SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C.
20549-1004


FORM 10-Q


QUARTERLY REPORT UNDER SECTION 13 OR
15 (d)


OF THE SECURITIES EXCHANGE ACT OF
1934


For the Quarter Ended March 31,
2008


Commission File Number
1-10515


JMAR TECHNOLOGIES,
INC.


(Exact
name of registrant as specified in its charter)


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


10905
Technology Place


San
Diego, CA 92127


(858) 946-6800


(Address,
including zip code and telephone number including


area code
of registrant’s principal executive office)




Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for at least the past 90 days.


Yes þ          No
o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer” and “large accelerated filer” in Rule 12b-2 of the Exchange
Act.


Large
accelerated filer o        Accelerated
filer o          
Non-accelerated filer oSmaller
reporting company þ




Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).


Yes o          No
þ




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date (May 15, 2008).


Common
Stock, $.01 par value: 53,877,059 shares











INDEX


(Page
      #PART I.
            
            FINANCIAL
      INFORMATIONItem 1.
            
            Financial
      Statements:Consolidated
      Balance Sheets — March 31, 2008 (unaudited) and December 31,
      2007
            2Consolidated
      Statements of Operations (unaudited) — Three months ended March 31, 2008
      and 2007
            3Consolidated
      Statements of Cash Flows (unaudited) — Three months ended March 31, 2008
      and 2007
            4Notes
      to Consolidated Financial Statements (unaudited)
            5Item 2.
            
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
            14Item 3.
            
            Quantitative
      and Qualitative Disclosures About Market Risk
            22Item 4.
            
            Controls
      and Procedures
            22PART II.
            
            OTHER
      INFORMATIONItem 1.
            
            N/AItem 1A.
            
            Risk
      Factors
            23Item 2.
            
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            24Item 3.
            
            N/AItem 4.
            
            Submission
      of Matters to a Vote of Security Holders
            24Item 5.
            
            N/AItem 6.
            
            Exhibits
            24









PART I — FINANCIAL
INFORMATION




JMAR TECHNOLOGIES,
INC.


CONSOLIDATED BALANCE
SHEETS


As of March 31, 2008 and
December 31, 2007


ASSETS
            
            March 31,
              2008
            
            
            December 31,
      2007(unaudited)Current
      Assets:Cash
      and cash equivalents
            
            $
            106,599
            
            
            $
            174,879Accounts
      receivable
            
            
            159,515
            
            
            
            44,544Unbilled
      receivables
            
            
            27,464
            
            
            
            21,180Inventories,
      net
            
            
            294,702
            
            
            
            308,029Net
      current assets of discontinued operations
            
            
            -
            
            
            
            479,342Prepaid
      expenses and other
            
            
            119,945
            
            
            
            160,610Total
      current assets
            
            
            708,225
            
            
            
            1,188,584Property
      and equipment, net
            
            
            621,284
            
            
            
            683,249Intangible
      assets, net
            
            
            1,669,014
            
            
            
            1,641,913Restricted
      cash
            
            
            3,321,221
            
            
            
            4,251,252Other
      assets
            
            
            217,302
            
            
            
            217,302TOTAL
      ASSETS
            
            $
            6,537,046
            
            
            $
            7,982,300LIABILITIES AND
      STOCKHOLDERS' EQUITY (DEFICIT)Current
      Liabilities:Accounts
      payable
            
            $
            655,718
            
            
            $
            534,586Accrued
      liabilities
            
            
            645,080
            
            
            
            427,600Accrued
      payroll and related costs
            
            
            137,195
            
            
            
            218,562Working
      capital line of credit, net
            
            
            529,905
            
            
            
            508,725Current
      portion of notes payable and other liabilities, net
            
            
            109,875
            
            
            
            103,375Net
      current liabilities of discontinued operations
            
            
            698,250
            
            
            
            708,716Deferred
      rent
            
            
            49,429
            
            
            
            49,429Derivative
      liabilities
            
            
            15,290,779
            
            
            
            5,022,378Total
      current liabilities
            
            
            18,116,231
            
            
            
            7,573,371Term
      notes, net of debt discounts
            
            
            2,516,928
            
            
            
            1,505,208Notes
      payable and other long-term liabilities, net of current
      portion
            
            
            206,459
            
            
            
            250,887Notes
      payable and other long-term liabilities of discontinuedoperations,
      net of current portion
            
            
            89,209
            
            
            
            89,209Total
      liabilities
            
            
            20,928,827
            
            
            
            9,418,675Redeemable
      convertible preferred stock: 738,329 sharesissued
      and outstanding as of March 31, 2008 and738,329
      at December 31, 2007, net of unamortized discount of$1,560,612
      and $1,709,606, respectively.
            
            
            6,123,639
            
            
            
            5,974,644Commitments
      and contingenciesStockholders'
      equity deficit:Preferred
      stock: $.01 par value; 5,000,000 shares authorized;738,329  shares
      issued and outstanding as of March 31, 2008and
       738,329 at December 31, 2007 included in
    redeemableconvertible
      preferred stock above.
            
            
            —
            
            
            
            —Common
      stock: $.01 par value; 380,000,000 shares authorized;53,877,059
      shares issued and outstanding as of March 31,2008,
      and 53,839,559 shares issued and outstanding as ofDecember
      31, 2007.
            
            
            538,772
            
            
            
            538,395Additional
      paid-in-capital
            
            
            85,225,558
            
            
            
            85,191,382Committed
      common stock
            
            
            178,002
            
            
            
            —Accumulated
      deficit
            
            
            (106,457,752
            )
            
            
            (93,140,796
            )Total
      stockholders' deficit
            
            
            (20,515,420
            )
            
            
            (7,411,019
            )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
            
            $
            6,537,046
            
            
            $
            7,982,300


The
accompanying notes to these consolidated financial statements are an integral
part of these consolidated statements.
 2


JMAR TECHNOLOGIES,
INC.


CONSOLIDATED STATEMENTS
OF OPERATIONS


For the Three Months Ended
March 31, 2008 and 2007


(Unaudited)




Three
      Months EndedMarch
      31,
              2008
            
            
            March
      31,
              2007Revenues
            
            $
            183,353
            
            
            $
            143,232Costs
      of revenues
            
            
            195,716
            
            
            
            114,463Gross
      profit (loss)
            
            
            (12,363)
            
            
            
            28,769Operating
      expenses:Selling,
      general, and administrative
            
            
            1,040,764
            
            
            
            910,197Research
      and development
            
            
            502,106
            
            
            
            311,300Impairment
      of long lived assets
            
            
            -
            
            
            
            125,000Total
      operating expenses
            
            
            1,542,870
            
            
            
            1,346,497Operating
      loss from continuing operations
            
            
            (1,555,233)
            
            
            
            (1,317,728)Interest
      and other income
            
            
            45,611
            
            
            
            18,530Interest
      and other expense
            
            
            (1,263,293)
            
            
            
            (133,008)Change
      in fair value of derivative liability
            
            
            (10,268,401)
            
            
            
            -Loss
      from continuing operations
            
            
            (13,041,316)
            
            
            
            (1,432,206)Income
      from discontinued operations, net of tax
            
            
            -
            
            
            
            156,388Net
      loss
            
            
            (13,041,316)
            
            
            
            (1,275,818)Deemed
      preferred stock dividends
            
            
            (275,637)
            
            
            
            (310,901)Loss
      applicable to common stock
            
            
            (13,316,953)
            
            
            
            (1,586,719)Loss
      per share from continuing operations
            
            $
            (0.25)
            
            
            $
            (0.04)Gain
      (loss) per share from discontinued operations
            
            
            -
            
            
            
            -Basic
      and diluted loss per share applicable tocommon
      stock
            
            $
            (0.25)
            
            
            $
            (0.04)Shares
      used in computation of basic anddiluted
      loss per share
            
            
            53,839,559
            
            
            
            40,729,287





The
accompanying notes to these consolidated financial statements are an integral
part of these consolidated statements.
 3


JMAR TECHNOLOGIES,
INC.


CONSOLIDATED STATEMENTS
OF CASH FLOWS


For the Three Months Ended March 31,
2008 and 2007


(Unaudited)


2008
            
            
            2007Cash flows from operating
      activities:Loss
      from continuing operations
            
            $
            (13,041,316
            )
            
            
            (1,275,818
            )Adjustments
      to reconcile loss from continuing operations to net cash used in
      operating activities:Depreciation
      and amortization
            
            
            65,891
            
            
            
            79,084Change
      in fair value of derivative liability
            
            
            10,268,401
            
            
            
            —Amortization
      of debt discount and beneficial conversion feature
            
            
            1,032,900
            
            
            
            72,618Stock
      based compensation expense
            
            
            19,464
            
            
            
            49,539Services
      received in exchange for common stock
            
            
            30,729
            
            
            
            29,275Services
      received in exchange for committed common stock
            
            
            78,002
            
            
            
            —Impairment
      of long lived assets
            
            
            —
            
            
            
            125,000(Increase)
      decrease in:Accounts
      receivable and unbilled receivables
            
            
            (121,255
            )
            
            
            249,726Inventories
            
            
            13,327
            
            
            
            13,911Prepaid
      expenses and other
            
            
            40,665
            
            
            
            52,158Accounts
      payable
            
            
            121,132
            
            
            
            131,971Accrued
      liabilities
            
            
            146,140
            
            
            
            (129,816
            )Unearned
      revenue
            
            
            —
            
            
            
            86,150Deferred
      compensation
            
            
            (25,571
            )
            
            
            (25,840
            )Deferred
      rent
            
            
            (12,357
            )
            
            
            (12,357
            )Net
      cash used from continuing operations
            
            
            (1,383,848
            )
            
            
            (554,399
            )Changes
      in net assets and liabilities of discontinued operations
            
            
            468,873
            
            
            
            84,242Net
      cash used in operating activities
            
            
            (914,975
            )
            
            
            (470,157
            )Cash flows from investing
      activities:Purchase
      of property and equipment
            
            
            (4,154
            )
            
            
            —Proceeds
      from the disposition of property and equipment
            
            
            2,548
            
            
            
            4,090Purchases
      of intangible assets from continuing operations
            
            
            (29,421
            )
            
            
            (23,169
            )Payments
      received on notes receivable
            
            
            —
            
            
            
            11,687Net
      cash provided by (used in) investing activities
            
            
            (31,027)
            
            
            
            (7,392
            )Cash flows from financing
      activities:Net
      (repayments) on term notes and line of credit
            
            
            —
            
            
            
            (447,585
            )Net
      proceeds from the issuance of common stock
            
            
            84,360
            
            
            
            384,182Decrease
      in restricted cash
            
            
            930,031
            
            
            
            —Cash
      payment of preferred stock dividends
            
            
            (136,669
            )
            
            
            —Net
      cash provided by (used in) financing activities
            
            
            877,722
            
            
            
            (63,403
            )Net (decrease) in
      cash and cash equivalents
            
            
            (68,280
            )
            
            
            (540,952
            )Cash
      and cash equivalents, beginning of period
            
            
            174,879
            
            
            
            686,832Cash
      and cash equivalents, end of period
            
            $
            106,599
            
            
            $
            145,880Cash
      paid for interest
            
            
            225,877
            
            
            
            58,086Supplemental Disclosure of Non
      Cash Activity:The three months ended March
      31, 2008:Deemed
      preferred stock dividends
            
            
            148,995The three months ended March
      31, 2007:Deemed
      preferred stock dividends
            
            
            
            
            
            
            148,995




The
accompanying notes to these consolidated financial statements are an integral
part of these consolidated statements.
 4




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” or “JMAR”) and its subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.




JMAR
Technologies, Inc. (JMAR or Company) is a late-stage technology company with
expertise in the development and commercialization of laser-based detection
technologies for nano-scale imaging, chemical and biological analysis, and
fabrication. The Company is leveraging more than a decade of laser and photonics
research in developing a portfolio of products with market applications in high
interest areas such as defense, homeland security, hazardous materials
detection and biological monitoring, while continuing to carry out research and
development. JMAR’s current product lines consist
of  the  BioSentry® system, a continuous, on-line, real-time
monitoring system for detecting and classifying harmful microorganisms in water,
and the BriteLightTM laser, a stand-alone laser product as well as the light
source for x-ray microscopy.




JMAR’s
continued pursuit of cutting-edge products includes a new initiative funded by
the Army Research Laboratory (ARL) for the development and demonstration of a
double pulse (DP) plasma laser. The exceptional beam quality realized in
this product will enable the use of stand-off laser-induced breakdown
spectroscopy (LIBS) in applications requiring the identification of foreign
substances on an object. The light emissions resulting from the plasma generated
on the targeted object are analyzed by an optical spectrometer which provides
the identification of trace substances such as explosives, metals and drugs. The
DP laser technology is based on the continued evolution of JMAR’s patented
BriteLightTM laser.




Because
of the national priority assigned to such critical security needs and the
funding support of Laurus Capital Management, LLC (“Laurus”), JMAR contracted
with D&K Engineering to accelerate the transition from laboratory prototype
to a man portable “shoebox size” double pulse laser product. This project is
being expanded to include the integration of analytic components for
system-level LIBS, such as laser-induced fluorescence (LIF) and Raman
applications. Laurus currently owns 9.9% of JMAR common stock, limited to that
percentage by written agreement, and a substantial position in JMAR warrants
resulting from an equity requirement of the $7.5 million financing received last
September.




“BioSentry®”
is a registered trademark and “BriteLightTM” is a
trademark for which JMAR has common law rights.




JMAR was
incorporated in the state of Delaware in 1987.




The
accompanying consolidated financial statements as of and for the three months
ended March 31, 2008 and 2007 have been prepared by the Company and are
unaudited. The consolidated 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 that are necessary for a fair
presentation of the results of operations and cash flows 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 of America 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, these interim consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company’s Form 10-K for
the year ended December 31, 2007. Amounts related to disclosures of
December 31, 2007 balances within these interim statements were derived
from that Form 10-K. The results of operations for the three months ended March
31, 2008 are not necessarily indicative of the results to be expected for the
full year.




The
accompanying consolidated financial statements have been prepared by the Company
on a going concern basis, which contemplates the realization of amounts and
satisfaction of obligations in the normal course of business. The Company
incurred net losses of $13,041,316, $1,623,906 and $13,106,681 for the three
months ended March 31, 2008 and for the years ended December 31, 2007 and
2006, respectively, and losses are expected for the foreseeable future. Our
revenues from continuing operations increased to $183,353 from $143,232 for the
three months ended March 31, 2008 and 2007, respectively. We had negative
operating cash flow from operations for the three months ended March 31, 2008
and for the years ended December 31, 2007 and 2006 of $914,975, $3,682,771
and $6,019,946, respectively.  Our cash requirements have been and will
continue to be significant. JMAR’s operations will continue to use cash in 2008
for 1) marketing; 2) product development efforts; 3) corporate costs, primarily
related to the cost of being a public company; 4) preferred stock dividends and
4) other working capital needs. We believe that with the financing provided by
the $7.5 million Term Note the Company has, subject to periodic reviews
with Laurus, adequate resources to fund its operations through September 30,
2008. The Company will require drawdowns under the $7.5 million Term Note to
continue the marketing and development of some of its emerging new products and
for working capital requirements until this time. There are no assurances that
funds will be available under the $7.5 million Term Note, due to Laurus’
requirement to approve every drawdown.  Depending on market conditions
and other considerations, we intend to continue to pursue opportunities to raise
additional funds in the future. In addition, the Company is actively discussing
arrangements with substantially larger companies to market, distribute and
service its BioSentry products. Management believes, but cannot assure, that the
Company will be able to raise those additional funds through equity or other
financings to fund future operations.  This belief is derived from the
Company’s historical access to equity and debt markets. See further discussion
in “Risk Factors -
Item 1A.




5





Management
believes that the Company’s losses in recent years have resulted from a
combination of insufficient contract revenue generated earnings to support the
Company’s new product development and commercialization work, the time necessary
for it to begin generating significant revenue from those new products, and the
significant administrative cost of being a small public company. There can be no
assurance that the Company’s revenues will grow or that the Company will
successfully implement its plans. Additionally, there can be no assurance that
additional suitable financing will be available on acceptable terms, on a timely
basis, or at all.




(2)
            
            Recent Accounting
      Pronouncements


In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements,
which provides a single definition of fair value, a framework for measuring fair
value, and expanded disclosures concerning fair value. Previously, different
definitions of fair value were contained in various accounting pronouncements
creating inconsistencies in measurement and disclosures. SFAS No. 157
applies under those previously issued pronouncements that prescribe fair value
as the relevant measure of value, except Statement No. 123(R) and related
interpretations and pronouncements that require or permit measurement similar to
fair value but are not intended to measure fair value. This pronouncement is
effective for fiscal years beginning after November 15, 2007. The Company
does not expect the adoption of SFAS No. 157 to have a material impact on its
consolidated financial statements.
 
 In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Assets and Liabilities – Including an Amendment of FASB
Statement No. 115. This standard permits an entity to choose to
measure many financial instruments and certain other items at fair value. Most
of the provisions in SFAS No. 159 are elective; however, the amendment to
SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities,applies to all
entities with available-for-sale and trading securities. The fair value option
established by SFAS No. 159 permits all entities to choose to measure
eligible items at fair value at specified election dates. A business entity will
report unrealized gains and losses on items for which the fair value option has
been elected in earnings (or another performance indicator if the business
entity does not report earnings) at each subsequent reporting date. The fair
value option: (a) may be applied instrument by instrument, with a few
exceptions, such as investments otherwise accounted for by the equity method;
(b) is irrevocable (unless a new election date occurs); and (c) is
applied only to entire instruments and not to portions of instruments. SFAS
No. 159 is effective as of the beginning of an entity’s first fiscal year
that begins after November 15, 2007. The Company does not expect the
adoption of SFAS No. 159 to have a material impact on its consolidated
financial statements.




In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations (SFAS 141(R)). The objective of SFAS 141 (R) is to improve
reporting by creating greater consistency in the accounting and financial
reporting of business combinations, resulting in more complete, comparable and
relevant information for investors and other users of financial statements. SFAS
141 (R) requires the acquiring entity in a business combination to
recognize all (and only) the assets acquired and liabilities assumed in the
transaction; establishes the acquisition-date fair value as the measurement
objective for all assets acquired and liabilities assumed; and requires the
acquirer to disclose to investors and other users all of the information they
need to evaluate and understand the nature and financial effect of the business
combination. SFAS 141 (R) includes both core principles and pertinent
application guidance, eliminating the need for numerous EITF issues and other
interpretative guidance, thereby reducing the complexity of existing GAAP. SFAS
141 (R) is effective as of the start of fiscal years beginning after
December 15, 2008. Early adoption is not allowed. We are in the process of
evaluating this standard and have not yet determined the impact that the
adoption of SFAS 141 (R) will have on our financial position, results of
operations or cash flows.




In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests
in Consolidated Financial Statements (SFAS 160). SFAS 160 improves the
relevance, comparability, and transparency of financial information provided to
investors by requiring all entities to report non-controlling
(minority) interests in subsidiaries in the same way—as equity in the
consolidated financial statements. Moreover, SFAS 160 eliminates the diversity
that currently exists in accounting for transactions between an entity and
non-controlling interests by requiring they be treated as equity transactions.
SFAS 160 is effective as of the start of fiscal years beginning after
December 15, 2008. Early adoption is not allowed. We are in the process of
evaluating this standard and have not yet determined the impact that the
adoption of SFAS 160 will have on our financial position, results of operations
or cash flows.





In March
2008, FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and
Hedging Activities—an amendment of FASB Statement No. 133” which establishes the
disclosure requirements for derivative instruments and for hedging activities.
This Statement amends and expands the disclosure requirements of Statement 133
with the intent to provide users of financial statements with an enhanced
understanding of derivative instruments and hedging activities. SFAS 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early adoption encouraged. We do not
expect adoption of SFAS 161 to have a material impact on the Company’s financial
statements.




(3)
            
            Stock-Based Compensation
      Plans




The
Company has six stock — based compensation plans, the 2006 Equity Incentive Plan
(2006 Plan), the 1991 Stock Option Plan (1991 Plan), the 1999 Stock Option Plan
(1999 Plan), the Management Anti-Dilution Plan (Anti-Dilution Plan) and two
incentive plans which provided for the issuance of options to Research Division
employees (Research Division Plans). The 2006 Plan and the 1999 Plan
were shareholder-approved and are the only plans of the six stock plans
from which additional options may be granted.  On June 25, 2007, the Board
of Directors resolved and unanimously approved an increase in the authorized
shares of the 2006 Plan to 20,000,000 shares, subject to a shareholder-approved
increase in authorized shares of the Company. On February 20,
2008, shareholders approved an increase in the Company’s authorized shares
to 380,000,000 shares. The 1999 Plan authorizes the grant of options to purchase
up to 1,900,000 shares of the Company’s common stock. The Company is also a
party to a non-plan option agreement with one individual. Prior to
January 1, 2006, the Company accounted for these plans under APB Opinion
No. 25, using the intrinsic value method, under which no compensation cost
has been recognized for issuance to employees.


6
  Effective
January 1, 2006, the Company adopted SFAS No. 123(R), using the
modified prospective transition method. Included in the Consolidated Statements
of Operations for the three months ended March 31, 2008 and 2007 are
compensation charges as follows:





Three
      months ended March 31,
              (unaudited)2008
            
            
            2007Compensation
            
            $
            19,464
            
            
            $
            49,539Selling,
      general, & administrative
            
            
            17,722
            
            
            
            45,460Research
      and development
            
            
            1,742
            
            
            
            4,079





The
Company recognizes stock-based compensation costs on a straight-line basis over
the requisite service period of the award, which is generally the option vesting
term. The Company has a 100% valuation allowance recorded against its deferred
tax assets, therefore the stock-based compensation has no tax effect on the
Consolidated Statements of Operations.




The
weighted-average grant date fair value of options granted during the three
months ended March 31, 2008 was $.11. There were no options granted during the
three months ended March 31, 2007. The unrecognized stock based compensation
expense for the three months ended March 31, 2008 and 2007 is $147,145 and
$132,339, with a weighted average remaining vesting period of 1.5 and .95 years,
respectively.





The fair
value of each option grant is estimated on the date of grant using the Black
Scholes option pricing model with the following weighted-average assumptions
used for grants during the three months ended March 31, 2008: risk-free interest
rate of approximately 1.84 percent in 2008 based on the U.S. Treasury
yields in effect at the time of grant; expected dividend yields of
0 percent as the Company has not, and does not intend to, issue dividends;
and expected lives of 3 to 7 1/2 years based upon the historical life of
options. For grants in 2008, the expected volatility used was 199 percent,
based on the Company’s historical stock price fluctuations for a period matching
the expected life of the options. Forfeiture rates are calculated on a
historical basis with the option grants organized into three pools (directors,
officers and employees). The forfeiture rates used for 2008 were
2.7 percent for directors, 3.6 percent for officers and
9.3 percent for employees. Grants pursuant to the 2006 and 1999 Plans
generally have requisite service periods of 3 to 10 years with contractual lives
of 10 to 11 years.




There
were no stock options exercised during the three months ended March 31, 2008.
 The total intrinsic value of options exercised during the three months
ended March 31, 2008 and 2007 was $0 and $0, respectively. There was no
cash received from options exercised for the three months ended March 31,
2008 and 2007.




A summary
of option activity under all of the above plans as of March 31, 2008 and 2007,
and changes during the three months then ended is presented in the table
below:





2008
      (unaudited)
            
            2007Wtd.
      Avg.
            
            
            
            
            
            
            
            
            
            
            
            
            Wtd.
      Avg.Wtd.
      Avg.
            
            
            Remaining
            
            
            Aggregate
            
            
            
            
            
            
            Wtd.
      Avg.
            
            
            Remaining
            
            
            AggregateExercise
            
            
            Contractual
            
            
            Intrinsic
            
            
            
            
            
            
            Exercise
            
            
            Contractual
            
            
            IntrinsicShares
            
            
            Price
            
            
            Life
      (yrs)
            
            
            Value
            
            Shares
            
            
            Price
            
            
            Life
      (yrs)
            
            
            ValueOutstanding
      at beginning of period
            
            
            
            1,382,714
            
            
            
            
            
            $
            2.25
            
            
            
            3.8
            
            
            $
            —
            
            
            
            
            2,329,054
            
            
            $
            2.71
            
            
            
            5.1
            
            
            $
            —Granted
            
            
            
            1,000,000
            
            
            
            
            
            $
            0.11
            
            
            
            9.9
            
            
            
            —
            
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Exercised
            
            
            
            —
            
            
            
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Forfeited
            
            
            
            (159,667
            )
            
            
            
            
            
            $
            1.99
            
            
            
            3.4
            
            
            
            —
            
            
            
            
            (1,062,552
            )
            
            
            2.96
            
            
            —
            
            
            
            —Outstanding
      at end of period
            
            
            
            2,223,047
            
            
            
            
            
            
            $
            1.25
            
            
            
            6.4
            
            
            
            —
            
            
            
            
            1,266,502
            
            
            
            1.78
            
            
            6.5
            
            
            
            —Vested
      and Expected to Vest
            
            
            
            2,218,047
            
            
            
            
            
            
            $
            1.25
            
            
            6.4
            
            
            
            —
            
            
            
            
            1,244,960
            
            
            
            1.80
            
            
            6.7
            
            
            
            —Exercisable
      at end of period
            
            
            
            986,380
            
            
            
            
            
            
            $
            2.33
            
            
            2.5
            
            
            $
            —
            
            
            
            
            782,836
            
            
            $
            2.33
            
            
            5.0
            
            
            $
            —


7




A summary
of the options outstanding as of March 31, 2008, the range of exercise
prices, the weighted-average exercise price, the weighted-average remaining
contractual life, the amount of options currently exercisable and the
weighted-average exercise price of options currently exercisable is as
follows:




Options
      Outstanding
            
            
            Options
      ExercisableWeighted-Average
            
            
            Weighted-
            
            
            
            
            
            Weighted-Range of
            
            
            Number
            
            
            Remaining
            
            
            Average
            
            
            Number
            
            
            AverageExercise
              Prices
            
            
            Outstanding
              at
    3/31/08
            
            
            Contractual
              Life
            
            
            Exercise
              Price
            
            
            Exercisable
              at
    3/31/08
            
            
            Exercise
              Price$
            0.10
      to $0.87
            
            
            
            1,345,333
            
            
            2.0
      Years
            
            $
            0.19
            
            
            
            125,333
            
            
            $
            0.72$
            1.21
      to $1.75
            
            
            
            238,334
            
            
            4.9
      Years
            
            
            1.52
            
            
            
            221,667
            
            
            
            1.50$
            1.94
      to $2.91
            
            
            
            111,960
            
            
            1.8
      Years
            
            
            2.17
            
            
            
            111,960
            
            
            
            2.17$
            3.25
      to $3.83
            
            
            
            447,420
            
            
            0.6
      Years
            
            
            3.13
            
            
            
            447,420
            
            
            
            3.13$
            4.56
      to $6.50
            
            
            
            80,000
            
            
            0.8
      Years
            
            
            5.29
            
            
            
            80,000
            
            
            
            5.292,223,047
            
            
            
            
            
            
            
            
            
            
            
            986,380




A summary
of the status of the Company’s non-vested options at March 31, 2008, and
changes during the three months ended March 31, 2008, is presented
below:




Grant-dateShares
            
            fair
    valueNon-vested
      at December 31, 2007
            
            
            236,679
            
            
            $
            1.10Granted
            
            
            1,000,000
            
            
            $
            0.10Vested
            
            
            —
            
            
            $
            —Forfeited
            
            
            —
            
            
            $
            —Non-vested
      at March 31, 2008
            
            
            1,236,679
            
            
            $
            0.29





(4)
            
            Accounts
      Receivable




At March
31, 2008 and December 31, 2007, accounts receivable consisted of the
following:




March
      31, 2008
              (unaudited)
            
            
            December
      31,
              2007Billed
            
            $
            159,515
            
            
            $
            44,544Unbilled
            
            
            27,464
            
            
            
            21,180186,979
            
            
            
            65,724Less-allowance
      for doubtful accounts
            
            
            --
            
            
            
            --$
            186,979
            
            
            $
            65,724




All
unbilled receivables at March 31, 2008 are expected to be billed and
collected within one year. The unbilled receivables at March 31, 2008
relate to the normal billing cycle and timing of billings. In addition, included
in the long-term “other assets” on the accompanying Consolidated Balance Sheet
are withheld fees, $166,977 of which are from the Company’s DARPA contract and
$14,720 from the SBIR contract, both of which it expects to receive upon
completion of the contracts and final DCAA audit.




8




(5)
            
            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, 2008 and December 31, 2007, inventories consisted of
the following:




March
      31, 2008
              (unaudited)
            
            
            December
      31,
              2007Raw
      materials, components and sub-assemblies
            
            $
            97,169
            
            
            $
            55,494Work-in-process
            
            
            67,283
            
            
            
            85,486Finished
      goods
            
            
            150,372
            
            
            
            177,110314,824
            
            
            
            318,090Less-reserve
      for excess and obsolete inventory
            
            
            (20,122
            )
            
            
            (10,061
            )$
            294,702
            
            
            $
            308,029




(6)
            
            Property and
      Equipment




At
March 31, 2008 and December 31, 2007, property and equipment consisted
of the following:




March
      31, 2008
              (unaudited)
            
            
            December
      31,
              2007Equipment
      and machinery
            
            $
            329,712
            
            
            $
            588,748Software
            
            
            590,446
            
            
            
            329,291Furniture
      and fixtures
            
            
            197,859
            
            
            
            198,372Leasehold
      improvements
            
            
            607,767
            
            
            
            607,7671,725,784
            
            
            
            1,724,178Less-accumulated
      depreciation
            
            
            (1,104,500
            )
            
            
            (1,040,929
            )$
            621,284
            
            
            $
            683,249




Included
in leasehold improvements is $346,000 of gross proceeds for lease incentives the
Company received from its landlord. These lease incentives were recorded as
deferred rent to be amortized on a straight-line basis to rent expense over the
life of the lease. Of the net remaining deferred rent of $226,548, $177,119 is
included in “notes payable and other long-term liabilities” and the balance of
$49,429 is included in “deferred rent” in current liabilities on the
accompanying Consolidated Balance Sheet.




(7)
            
            Segment
      Information




Business Segments




JMAR
conducts its operations in two business segments; the Research Division and the
Sensor Products Group.




Research
Division




The
Research Division carries out research and development involving JMAR’s patented
high brightness, short pulse, diode pumped solid state lasers and laser-produced
plasma (LPP) technology. A major portion of the Research Division’s R&D
funding has been obtained through contracts from the U.S. Defense Advanced
Research Projects Agency (DARPA) and more recently by the U.S. Army
Research Laboratories (ARL). JMAR is continuing to enhance its product offering
by extending its core technologies to include spectroscopy engineering and Raman
sensing as key elements of a robust solution for substance detection and
identification.  As new prototype products are developed by the
Research Division, they are considered for transfer to a third party contract
engineering firm for product engineering and manufacturing.


9




JMAR’s
diode pumped modular solid state (DPSS) BriteLight laser, developed
specifically to enable the efficient production of soft x-rays through laser
produced plasma, is marketed by JMAR as a standard product for advanced laser
applications.




The
patented DPSS BriteLight Laser system provides a high-performance laser source
for researchers and engineers in academic, military and manufacturing settings
requiring either a single specialized laser or a versatile laser source that can
be used for a multitude of applications, including spectrochemical analysis,
nano-scale fabrication, microscopy and soft x-ray source generation. This system
was developed as the foundation for JMAR’s collimated plasma lithography
(CPL) x-ray source.




Redesigned
BriteLight technology is the basis for JMAR’s entry into laser-induced breakdown
spectroscopy (LIBS) for remote detection of CBRNE (chemical, biological,
radiological, nuclear, explosive) substances in military settings, on roadways
and at checkpoints, against suspects in the field, for site exploitation, crime
scenes, and for detecting the smallest possible traces of  CBRNE
elements. This line of business is presently supported by the U.S. Army and by
internal research and development (IR&D) funds and is being expanded to
examine the combination of fluorescence and Raman capabilities with DP-LIBS to
provide verification of detected elements.




During
the three months ended March 31, 2008, and 2007, the Research Division accounted
for approximately 63.5% and 70.3%, respectively, of the Company’s
revenues.





Sensor Products
Group




This
segment’s first product is the BioSentry sensor, a continuous, on-line,
real-time monitoring system for detecting and classifying harmful microorganisms
in water. BioSentry is targeted toward a number of applications across multiple
markets, including homeland security, the cruise ship and beverage industries,
pharmaceutical companies, and municipal water utilities.




The U.S.
Environmental Protection Agency (EPA) purchased a unit for evaluation of
BioSentry in homeland security applications at the National Homeland Security
Research Center in Cincinnati, Ohio. The program was carried out in 2007 by the
EPA’s National Security Homeland Research Center, using a pilot-scale water
distribution system at the EPA’s testing and evaluation facility in Cincinnati,
Ohio. Tests were performed to determine the detection capabilities of BioSentry
and other products against intentional introduction of pathogens into a water
distribution system. Several pathogen surrogates were used simulating lethal
microbes.  The EPA presented these results at the April AWWA Water
Security Congress 2008 which indicated that the tests found that BioSentry was
able to detect bacterial pathogens up to 25 times better than any other product
tested.




In
January 2008, a trial BioSentry system was delivered to Pfizer, Inc. to
determine its efficacy for real-time detection and classification of waterborne
microorganisms in the production of high purity water used in the pharmaceutical
manufacturing process.  The objective is to augment traditional grab
sample/laboratory analysis that can take up to five days before results are
obtained.




In
February 2008 JMAR delivered two BioSentry systems under a purchase order from
Aquatec, a Swiss distributor of water control systems, which potentially could
lead to several larger purchases because municipal water districts are liable to
their users for contamination problems.




During
the three months ended March 31, 2008, and 2007, the Sensor Products Group
accounted for approximately 36.5% and 29.7%, respectively, of the Company’s
revenues.




The
accounting policies of the reportable segments are the same as those described
in Note 2 of the Company’s consolidated financial statements included in the
Form 10-K for the year ended December 31, 2007. The Company evaluates the
performance of its operating segments primarily based on revenues and operating
income. Corporate costs are generally allocated to the segments based on a three
factor formula (revenues, payroll and certain assets).




10




Segment
information for the three months ended March 31, 2008 and 2007 is as
follows (excluding discontinued operations) (unaudited):


Research
                Division
              
              
              Sensor
                Products
                Group
              
              
              Corporate
              
              
              TotalThree
      Months Ended March 31, 2008:Revenues
              
              $
              116,499
              
              
              
              66,854
              
              
              $
              ---
              
              
              $
              183,353Asset
      writedowns and special items
              
              
              ---
              
              
              
              ---
              
              
              
              ---
              
              
              
              ---Operating
      (loss) profit
              
              
              (831,200
              )
              
              
              (634,213
              )
              
              
              (89,820
              )
              
              
              (1,555,233
              )Total
      assets
              
              
              774,231
              
              
              
              1,698,563
              
              
              
              4,064,252
              
              
              
              6,537,046Capital
      expenditures
              
              
              2,119
              
              
              
              ---
              
              
              
              2,035
              
              
              
              4,154Depreciation
      & amortization
              
              
              17,018
              
              
              
              4,502
              
              
              
              44,371
              
              
              
              65,891Three
      Months Ended March 31, 2007:Revenues
              
              $
              100,714
              
              
              $
              42,518
              
              $
              
              ---
              
              
              $
              143,232Operating
      loss
              
              
              (303,337
              )
              
              
              (661,789
              )
              
              
              (352,602
              )
              
              
              (1,317,728
              )Asset
      writedowns and special items
              
              
              ---
              
              
              
              (125,000
              )
              
              
              ---
              
              
              
              (125,000
              )Total
      assets
              
              
              846,155
              
              
              
              1,672,824
              
              
              
              1,604,380
              
              
              
              4,123,359Capital
      expenditures
              
              
              ---
              
              
              
              ---
              
              
              
              ---
              
              
              
              ---Depreciation
      & amortization
              
              
              20,051
              
              
              
              10,759
              
              
              
              48,274
              
              
              
              79,084


Sales to
the United States Government totaled $45,299 and $100,714 for the three months
ended March 31, 2008 and 2007, respectively.




(8)
            
            Derivative
      Liability




Statement
of Financial Accounting Standards (“SFAS”) No. 133 “Accounting for
Derivative Instruments and Hedging Activities” requires measurement of certain
derivative instruments at their fair value for accounting purposes. In
determining the appropriate value, we use the Black Scholes Option Pricing
Formula (“Black Scholes model”) where applicable. Derivative liabilities are
adjusted to reflect fair value at each period end, with any increase or decrease
in the fair value being recorded in consolidated statements of operations as
adjustments to fair value of derivatives.




The
following defines our derivatives:




Warrants Attached to
Debt




As of
March 31, 2008, the 5,209,561, net of 2,388,189 warrants exercised on
August 31, 2007, and 119,000,000 warrants issued in conjunction with the
$750,000 Note and the $7.5 million Term Note payable to Laurus,
respectively, are being accounted for as a liability pursuant to the
provisions of SFAS No. 133 and EITF No. 00-19. The Company granted the
warrant holders certain registration rights. In accordance with SFAS
No. 133, the warrants are valued at each reporting period. Changes in fair
value are recorded as an adjustment to fair value of derivative in the statement
of operations. The outstanding warrants were fair valued on April 13, 2007
and September 11, 2007 and determined to have a fair value of $1,747,481 and
$13,090,000 respectively. In accordance with SFAS No. 133, the Company
revalued the warrants on March 31, 2008 and as a result of the revaluation,
the Company recorded a change in fair value of derivative liability of
$9,936,765 in the consolidated statement of operations.




The
warrants were valued based on the Black Scholes pricing model using the
following assumptions: risk-free interest rate of 3.45% based on estimated
yields of 10-year U.S. Treasury Securities; expected dividend yield of
0 percent; expected life of 9 and 9.5 years; and expected volatility
of 99% and 100%. The volatility is based on JMAR’s historical stock prices for
the past 9 and 9.5 years, consistent with the expected life of the
warrants.





Conversion Feature
Derivatives




Pursuant
to an agreement committed to in June, 2007, but entered into on July 5, 2007,
which provides for the issuance from time to time of new shares of Series J
Preferred Stock, a portion of the outstanding shares of Series G and
Series I Preferred Stock will be amended with each sale and issuance of
Series J Preferred Stock, as follows: A stated amount of Series G and
I Preferred Stock equal to 200% of the stated amount of the Series J
Preferred Stock that is issued will be amended to reduce its conversion price to
a price equal to the average of the volume weighted average price for the five
trading days prior to the issuance of the new Series J shares. Pursuant to
SFAS No. 133 and EITF No. 00-19, the Company recorded a derivative
liability for the maximum number of common shares eligible for exchange. The
shares were determined to have a fair value of $173,600 based on the market
price of the shares on the date of the transaction.  In accordance
with SFAS No. 133, the Company revalued the shares on March 31, 2008;
as a result of the revaluation, there was a change of $142,400 in the fair value
of the derivative liability.




11




Warrants Issued to
Non-employee




As part
of the transaction entered into on June 28, 2007, the Company was required to
reclassify previously and subsequently issued warrants to non-employees as
warrant derivatives Pursuant to SFAS No. 133 and EITF No. 00-19, the
Company recorded a derivative liability of $318,870 for the maximum number of
common shares eligible for exchange, valued based on the Black Scholes model on
June 28, 2007, for 7,728,528 shares issuable under previously issued
warrants. In accordance with SFAS No. 133, the Company revalued the shares
on March 31, 2008 and as a result of this revaluation, there was a change
of $189,236 in the fair value of the derivative liability.




The
warrants were valued based on the Black Scholes pricing model using the
following assumptions: risk-free interest rate of 3.45% based on estimated
yields of 10 year U.S. Treasury Securities; expected dividend yield of
0 percent; expected life of 2-5 years; and expected volatility of 97%.
The volatility is based on JMAR’s historical stock prices for the
past 9 years, consistent with the expected remaining life of the
warrants.




(9)
            
            Equity
      Transactions


a. Laurus Preferred Stock and
Warrants





If not
previously converted, the Series G, I and J Preferred Stock, as amended,
must be redeemed by the Company as follows:




Gross
    AmountOutstanding
      at
            
            
            Scheduled
      RedemptionsDescription
            
            March 31,
      2008
            
            
            2008
            
            
            2009
            
            
            TotalSeries G
      Preferred
            
            $
            1,177,800
            
            
            $
            —
            
            
            $
            1,177,800
            
            
            $
            1,177,800Series I
      Preferred
            
            
            5,797,651
            
            
            
            —
            
            
            
            5,797,651
            
            
            
            5,797,651Series
      J Preferred
            
            
            708,800
            
            
            
            —
            
            
            
            708,800
            
            
            
            708,800Total
            
            $
            7,684,251
            
            
            
            —
            
            
            $
            7,684,251
            
            
            $
            7,684,251




In
connection with all of the above financing transactions with Laurus, the Company
issued warrants to Laurus to purchase a total of 127,048,956 shares of common
stock at prices ranging from $.01 to 5.00. In addition, in connection with the
2006 Working Capital Line on March 31, 2006, Laurus was granted two
warrants exercisable into up to 458,181 shares of common stock at an exercise
price of $0.01 per share. As of March 31, 2008 all of the preferred stock
and warrants held by Laurus are convertible or exercisable into approximately
147.1 million shares.





All of
the preferred stock and warrants (Securities) held by Laurus contain provisions
that restrict the right of Laurus to convert or exercise its JMAR securities in
order to limit its percentage beneficial ownership. If Laurus were to waive
these beneficial ownership limitations the Securities would be convertible for
or exercisable into more than 9.99% of the outstanding shares of the Company’s
common stock commencing 75 days after notice of such waiver. However,
Laurus has not requested such a waiver. Laurus has also agreed that none of the
Securities shall be converted or exercised to the extent that conversion or
exercise of the Securities would result in Laurus beneficially owning more than
19.9% of the shares of the Company’s common stock (as of various issuance dates
of the securities) unless and until the Company obtains stockholder approval of
such excess. Excluded from such calculation are all shares issued to Laurus upon
conversion of convertible preferred stock or exercise of warrants but no longer
owned by Laurus.




Included
in the loss applicable to common shareholders in the accompanying Consolidated
Statements of Operations for the quarters ended March 31, 2008 and 2007 are
preferred stock dividends of $275,637, and $310,901, respectively. These amount
for the quarters ended March 31, 2008 and 2007 consist of two elements: 1)
$126,642, and $161,906, respectively, of preferred stock dividends paid or
payable in cash and 2) $148,995 and $148,995, respectively, related to the
discount representing the beneficial conversion feature of the redeemable
convertible preferred stock which is the fair value of warrants issued in
connection with the preferred stock and the difference between the fair value of
the preferred stock immediately prior to and after certain prior amendments to
the Preferred Stock.





Subject
to the contractual limitation on total beneficial ownership by Laurus to 9.99%
of our common stock, the Series G, I and J Preferred Stock are convertible
into a total of 20,065,472 shares of Common Stock.




b. Sales of Common Stock and
Warrants





None





c. Issuance of
Warrants





None.





d. Issuances of Common Stock and
Warrants for Services





None.




12




(10)
            
            Earnings Per
      Share




The
Company accounts for earnings per share in accordance with SFAS No. 128,
“Earnings per Share”. Basic earnings per common share were computed by dividing
loss applicable to common stock by the weighted average number of shares of
common stock outstanding during the year. For the three months ended
March 31, 2008 and 2007, the denominator in the diluted loss per share
computation was the same as the denominator for basic loss per share due to
antidilutive effects of the Company’s warrants, stock options, convertible debt
and convertible preferred stock. At March 31, 2008 and 2007 the Company had
shares issuable under outstanding warrants, stock options and convertible
preferred stock of 154,595,221 and 15,527,277, respectively, all of which
are antidilutive and were excluded from the computation of diluted loss per
share due to the Company’s losses.





(11)
            
            Discontinued
      Operations




The
income from operations of discontinued operations of $0 and $156,388 for the
three months ended March  31, 2008 and 2007, respectively, is related to
the closure of the Vermont Operations as of September 30, 2007. On November 7,
2007 the Company executed an Asset Purchase Agreement (the "Agreement") with
Applied Research Associates, Inc. (ARA) of Randolph, Vermont to sell to ARA
certain assets of the Vermont Operations including; rights to the Vermont
Operations’ current proposal to NAVAIR; the x-ray stepper and optical microscope
hardware; and the intellectual property, including four patents, related to
x-ray lithography. Under the Agreement, ARA was responsible for all lease
payments and certain other facility operating costs of the Vermont Operations’
building under a sublease from the Company for the remainder of the lease term
from October 16, 2007 through its termination on March 31, 2008. In January
2008, JMAR received payment for the sale of the Vermont
Operations, including reimbursement of certain building lease payments and
operating costs for total proceeds of $218,607.





Accordingly,
the Company has reflected the Vermont Operations and Microelectronics Division
as discontinued operations for all periods included in this Form
10-Q.





At
March 31, 2008 and December 31, 2007, net assets and liabilities of
the discontinued operations consisted of the following:





March
      31, 2008
              (unaudited)
            
            
            December 31,
      2007Current
      Assets:Cash
            
            $
            —
            
            
            $
            178Accounts
      receivable
            
            
            —
            
            
            
            479,164$
            —
            
            
            $
            479,342Current
      Liabilities:Accounts
      payable
            
            
            455,206
            
            
            
            465,672Accrued
      liabilities
            
            
            243,044
            
            
            
            243,044$
            698,250
            
            
            $
            708,716Non-Current
      Liabilities:Lease
      accrual/deferred rent
            
            $
            89,209
            
            
            $
            89,209





The gain
from operations of discontinued operations for the three months ended
March 31, 2008 and 2007, respectively, consisted of the following
(unaudited):




2008
            
            
            2007Revenues
            
            $
            —
            
            
            $
            969,102Costs
      of revenues
            
            
            —
            
            
            
            735,581Gross
      profit
            
            
            —
            
            
            
            233,521Selling,
      general and administrative
            
            
            —
            
            
            
            76,932Research
      and development
            
            
            —
            
            
            
            22Interest
      and other expense
            
            
            —
            
            
            
            179Gain
      from operations of discontinued operations
            
            $
            —
            
            
            $
            156,388






13




(12)
              
              Income
    Taxes


The
Company adopted the provisions of FIN 48, “Accounting for Uncertainty in Income
Taxes - an interpretation of FASB Statement No. 109,” (“FIN 48”), on January 1,
2007. As a result of the implementation of FIN 48, the Company made a
comprehensive review of its portfolio of uncertain tax positions in accordance
with recognition standards established by FIN 48. In this regard, an uncertain
tax position represents the Company’s expected treatment of a tax position taken
in a filed tax return, or planned to be taken in a future tax return, that has
not been reflected in measuring income tax expense for financial reporting
purposes. As a result of this review, the Company concluded that at this time
there are no uncertain tax positions. As a result of applying the provisions of
FIN 48, there was no cumulative effect on retained earnings.
 
 The
Company is subject to US federal income tax as well as income tax in multiple
states. At December 31, 2007, the Company had Federal net operating loss
carryforwards of approximately $60.2 million that expire from 2008 to 2027. In
addition to the capital loss carryforward, the Company has approximately
$4,018,000 of temporary differences that will offset future taxable income
subject to the change in ownership limitations. Also, the Company has
approximately $24.6 million of state net operating loss carryforwards that
expire from 2011 to 2017.
 
 As of
March 31, 2008, the Company does not expect any material changes to unrecognized
tax positions within the next twelve months.
 
 SFAS No.
109, “Accounting for Income
Taxes,” establishes financial accounting and reporting standards for the
effect of income taxes. The objectives of accounting for income taxes are to
recognize the amount of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in an entity’s financial statements or tax returns.
Judgment is required in assessing the future tax consequences of events that
have been recognized in our financial statements or tax returns. Fluctuations in
the actual outcome of these future tax consequences could materially impact our
financial position or our results of operations.




Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations




Overview




JMAR
Technologies, Inc. (JMAR or Company) is a late-stage technology company with
expertise in the development and early commercialization of detection
and laser-based technologies for nano-scale imaging, chemical and
biological analysis, and fabrication. The Company is leveraging more than a
decade of laser and photonics research in developing a portfolio of products
with market applications in high interest areas such as defense, homeland
security, hazardous materials detection and biological monitoring, while
continuing to carry out research and development. JMAR’s BioSentryTM product is a
contamination warning system for waterborne microorganisms. BioSentry uses
laser-based, multi-angle light scattering technology to provide continuous,
on-line, real-time monitoring for harmful microorganisms.




JMAR’s
pursuit of cutting-edge products includes a new initiative, the double pulse
(DP) plasma laser, funded by the Army Research Laboratory (ARL) for
development and demonstration of the technology. The exceptional beam quality
already demonstrated will enable stand-off laser-induced breakdown spectroscopy
(LIBS) applications. Light emissions from the plasma generated on targeted
substances such as explosives and drugs are detected and analyzed by an
optical spectrometer to provide identification of the target material. The DP
laser is based on a redesign of JMAR’s patented BriteLightTM laser, a stand-alone
product as well as the light source for x-ray microscopy.




Over the
past 15 years, our research and development programs received in excess of $100
million in funding under DARPA and ARL contracts, which for DARPA ended in 2006,
and which for ARL the funding support continues for very different technology
development projects. In 2007 and 2006, approximately 36% and 65%, respectively,
of our revenue was derived as the prime contractor or subcontractor for two
government contracts.




The DOD’s
overall budget, and our participation therein, is subject to increases and
decreases based upon a number of factors, including general budgetary
constraints, shifting priorities of the specific governmental agency which
sponsors the funding and our own performance under our contracts with the
Government. We do not expect to receive funding from government sources in the
future in excess of $2-3 million per year. The Company is relying on the sale of
its new products in 2008 and beyond, together with strategic alliances, to
support continued product development and successful business
operations.




In early
2007, in order to remedy the problem of an operating cash shortfall, the Company
held informal discussions with Laurus (holder of JMAR stock, stock options and
warrants, and the Company’s working capital lender) regarding additional
financing. On February 27, 2007 JMAR formally requested short term (four
month) financing. In March 2007, subject to terms that included warrants for a
significant number of shares at a minimal exercise price and a requirement for
JMAR to demonstrate a substantial reduction in its cash burn rate, JMAR’s Board
of Directors approved the proposed financing providing for a one year note for
$750,000. Subsequently, the Company lowered the cash burn (net loss plus
non-cash items) and engaged in cost reduction efforts, resulting in a reduction
from approximately $600,000 per month for most of 2006 to approximately $350,000
after March 2007. The cost reductions contributing to this improvement
included salaries and benefits, consulting and legal fees, board fees, and
IR&D project costs.




14




In
September 2007, the Company negotiated a $7,500,000 Term Note with Laurus (the
“$7.5 million Term Note”). The draw-downs under the Laurus $7.5 million Term
Note have enabled the Company to continue the development of its emerging new
products and for working capital requirements in 2007 and 2008.




Pursuant
to the $7.5 million Term Note Securities Purchase Agreement, the Company agreed
that by mid-October 2007 it would discontinue all business operations and sell
the assets associated with the Vermont Operations to one or more third parties
and transfer any remaining assets to the Company’s San Diego location. As a
result, the Vermont Operations were discontinued as of September 30, 2007, due
to losses that continued in the Vermont Operations despite government contract
funding.




On
November 7, 2007, the Company executed an Asset Purchase Agreement (the
"Agreement") with Applied Research Associates, Inc. (ARA) of Randolph, Vermont
to purchase certain assets of the Vermont Operations including; rights to the
Vermont Operations’ proposal to NAVAIR; the x-ray stepper and optical microscope
hardware; and the intellectual property, including four patents, related to
x-ray lithography. Under the Agreement, ARA was responsible for all lease
payments of the Vermont Operations’ building under a sublease from the Company
for the remainder of the lease term from October 16, 2007 through its
termination on March 31, 2008 and for certain costs of the building and
office operation until closing of the transaction. In January 2008,
JMAR received payment for the sale of the Vermont Operations,
including reimbursement of certain building lease payments and operating costs
for total proceeds of $218,607.




Accordingly,
the Company has reflected the Vermont Operations as discontinued operations for
all periods included in this Form 10-Q.




Management
believes that with the financing provided by the $7.5 million Term Note it
has, subject to periodic reviews with Laurus, adequate resources to fund its
operations through September 30, 2008. The Company will require drawdowns under
the Note to continue the development of some of its emerging new products and
for working capital requirements until this time. There are no assurances that
funds will be available under the Note, due to Laurus’ requirement to approve
every drawdown.  Depending on market conditions and other
considerations, we intend to continue to pursue opportunities to raise
additional funds in the future. Management believes, but cannot assure, that the
Company will be able to raise those additional funds through equity or other
financings to fund future operations.  This belief is derived from the
Company’s historical access to equity and debt markets.




Sources of
Revenue




Contract Research and
Development, Technical Support, and Production
Programs




The
majority of JMAR’s revenues have been derived as the prime contractor or
subcontractor for government contracts. These contracts have generated
intellectual property owned by the Company in areas in which JMAR believes there
are significant commercial applications.




Standard
Products




The
Company is having preliminary discussions with large commercial companies for
the worldwide marketing, distribution and service of its BioSentry sensor for
continuous, on line, real-time monitoring of both drinking and process water for
the presence of microorganisms in municipal water supply systems and
manufacturing processes. JMAR has placed a small number of units with commercial
and government customers, including a beverage company, several water utility,
municipal and federal agencies. Additional product development is necessary in
order to fully take advantage of the potential markets for the BioSentry system.
If JMAR is unsuccessful in the next several months in either selling significant
units or obtaining the support of strategic marketing partners, it will
restructure its support of the BioSentry business area.




JMAR’s
diode pumped solid state BriteLight Laser, developed specifically to enable the
efficient production of soft x-rays using laser produced plasma, is now marketed
by JMAR as a standard product for advanced laser applications. Commercial
BriteLight units are presently operating in Japan, Korea and at the Lawrence
Livermore National Laboratory. JMAR is conducting manufacturing engineering
analysis to reduce production costs and to expand the addressable market for
this high performance laser.




New Products Under
Development




JMAR’s
pursuit of cutting-edge products includes a new initiative, the double pulse
(DP) plasma laser, funded by the Army Research Laboratory (ARL) for
development and demonstration of the technology. The exceptional beam quality
already demonstrated will enable stand-off laser-induced breakdown spectroscopy
(LIBS) applications. Light emissions from the plasma generated on targeted
substances such as explosives and drugs are detected and analyzed by an
optical spectrometer to provide identification of the target material. The DP
laser is based on a redesign of JMAR’s patented BriteLightTM laser, a stand-alone
product as well as the light source for x-ray microscopy.




Due to
the support of our financial partner, Laurus Funds, JMAR contracted with D&K
Engineering to accelerate the transition from laboratory prototype to a portable
double pulse laser product. This project has been further expanded to include
the integration of analytic components for system-level LIBS with laser-induced
fluorescence (LIF) and Raman applications designed to detect and identify
biological contaminants and chemicals used in explosives, metals, drugs, and
other substances of critical national security interest. To maximize its
resources for new product development, JMAR will continue to pursue government
funding to support new product development efforts.




15




As JMAR
seeks to add commercial revenues to our predominately government contract
revenue base, we face a series of challenges, including technical and market
risks and uncertainties associated with the development of new technologies and
new products. Our product development efforts will require substantial continued
investment by JMAR and we expect to face challenges in transitioning each of our
new products from the proof of concept to commercial introduction and market
acceptance.  See “Risk Factors” in Part I, Item 1A of our
Form 10-K for the year ended December 31, 2007 for more information on the
risks and uncertainties faced by JMAR.





Results of
Operations




Revenues. Total revenues from continuing
operations for the three months ended March 31, 2008 and 2007 were $183,353, and
$143,232, respectively. Revenue breakdown by business segment
is as follows:


Three
      Months Ended
              (unaudited)March
      31,
            
            
            March
      31,2008
            
            
            2007Research
      Division
            
            $
            116,499
            
            
            $
            100,714Sensor
      Products Group
            
            
            66,854
            
            
            
            42,518$
            183,353
            
            
            $
            143,232




The
increase in revenues for the three months ended March 31, 2008 and 2007 was
primarily attributable to a increase of commercial laser sales of $71,200 and an
increase of Sensor Product Group sales of $24,336, offset with a $55,415
decrease of SBIR revenues.




Losses.The net loss for the
three months ended March 31, 2008 and 2007 was $(13,041,316) and $(1,275,818),
respectively. The loss from continuing operations for those same periods was
$(13,041,316) and $(1,432,206), respectively, while the loss from operations for
those same periods was $(1,555,233) and $(1,317,728), respectively. The increase
in the net loss for the three months ended March 31, 2008 as compared to the
three months ended March 31, 2007 is principally due to a change in the fair
value of derivative liability of $10,268,401 plus the increase in the
amortization of debt discount of $960,282, an increase in the costs invested in
product development (see further discussion below) of $190,806, an increase in
cash interest expenses of $167,791 and an increase in general and administrative
expenses, largely due to an increase in accounting fees of $153,100, offset by a
reduction in impairments of long-lived assets of $125,000 and gain from
discontinued operations of $156,388.




Gross Margins. Gross margins
for the three months ended March 31, 2008 and 2007 were (6.7%) and 20.1%,
respectively. The decrease in the gross margin for the three months ended March
31, 2008 compared to the three months ended March 31, 2007 is primarily due to a
loss in laser sales and to a lower margin in BioSentry commercial sales in 2008
as compared to 2007.




Selling, General and Administrative
(SG&A).SG&A expenses for the three months ended March 31, 2008
and 2007 were $1,040,764 and $910,197, respectively. The increase in SG&A
expenses for the three months ended March 31, 2008 relative to 2007 was
primarily attributable to higher accounting  and recruitment fees of
$153,100 and $85,541 offset by reductions in wages($ 35,784), deferred
compensation expense ($23,736), transfer agent expense ($23,158), D&O
insurance ($13,292), and consulting ($11,870) as  compared to
2007.




Research, Development and
Engineering Program (RD&E). The Company’s RD&E consists of two
types: customer-funded RD&E (U.S. government) and Company-funded RD&E.
Both types of RD&E costs are expensed when incurred.




•
            
            Customer-funded
      RD&E costs incurred, primarily related to the SBIR Contract, are
      included in “Costs of Revenues” and totaled $39,841 and $92,443 for the
      three months ended March 31, 2008 and 2007,
  respectively.•
            
            Company-funded
      RD&E costs associated with product development are shown in “Operating
      Expenses” and totaled $502,106 and $311,300 for the three months ended
      March 31, 2008 and 2007,
respectively.




Total
RD&E expenditures for the three months ended March 31, 2008 and 2007 were
$541,947 and $403,743, respectively. Total RD&E expenditures as a
percentage of revenues were 296% and 282% for the three months ended March 31,
2008 and 2007, respectively. The RD&E expenditures as a percentage of
revenues have been historically higher than that for a commercially oriented
company because much of the Company’s revenues have been R&D contract
revenues. In addition, the Company’s revenues have been declining.




Discontinued Operations. The
income from operations of discontinued operations was $0 and $156,388 for the
three months ended March  31, 2008 and 2007, respectively. The income in
the three months ended March 31, 2007, is related to the Vermont Operation which
was discontinued as of September 30, 2007.




On
November 7, 2007 the Company executed an Asset Purchase Agreement (the
"Agreement") with Applied Research Associates, Inc. (ARA) of Randolph, Vermont
to sell to ARA certain assets of the Vermont Operations including; rights to the
Vermont Operations’ current proposal to NAVAIR; the x-ray stepper and optical
microscope hardware; and the intellectual property, including four patents,
related to x-ray lithography. Under the Agreement, ARA was responsible for all
lease payments and certain other facility operating costs of the Vermont
Operations’ building under a sublease from the Company for the remainder of the
lease term from October 16, 2007 through its termination on March 31, 2008. In
January 2008, JMAR received payment for the sale of the Vermont
Operations, including reimbursement of certain building lease payments and
operating costs for total proceeds of $218,607.




16




The
Company has reflected the Vermont Operations and Microelectronics Division as
discontinued operations for all periods included in this Form 10-Q.




Interest and Other Expense.
Interest and other expense for the three months ended March 31, 2008 and 2007
was $1,263,293 and $133,008, respectively. Interest expense was higher for
the three months ended March 31, 2008 compared to 2007 due to non-cash interest
of $1,032,900, the utilization of the Company’s Working Capital Line and
borrowings under the $750,000 and the $7.5 million Term Notes and the increase
in the interest rate on the Working Capital Line. The amounts of $1,032,900 and
$72,618 included in interest expense for the three months ended March  31,
2008 and 2007, respectively, are related to the beneficial conversion feature
and fair value of warrants issued in connection with the Working Capital Line,
and the $750,000 and $7.5 million Term Notes described below. These amounts were
charged to expense using the effective yield method over the period from the
issuance date to the earlier of the maturity date of the debt or the conversion
dates.




Preferred Stock
Dividends.  Included in the loss applicable to common
shareholders in the accompanying Consolidated Statements of Operations for the
three months ended March 31, 2008 and 2007 are preferred stock dividends of
$275,637 and $310,901, respectively. The amounts for the three months ended
March 31, 2008 and 2007 represents $126,642 and $161,906, respectively, of
preferred stock dividends paid or payable in cash and $148,995 and $148,995,
respectively, related to the discount representing the beneficial conversion
feature of the redeemable convertible preferred stock, the fair value of
warrants issued in connection with the preferred stock and the difference
between the fair value of the preferred stock immediately prior to and after
certain prior amendments to the Preferred Stock.




Change in fair value of derivative
liabilityThe major factor in the increased loss for the three months
ended March 31, 2008 compared to 2007 was the change in the derivative liability
of $10,268,401. This was due to the effect of the increase in the stock price
from $.04 to $0.12 per share during the quarter ended March 31,
2008.




Liquidity and Financial
Condition




General.Cash and cash
equivalents at March 31, 2008 and December 31, 2007 were $106,599 and
$174,879, respectively. In the three months ended March 31, 2008, we funded our
operations primarily from borrowings under the working capital line and term
notes. The decrease in cash and cash equivalents during the three months ended
March 31, 2008 of $68,280 resulted from many factors. Cash used in
operations of $914,975 largely related to operating losses, net of non-cash
items of $1,545,929, an increase in accounts receivable of $121,255 and payment
of preferred dividends of $136,669. This was offset by a decrease in restricted
cash of $930,031,  a reduction of net assets of discontinued
operations of $468,873, an increase in accounts payable and accrued liabilities
of $121,132 and $146,140, respectively, proceeds from the issuance of common
stock of $84,360 and a decrease in inventories of $13,327.




Working
capital (deficit) as of March 31, 2008 and December 31, 2007 was
$(17,408,006) and $(6,384,787), respectively. The $11,023,219 decrease in
working capital is primarily due to the $10,268,401 increase in the Company’s
derivative liabilities. This liability will not require payment in
cash.




Our cash
requirements have been and will continue to be significant. JMAR’s operations
will continue to use cash in 2008 for 1) marketing; 2) product development
efforts; 3) corporate costs, primarily related to the cost of being a public
company; 4) preferred stock dividends and 4) other working capital needs. We
believe that with the financing provided by the $7.5 million Term Note the
Company has, subject to periodic reviews with Laurus, adequate resources to fund
its operations through September 30, 2008. The Company will require drawdowns
under the $7.5 million Term Note to continue the marketing and development of
some of its emerging new products and for working capital requirements until
this time. There are no assurances that funds will be available under the $7.5
million Term Note, due to Laurus’ requirement to approve every
drawdown.  Depending on market conditions and other considerations, we
intend to continue to pursue opportunities to raise additional funds in the
future. In addition, the Company is actively discussing arrangements with
substantially larger companies to market, distribute and service its BioSentry
products. Management believes, but cannot assure, that the Company will be able
to raise those additional funds through equity or other financings to fund
future operations.  This belief is derived from the Company’s
historical access to equity and debt markets. See further discussion in Note 1
in the accompanying Notes to Consolidated Financial Statements and “Risk
Factors” in Part II - Item 1A below.




Sales of Common
Stock.




None.




Issuances of Preferred
Stock.




None.




Included
in the loss applicable to common shareholders in the accompanying Consolidated
Statements of Operations for March 31, 2008 and 2007 are preferred stock
dividends of $275,637, and $310,901, respectively. The amount for the three
months ended March  31, 2008 and 2007 represents $126,642, and $161,906,
respectively, of preferred stock dividends paid or payable in cash and $148,995
and $148,995, respectively, related to the discount representing the beneficial
conversion feature of the redeemable convertible preferred stock which is the
fair value of warrants issued in connection with the preferred stock and the
difference between the fair value of the preferred stock immediately prior to
and after certain prior amendments to the Preferred Stock.





Subject
to the contractual limitation on total beneficial ownership by Laurus to 9.99%
of our common stock, the Series G, I and J Preferred Stock are convertible
into a total of 20,065,472 shares of Common Stock.




17




Working Capital Line. In
March 2003, the Company entered into a Revolving Fixed Price Convertible
Note (Working Capital Line) with Laurus. The term of the Working Capital Line
expired on March 21, 2006 and was replaced by a new line of credit
facility.




On
March 28, 2006, the Company and Laurus replaced the expiring Working
Capital Line with the 2006 Working Capital Line. The 2006 Working Capital Line
allowed the Company to borrow from time-to-time up to 90% of eligible accounts
receivable and up to 50% of eligible inventory up to $500,000, up to an
aggregate maximum of $3 million.




JMAR’s
obligations under the 2006 Working Capital Line are secured by a security
interest in all of JMAR’s assets. Upon a default by JMAR under the 2006 Working
Capital Line, Laurus would have the right to foreclose on the Company’s assets
and sell those assets to repay the outstanding balance of the 2006 Working
Capital Line and related costs. In addition, the Company’s obligations under the
Preferred Stock, including its obligations to make dividend payments and to make
regular payments in redemption of the Preferred Stock, are also secured by this
blanket security interest.




The 2006
Working Capital Line is non-convertible and has no financial ratio covenants.
The interest rate on the 2006 Working Capital Line is equal to the prime rate
plus 2 percent (7.25% as of March 31, 2008). The 2006 Working Capital
Line terminates on August 31, 2009. As of March 31, 2008, there was
$649,911 outstanding under the 2006 Working Capital Line, including a $500,000
Over Advance.




In
connection with the 2006 Working Capital Line, the Company issued two warrants
to Laurus to purchase approximately 458,181 shares of common stock at an
exercise price of $0.01 per share and paid fees of $108,000. Of the 458,181
warrants, 218,181 warrants vested on issuance and 240,000 vested in
March 2007 based on the average borrowings under the 2006 Working Capital
Line. Both warrants expire in March 2016. In connection with the issuance
of these warrants, the Company recorded a discount of $471,926, representing the
fair value of the 458,181 warrants based on the Black Scholes pricing model
using the following assumptions: risk—free interest rate of 4.9 percent based on
estimated yields of 10-year U.S. Treasury Securities; expected dividend yield of
0 percent; expected life of 10 years; and expected volatility of
91 percent. The volatility was based on JMAR’s historical stock prices for
the previous ten years, consistent with the expected life of the
warrants.




Term Notes On April 13,
2007, the Company and Laurus entered into a Securities Purchase Agreement which
provided for the loan of $750,000 to the Company evidenced by a Secured
Promissory Note (the “$750,000 Note”), together with a Warrant to purchase
7,597,750 shares of Common Stock.  The terms of this transaction provided
for the following: 1) the $750,000 Note accrues interest at the rate of prime
rate plus 2%, with interest payable monthly in arrears which commenced on
May 1, 2007, 2) the principal and all unpaid interest  was due in
March 2008 (changed to August 31, 2009 with the Omnibus Amendment related to the
September 2007 SPA  –see below), 3) $250,000 of the loan proceeds are
held in a restricted account until the satisfaction of certain stated minimum
“burn rate” conditions and the achievement of certain business milestones, 4)
the obligations under the Securities Purchase Agreement and the $750,000 Note
are secured by the grant of a security interest in all of the Company’s assets,
together with the benefit of security interests previously granted to secure
other financing transactions with Laurus, 5) the Warrant has a term of ten years
and an exercise price of $0.01 per share and contains a cashless exercise
provision which is exercisable in the event that a registration statement
covering the Warrant is not effective; provided, however,  Laurus is
restricted from selling the shares issuable under the Warrant for a one year
period following issuance of the Warrant, 6) the Company entered into a
registration rights agreement providing for the filing of a registration
statement covering the resale of the Warrant shares within six months after the
closing of this transaction, and 7) the Company paid a fee of $26,250 to Laurus.
As of December 31, 2007, $750,000 was outstanding pursuant to the $750,000
Note, at an interest rate of 9.25%. For derivative liability arising out of
warrants attached to the $750,000 Note, see Note 8 — Derivative Liability –
Warrants Attached to Debt. In connection with the $750,000 Note, the Company
agreed to issue 461,539 shares of restricted common stock in payment of a
fee to Midtown Partners & Co., LLC (“Midtown”) and issued those shares in
the third quarter of 2007.




On
September 12, 2007, the Company entered into a Securities Purchase Agreement
with Laurus (the “September 2007 SPA"), dated for identification purposes as of
August 31, 2007. Pursuant to the September 2007 SPA,  Laurus completed
a loan to the Company of $7,500,000 evidenced by a Secured Term Note ("the $7.5
million Term Note") and was issued two warrants (the “September 2007 Warrants")
for the purchase of a total of 119,000,000 shares of the Company’s Common Stock.
The maturity date of the $7.5 million Term Note is August 31, 2009. Interest on
the Note is payable monthly, with interest accruing at the rate of two percent
above the prime rate, as determined from time to time, but at a rate of no less
than 10.25% per annum. The $7.5 million Term Note was disbursed principally as
follows: 1) $620,000 was disbursed directly to the Company, 2) $6,420,600.61 of
the proceeds of the $7.5 million Term Note were funded and placed in a
restricted account, with the disbursement of such funds subject to the
conditions described below, 3) $194,899.39 of the proceeds of the $7.5 million
Term Note were paid to Laurus at closing in satisfaction of outstanding
interest, dividends and other obligations owing to Laurus under other loans and
securities previously issued to Laurus, and 4) Laurus Capital Management, LLC,
was paid a closing fee of $262,500. The incremental release of the funds
deposited into the restricted account will only occur pursuant to written
operating budgets of the Company to be submitted to Laurus no less than monthly
(the "Monthly Operating Budgets"), which budgets shall be, in form and substance
acceptable to Laurus in its sole discretion. If the Monthly Operating Budgets
fail to be acceptable to Laurus in form or substance, no funds from the
restricted account shall be released to the Company.




The
September 2007 Warrants have an exercise price of $0.01 per share and a term of
ten years. In no event may the September 2007 Warrants be exercised for in
excess of the number of shares which would cause the total number of issued and
outstanding shares of the Company’s Common Stock plus the number of shares of
Common Stock reserved for issuance under all outstanding options, warrants
(including the September 2007 Warrants) and preferred stock to exceed the number
of the Company’s authorized shares of Common Stock. Pursuant to the September
2007 SPA, the Company agreed that on or before March 5, 2008 it would seek and
have obtained shareholder approval to have amended its certificate of
incorporation to increase its authorized Common Stock to no less than
300,000,000 shares. A failure to increase the Company’s authorized shares to at
least 300,000,000 shares on or before such date would have constituted an event
of default under the $7.5 million Term Note. On February 20, 2008, the Company’s
shareholders approved an amendment to the Company’s Certificate of Incorporation
to increase the authorized shares of Common Stock to 380,000,000
shares.




18




Under the
September 2007 SPA, the Company also agreed to pay Laurus a monthly royalty
payment equal to (x) two percent (2.0%) of all gross receipts of the Company
arising from sales, licenses or royalty payments of any kind from any municipal,
city, state or federal entity (each, a "Governmental Body") received by the
Company within the previous calendar month; and (y) twelve percent (12.0%) of
all gross receipts of the Company arising from sales, licenses or royalty
payments of any kind (the "12% Royalty") from any entity that is not a
Governmental Body received by the Company within the previous calendar month
provided, however that solely with respect to gross receipts arising from sales
of the Company’s BioSentry product to any entity that is not a Governmental
Body, the 12.0% Royalty shall be reduced to 7%.




In
connection with the September 2007 SPA, the Company and Laurus also entered into
an Omnibus Amendment which amended the terms of the Company’s Series G, I and J
Convertible Preferred Stock held by Laurus to discontinue all monthly redemption
obligations and to extend the respective redemption dates so that the full
stated amount of such preferred stock will be redeemable, if not previously
converted or redeemed, in full on August 31, 2009. The Omnibus Amendment also
amended the Secured Revolving Note related to the Company’s 2006 Working Capital
Line of credit to extend its maturity date from March 27, 2008 to August 31,
2009 and amended the $750,000 Note entered into in April, 2007 to extend
its maturity date to August 31, 2009.




Pursuant
to the September 2007 SPA, the Company also agreed that by mid-October 2007 it
would discontinue all business operations at its Burlington Vermont
location ("Vermont Operations") and sell the assets associated with the Vermont
Operations to one or more third parties and transfer any remaining assets to the
Company’s San Diego location. In January 2008, JMAR received payment
for the sale of the Vermont Operations, including reimbursement of
certain building lease payments and operating costs for total proceeds of
$218,607.




Sale of XRM Assets.In
March 2007, the Company entered into an agreement with a leading microscopy
company under which JMAR sold the assets of its XRM product. Among other
provisions, under the agreement JMAR received an initial payment of $100,000 and
reimbursement of up to $50,000 in costs, an additional payment of $500,000 once
the XRM is operational at the acquirer’s facility, another $100,000 upon
satisfaction of certain performance criteria and a four year royalty based on
the sale of XRM units by the other party. JMAR was also appointed exclusive
laser supplier to the other party for the same four year period.




Letter of Credit.In
connection with the Company’s lease of its Rancho Bernardo facility, Comerica
Bank issued a letter of credit currently in the amount of $78,645.  If
the Company’s cash in its accounts with Comerica falls below $1 million at
the end of any quarter, Comerica could require the Company to set aside the
amount of the letter of credit. The Company’s cash has fallen below this
requirement, but the Company has not set aside the amount of the letter of
credit. Should the Company default on its lease obligations, the Landlord would
collect on the letter of credit. Comerica, most likely, would pursue a legal
remedy to collect the $78,645.




Cash Used in Operations. Cash
used in operating activities was $444,818 higher in the three months ended March
31, 2008 as compared to the three months ended March 31, 2007, principally due
to a greater loss from operating activities of ($625,627) and a relatively
higher use of cash for working capital items of ($203,822) in the three months
ended March 31, 2008 compared to the three months ended March 31, 2007. This was
offset by the relative increase in the change of $384,631 in net assets and
liabilities of discontinued operations.




Cash Used in Investing
Activities. In the three months ended March 31, 2008, cash used in
investing activities was $31,027 compared to a use of $7,392 in the three months
ended March 31, 2007.




Cash Provided by (Used in) Financing
Activities. In the three months ended March 31, 2008, cash provided by
financing activities was $877,722 compared to $(63,403) in the three months
ended March 31, 2007, principally due to the release of restricted cash of
$930,031 to the Company by Laurus. Net repayments of borrowings were $0 and
$447,585 in three months ended March 31, 2008 and 2007, respectively. Net
proceeds from the sale of common stock were $84,360 and $384,182 in the three
months ended March 31, 2008 and 2007, respectively.




Commitments




a. Leases


The
Company leases its office facilities under various operating leases expiring
through October, 2012. Minimum future rental payments for non-cancelable leases
as of March 31, 2008, are as follows (2008 is for nine months)
(unaudited):


Year Ending December
      31,20       2008
            
            $
            261,69120       2009
            
            
            360,5722         2010
            
            
            374,790201     2011
            
            
            389,57620       2012
            
            
            335,678Th    Thereafter
            
            
            —$
            1,722,307


Related
rent expense was $72,492 and $72,492 for the three months ended March 31, 2008
and 2007, respectively.




19




b. Deferred
Compensation




Pursuant
to a 2002 employment agreement with a former executive, the Company recorded a
discounted liability for deferred compensation. The unamortized amount included
in notes payable and other long-term liabilities on the accompanying Balance
Sheet at March 31, 2008 is $139,216.




Included
in “Selling, general and administrative” in the accompanying Statement of
Operations is $6,892 and $30,628 for the three months ended March 31, 2008 and
2007, respectively, for the amortization of the discounts recorded against the
deferred compensation obligations. Total deferred compensation obligations for
2008 (remaining nine months) and 2009 (the termination of the obligation) are
$95,000 and $70,000, respectively. The Company has accounted for this individual
deferred compensation arrangement in accordance with Accounting Principles Board
(APB) Nos. 12 and 21.




Preferred Stock Redemption
Obligations




Excluded
from the above table are redemption obligations under Series G, I and J
Preferred Stock. If not previously converted, the Series Series G, I
and J Preferred Stock must be redeemed by the Company as follows:




Gross
    AmountOutstanding
      at
            
            
            Scheduled
      RedemptionsDescription
            
            March 31,
      2008
            
            
            2008
            
            
            2009
            
            
            TotalSeries G
      Preferred
            
            $
            1,177,800
            
            
            $
            —
            
            
            $
            1,177,800
            
            
            $
            1,177,800Series I
      Preferred
            
            
            5,797,651
            
            
            
            —
            
            
            
            5,797,651
            
            
            
            5,797,651Series
      J Preferred
            
            
            708,800
            
            
            
            —
            
            
            
            708,800
            
            
            
            708,800Total
            
            $
            7,684,251
            
            
            
            —
            
            
            $
            7,684,251
            
            
            $
            7,684,251





Subject
to the contractual limitation on total beneficial ownership by Laurus to 9.99%
of our common stock, the Series G, I and J Preferred Stock are convertible
into a total of 20,065,472 shares of Common Stock.




Working Capital
Line





The terms
of the 2006 Working Capital Line are described in “Liquidity” above.  As of
March 31, 2008, $649,911 was outstanding under the 2006 Working Capital
Line.




$750,000
Note




The terms
of the $750,000 Note are described in “Liquidity” above.  As of March
31, 2008, $750,000 was outstanding pursuant to the $750,000 Note.




$7.5 million Term
Note




The terms
of $7.5 million Term Noteare described in
“Liquidity” above.  As of March 31, 2008, $7,500,000 was outstanding
pursuant to the $7.5 million Term Note.





Net Operating Loss
Carryforward




At
December 31, 2007, we had federal net operating loss (NOL) carry-forwards of
approximately $60 million. These NOLs expire incrementally through
2027.  Realization of future tax benefits from utilization of our net
operating loss carry-forwards for income tax purposes is limited by changes in
ownership in 1990, 1992 and 1993. Of the above net operating loss carryforwards,
annual limitations of approximately $658,000 apply to approximately $2.5 million
of Company and acquired company loss carryforwards. Approximately
$57.7 million of the net operating loss carryforwards are not subject to
annual limitations. Due to our taxable losses, we have been unable to take
advantage of the benefits of these NOLs. The realization of the benefits of
these NOLs is dependent upon our recognition of taxable income in the future
prior to the expiration of the NOLs.




20




Critical Accounting Policies and
Estimates




Management’s
Discussion and Analysis of Financial Condition and Results of Operations
discusses JMAR’s consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the 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.




On an
ongoing basis, management evaluates its estimates and judgments, including those
related to revenues, goodwill and intangible assets, beneficial conversion
feature and warrant valuation, accounts receivable, deferred taxes and stock
based compensation. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions. Management believes the following
critical accounting policies, among others, affect its more significant
judgments and estimates used in the preparation of its consolidated financial
statements.




Revenues




For the
three months ended March 31, 2008 and 2007, approximately 25% and 70%,
respectively, of the Company’s revenues were contract revenues, with the
remainder BriteLight sales, product sales, and field service revenues from
Biosentry. Contract revenues are recognized based on the percentage of
completion method wherein income is recognized pro-rata over the life of the
contract based on the ratio of total incurred costs to anticipated total costs
of the contract. Actual costs could differ from these estimated costs.
Reimbursable or recoverable general and administrative (G&A) costs are
charged to G&A expense as incurred. Estimated losses are fully charged to
operations when identified. Product revenues are recognized upon the later of
when the product is shipped or when additional contractual requirements related
to the sale are completed.





Intangible Assets





Capitalized patent costs are amortized
over ten years, and other intangible assets are amortized over not more than
five years. Capitalized patent costs are reviewed quarterly for utilization and
recoverability.  The Company periodically evaluates the carrying value
of its long-lived assets and applies the provisions of SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets.” Under SFAS
No. 144, long-lived assets and certain identifiable assets to be held and
used in operations are reviewed for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be fully recoverable. An
impairment loss is recognized if the sum of the expected long-term, undiscounted
cash flows is less than the carrying amount of the long-lived assets being
evaluated. Management believes the carrying value of its long-lived assets does
not exceed their estimated net realizable value at December 31, 2007.




Beneficial Conversion Feature and
Warrant Valuation




In
accordance with Financial Accounting Standards Board (FASB) Emerging Issues
Task Force Issue (EITF) No. 98-5 and FASB EITF No. 00-27, the
Company records a beneficial conversion feature (BCF) related to the
issuance of convertible preferred stock and convertible debt that have
conversion features at fixed rates that are in the money when issued and records
the fair value of warrants issued with those instruments. The BCF for the
convertible instruments is recognized and measured by allocating a portion of
the proceeds to warrants and as a reduction to the carrying amount of the
convertible instrument equal to the intrinsic value of the conversion features,
both of which are credited to paid-in-capital. The Company calculates the fair
value of warrants issued with the convertible instruments using the Black
Scholes valuation method.




For
convertible preferred stock and related warrants, the recorded discount is
recognized as a dividend from the date of issuance to the earlier of the
redemption dates or the conversion dates using the effective yield method. For
convertible debt and related warrants, the recorded discount is recognized as
interest expense from the date of issuance to the earlier of the maturity date
of the debt or the conversion dates using the effective yield
method.




Allowances for Doubtful
Accounts




JMAR
maintains allowances for doubtful accounts for estimated losses resulting from
the inability of its customers to make required payments. If the financial
condition of JMAR’s customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.
Management reviews delinquent accounts at least quarterly to identify potential
doubtful accounts, and together with customer follow-up, estimates the amounts
of potential losses.




Deferred Taxes




JMAR
records a valuation allowance to reduce its deferred tax assets to the amount
that management believes is more likely than not to be realized in the
foreseeable future, based on estimates of foreseeable future taxable income and
taking into consideration historical operating information. In the event
management estimates that it will not be able to realize all or part of its net
deferred tax assets in the foreseeable future, a valuation allowance is recorded
through a charge to income in the period such determination is made. Likewise,
should management estimate that it will be able to realize its deferred tax
assets in the future in excess of its net recorded asset, an adjustment to
reduce the valuation allowance would increase income in the period such
determination is made.




21


Derivatives




Statement
of Financial Accounting Standards (“SFAS”) No. 133 “Accounting for
Derivative Instruments and Hedging Activities” requires measurement of certain
derivative instruments at their fair value for accounting purposes. In
determining the appropriate fair value, we use the Black-Scholes Option Pricing
Formula (“Black-Scholes model”) where applicable. Derivative liabilities are
adjusted to reflect fair value at each period end, with any increase or decrease
in the fair value being recorded in consolidated statements of operations as
adjustments to fair value of derivatives.




Stock-Based Compensation
Expense




Effective
January 1, 2006, the Company adopted the fair value recognition provisions
of SFAS No. 123(R), using the modified prospective transition method and
therefore has not restated results for prior periods. Under this transition
method, the Company recognizes compensation expense for all stock options
granted prior to, but not yet vested as of January 1, 2006, based on the
grant date fair value estimated in accordance with the original provisions of
SFAS No. 123. Stock-based compensation expense for all stock-based
compensation awards granted after January 1, 2006 is based on the grant
date fair value estimated in accordance with the provisions of SFAS
No. 123(R). Prior to the adoption of SFAS No. 123(R) on
January 1, 2006, the Company recognized stock-based compensation expense in
accordance with APB No. 25, and provided proforma disclosure in accordance
with SFAS No. 123, as if the fair value method defined by SFAS No. 123
had been applied to its stock-based compensation. Under the fair value
recognition provisions of SFAS No. 123(R), the Company recognizes
stock-based compensation expense for those shares expected to vest on a
straight-line basis over the requisite service period of the award.




The
Company uses the Black Scholes option valuation model to estimate the fair value
of its stock options at the date of grant. The Company uses historical data to
estimate the expected price volatility, the expected option life and the
expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield
curve in effect at the time of grant for the estimated life of the option.
Determining the appropriate fair value model and calculating the fair value of
share-based payment awards requires the input of subjective assumptions. The
assumptions used in calculating the fair value of share-based payment awards
represent management’s best estimates, but these estimates involve inherent
uncertainties and the application of management judgment. As a result, if
factors change and we use different assumptions, our stock-based compensation
expense could be materially different in the future. See Note 3 to the
Consolidated Financial Statements for a further discussion on stock-based
compensation.




Item 3. Quantitative
and Qualitative Disclosures about Market Risk.




The
Company is required to provide quantitative and qualitative information about
market risks (interest rate risk, foreign currency risk, commodity price risk
and other relevant market risks) to the extent such risks are material to the
Company. The Company has no investments in derivative financial instruments or
in commodities. We are exposed to interest rate risk with borrowings under our
$7.5 million Term Note and Preferred Stock, both of which bear interest and
dividends, respectively, based on the prime rate. As of March 31, 2008, we
had $7,500,000, $750,000 and $649,911 outstanding under our $7.5
million and $750,000 Term Notes and the 2006 Working Capital Line,
respectively, and $7,684,251 of Preferred Stock outstanding. An immediate change
of one percentage point in the prime rate would have caused an increase or
decrease in interest and dividends, net of money market interest, of
approximately $165,000 on an annual basis.




Item 4. Controls and
Procedures.




Evaluation of Disclosure Controls and
Procedures




We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified by the SEC
and that such information is accumulated and communicated to management,
including our CEO and CFO, as appropriate, to allow for timely decisions
regarding required disclosure. In designing and evaluating our disclosure
controls and procedures, we recognize that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures.




Management,
with participation by our CEO and CFO, has designed the Company’s disclosure
controls and procedures to provide reasonable assurance of achieving the desired
objectives. As required by SEC Rule 13a-15(b), in connection with filing
our Quarterly Report on Form 10-Q, management conducted an evaluation, with the
participation of our CEO and CFO, of the effectiveness of the design and
operation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
as of March 31, 2008, the end of the period covered by the report.




Based
upon the evaluation conducted by management in connection with the audit of the
Company’s financial statements for the quarter ended March 31, 2008, we
identified material weaknesses in our internal control over financial reporting.
A material weakness is “a deficiency, or a combination of deficiencies, such
that there is a reasonable possibility that a material misstatement of the
annual or interim financial statements will not be prevented or detected by us
in a timely manner.” As a result of this material weakness, our CEO and CFO
concluded that our disclosure controls and procedures were not effective at the
reasonable assurance level as of March 31, 2008.





22




Changes in Internal Control Over
Financial Reporting
 
 The Chief
Executive Officer and President and the Chief Financial Officer conducted an
evaluation of our internal control over financial reporting (as defined in
Exchange Act Rule 13a-15(f)) ("Internal Control") to determine whether any
changes in Internal Control occurred during the quarter ended March 31, 2008,
that have materially affected or which are reasonably likely to materially
affect Internal Control. Based on that evaluation, no such change occurred
during such period.





PART II — OTHER
INFORMATION





Item 1A. Risk
Factors




In
addition to the risk factors described below, see “Risk Factors” in Part I,
Item 1A of our Form 10-K for the year ended December 31, 2007 for a
description of other risk factors relevant to the Company’s business and
investment in the Company’s securities.




Our cash requirements are significant
and the failure to raise additional capital will have a significant adverse
effect on the Company’s financial condition and its
operations.




Our cash
requirements have been and will continue to be significant. Our net cash used
from continuing operations for the three months ended March 31, 2008 and for the
years ended December 31, 2007 and 2006 was $(1,383,848), $(2,600,442) and
$(12,440,650), respectively. These negative cash flows are primarily related to
operating losses, and fluctuations in working capital items. As disclosed
elsewhere in this report, we will continue to use cash in 2008 and the Company
will require additional borrowings under its $7.5million Term Note for working
capital requirements through 2008 and to continue the development of some of our
emerging new products. Although we have been able to draw down under the $7.5
million Term Note there is no assurance that Laurus will continue to release
funds beyond September 30, 2008.  Although the Company has been
successful in raising funds in the past, there can be no assurance that we will
be able to successfully raise additional funds in the future. The failure
to raise additional capital will have a significant adverse effect on the
Company’s financial condition and its operations.




Our continuing decline in revenues
and our net and operating losses are significant and could have an adverse
impact on our stock price.




Our
revenues, exclusive of discontinued operations, for the three months ended March
31, 2008 and for the years ended December 31, 2007 and 2006 were $183,353,
$869,662 and $1,998,183, respectively. Our net loss for the three months ended
March 31, 2008 and for the years ended December 31, 2007 and 2006 was
$13,041,316, $1,623,906 and $13,106,681, respectively. Failure to achieve
significant sales of our new products in the future and continued losses will
further reduce our shareholders’ equity and will have a significant adverse
impact on our stock price.




If our BioSentry business is
unsuccessful, it will cause a significant adverse effect on our financial
condition and significant accounting write-offs.





If our
BioSentry business area is unsuccessful over the next year in either selling
significant numbers of BioSentry units or in arranging significant partnering
arrangements, we will have to consider curtailing the BioSentry operations which
would result in further reductions in BioSentry personnel and the write-down of
a significant portion of the BioSentry assets.





Weaknesses in our internal control
over financial reporting could result in material misstatements in our financial
statements.




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal controls are processes designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements in accordance with U.S. generally
accepted accounting principles. A material weakness is a control deficiency, or
combination of control deficiencies, such that there is a reasonable possibility
that a material misstatement of annual or interim financial statements will not
be prevented or detected in a timely manner.




Material
weaknesses in our internal control over financial reporting and in our
disclosure controls existed as of December 31, 2007 and continue to exist
as of March 31, 2008 with regard to 1) lack of segregation of duties; 2)
lack of timely completion of financial control and reporting and 3) lack of
formal internal control environment. Management of the Company believes that
these material weaknesses are due to the small size of the Company’s accounting
staff, and has taken recent actions to increase its accounting staff; however,
the relatively small size of the Company’s accounting staff may prevent adequate
controls in the future such as segregation of duties due to the cost/benefit of
such remediation. See “Item 4 — Controls and Procedures” for a more
complete description of this material weakness.





We cannot
assure you that additional control deficiencies or material weaknesses will not
be identified by our management or independent registered public accounting firm
in the future. In addition, even after having taken steps to remediate these
weaknesses, our internal controls may not prevent all potential errors or fraud.
Any control system, no matter how well designed and implemented, can only
provide reasonable and not absolute assurance that the objectives of the control
system will be achieved. Failure to achieve adequate internal control over
financial reporting could adversely affect our business operations and financial
position.




If our outstanding options and
warrants are exercised and if our preferred stock is converted it will result in
substantial dilution.




As
of March 31, 2008, there were 134,529,749 shares of common stock subject to
issuance upon exercise of outstanding options and warrants. In addition, as of
March 31, 2008, our Series G, I and J Preferred Stock is convertible into a
total of 20,065,472 shares of Common Stock at conversion prices ranging from
$0.1022 to 2.00 per share, subject to a contractual limitation on total
beneficial ownership by Laurus of 9.99% of our Common Stock.




23




These
issuances will result in substantial dilution.




To the
extent that outstanding options and warrants are exercised prior to their
expiration dates, additional funds will be paid to us at the expense of dilution
to the interests of our stockholders. Moreover, the terms upon which we will be
able to obtain additional equity capital may be adversely affected since the
holders of outstanding options and warrants and other securities can be expected
to exercise or convert them at a time when we would, in all likelihood, be able
to obtain any needed capital on terms more favorable to us than those provided
in such securities. The sale of the shares issued upon exercise of our
outstanding warrants and options and conversion of our Convertible Note and
Preferred Stock could adversely affect the market price of our common
stock.


Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds.




(a)
      (i)
            
            On
      January 19, 2008, the Company’s Board of Directors approved the grant of a
      total of 100,000 shares of the Company’s Common Stock to James B. McCarthy
      as part of his election to the Board of Directors.(a)
      (ii)
            
            On
      February 22, 2008, the Company’s Board of Directors approved the grant of
      a total of 8,150,000 shares of the Company’s Common Stock as part of a
      broad-based grant of shares of stock to substantially all of JMAR's
      employees and its directors under the 2006 Equity Incentive Plan. The
      following executive officers and directors were awarded the following
      number of shares:  Directors: Charles A. Dickinson (1,200,000
      shares), J. Paul Gilman (450,000 shares), Richard J. Naughton (250,000
      shares) and James B. McCarthy (250,000 shares). Executive Officers: C.
      Neil Beer (2,000,000 shares) and Edward C. Hall (400,000
      shares).  These shares are restricted shares which vest 50% on
      February 22, 2009 and 50% on February 22, 2010 and are subject to
      forfeiture if the employee's employment terminates before February 22,
      2010.
              
              On
      February 29, 2008, the Board of Directors approved the sale of a total of
      2,000,000 shares of the Company’s Common Stock to Charles A. Dickinson,
      the Company’s Chairman of the Board of Directors for a total purchase
      price of $100,000 and approved the grant of a total of 100,000 shares of
      the Company’s Common Stock to David G.Wessing, the Company’s
      COO.


All
of the foregoing transactions were exempt under Section 4(2) of the
Securities Act of 1933.





Item 4.  Submission of
Matters to a Vote of Security Holders




In a
Special Meeting of Shareholders held on February 22, 2008, JMAR’s CFO reported
that the Company’s stock transfer agent Computershare Investor Services provided
a report that shareholders had approved as of February 20, 2008 an amendment to
the Company’s Amended Articles of Incorporation to increase the authorized
shares of the Company’s common stock from 80,000,000 to 380,000,000
shares.  The results were 33,918,603 affirmative votes, 8,106,505
negative votes and 780,327 abstaining votes.




Item 6.
Exhibits.





Exhibit
      3.1
              
              Restated
      Certificate of Incorporation filed with the Delaware Secretary of State on
      December 8, 2005 (Incorporated by reference to Exhibit 3.8 filed with the
      Company’s Form 8-K filed December 13, 2005.)Exhibit
      3.2
              
              Bylaws
      and amendments thereto (Incorporated by reference to the exhibit filed
      with the Company’s Registration Statement on Form S-1 (No. 33-32446) filed
      on December 5, 1989 and amended on January 30, 1990, March 30, 1990 and
      April 23, 1990, which Registration Statement became effective May 11,
      1990.)Exhibit
      3.3
              
              Amendment
      to Bylaws adopted June 25, 2000 (Incorporated by reference to Exhibit 10.2
      filed with the Company’s Form 10-Q for the quarter ended June 30,
      2000.)Exhibit
      3.4
              
              Amendment
      of the Certificate of Incorporation approved by shareholders as of
      February 20, 2008 to increase the authorized shares of the Company’s
      common stock from 80,000,000 to 380,000,000.Exhibit
      10.1
              
              Summary
      of the principal terms of the Development Manufacturing Agreement dated
      February 1, 2008, between the Company and D&K Engineering, Inc. for
      the BioSentry Water Monitoring System.Exhibit
      10.2 (+)
              
              Employment
      Letter  between ofDavid G. Wessing
      and the Company, dated as of February 7, 2008.Exhibit
      10.3
              
              Amendment  to
      JMAR Technologies, Inc. 2006 Equity Incentive Plan to increase the
      authorized shares from 2,000,000 to 20,000,000 shares.Exhibit
    31.1
              
              Certification
      of CEO pursuant to Section 302 of the Sarbanes-Oxley Act
    2002.Exhibit
      31.2
              
              Certification
      of CFO pursuant to Section 302 of the Sarbanes-Oxley Act
    2002.Exhibit
      32.1
              
              Certifications
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act 2002.




(+) These
contracts are management compensation contracts required to be separately
identified pursuant to Item 15 (a) of Form 10-K.




24






SIGNATURES




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
      15, 2008
            By:
            /s/
      C. Neil BeerC.
      Neil Beer, Chief Executive OfficerPursuant 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.May 15,
      2008
            By:
            /s/  Edward
      C. HallEdward
      C. Hall, Chief Financial Officer





25