2) of the Securities Act of 1933.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Item 6. Reports on Form 8-K



| | (b) Reports on Form 8-K
| | -----------------------



| | The Company filed a Report on Form 8-K/A on February 26, 2002 related to
the acquisition by the Company of all of the outstanding equity of
Semiconductor Advanced Lithography, Inc.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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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.

|             |                                                                    |                         
|------------ | ------------------------------------------------------------------ | ------------------------
|             | JMAR TECHNOLOGIES, INC.                                           
|            
|May 14, 2002 | By:                                                                | /s/ John S. Martinez    
|             |                                                                   
|             | John S. Martinez, Chief Executive Officer
  and Authorized Officer
|            
|             | By:                                                                | /s/  Dennis E. Valentine
|             |                                                                   
|             | Dennis E. Valentine, Chief Accounting Officer                     

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