##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549-1004
 FORM 10-Q
 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarter Ended June 30, 2007
Commission File Number 1-10515
 JMAR TECHNOLOGIES, INC.
  Delaware
    
    68-0131180(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. employer
identification number)
 
 (Address, including zip code and telephone number including
   þ o
  o o þ
  o þ




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##### 



INDEX
 Page #PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Consolidated Balance Sheets  June 30, 2007 (unaudited) and December 31, 2006
    
    
    2Consolidated Statements of Operations (unaudited)  Three months and six months ended June 30, 2007 and 2006
    
    
    3Consolidated Statements of Cash Flows (unaudited)  Six months ended June 30, 2007 and 2006
    
    
    4Notes to Consolidated Financial Statements (unaudited)
    
    
    5Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4.
    
    Controls and Procedures
    
    
    29PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    30Item 1A.
    
    Risk Factors
    
    
    30Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3.
    
    N/AItem 4.
    
    N/AItem 5.
    
    N/AItem 6.
    
    Exhibits
    
    
    32Exhibit 4.1Exhibit 10.1Exhibit 10.2Exhibit 10.3Exhibit 10.4Exhibit 10.5Exhibit 31.1Exhibit 31.2Exhibit 32.1
   1




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 JMAR TECHNOLOGIES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 As of June 30, 2007 and December 31, 2006
 June 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    239,016
    
    
    $
    696,546Accounts receivable
    
    
    129,887
    
    
    
    1,223,985Subscription receivable
    
    
    408,800
    
    
    
    Inventories
    
    
    486,260
    
    
    
    519,400Net current assets of discontinued

operations
    
    
    44,793
    
    
    
    45,963Prepaid expenses and other
    
    
    159,281
    
    
    
    255,147Total current assets
    
    
    1,468,037
    
    
    
    2,741,041Property and equipment, net
    
    
    865,092
    
    
    
    1,027,239Intangible assets, net
    
    
    1,792,163
    
    
    
    1,759,454Other assets
    
    
    206,843
    
    
    
    443,082TOTAL ASSETS
    
    $
    4,332,135
    
    
    $
    5,970,816LIABILITIES AND STOCKHOLDERS

DEFICITCurrent Liabilities:Accounts payable
    
    $
    1,425,975
    
    
    $
    1,054,558Accrued liabilities
    
    
    709,888
    
    
    
    618,794Accrued payroll and related costs
    
    
    255,575
    
    
    
    451,912Billings in excess of costs
    
    
    106,176
    
    
    
    1,418,372Working capital line of credit, net
    
    
    560,017
    
    
    
    1,059,355Current portion of notes payable and other liabilities,

net
    
    
    92,306
    
    
    
    207,710Net current liabilities of discontinued operations
    
    
    525,671
    
    
    
    538,636Deferred rent
    
    
    49,429
    
    
    
    49,429Derivative liability
    
    
    1,558,214
    
    
    
    Total current liabilities
    
    
    5,283,251
    
    
    
    5,398,766Notes payable and other long-term liabilities, net of
current portion
    
    
    330,212
    
    
    
    413,694Notes payable and other long-term liabilities of
discontinued operations, net of current portion
    
    
    89,209
    
    
    
    89,209Redeemable convertible preferred stock, 742,624
shares issued and outstanding as of June 30, 2007 and
December 31, 2006, net of amortized discount of $1,718,723 and $2,440,473, respectively
    
    
    5,333,625
    
    
    
    5,409,527Committed redeemable preferred stock
    
    
    408,800
    
    
    
    Commitments and contingencies
    
    
    
    
    
    
    Stockholders deficit:Preferred stock, $.01 par value; 5,000,000 shares authorized;
742,624 shares issued and outstanding as of June 30, 2007 and December 31, 2006 included in redeemable
convertible preferred stock above
    
    
    
    
    
    
    Common stock, $.01 par value; 80,000,000 shares
authorized; 45,991,172 shares issued and outstanding as of June 30, 2007, and 39,535,615 shares issued and outstanding as
of December 31, 2006
    
    
    459,913
    
    
    
    395,356Additional  paid in capital
    
    
    84,729,255
    
    
    
    84,077,547Committed common stocks
    
    
    71,800
    
    
    
    Accumulated deficit
    
    
    (92,373,930
    )
    
    
    (89,813,283
    )Total stockholders deficit
    
    
    (7,112,962
    )
    
    
    (5,340,380
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    4,332,135
    
    
    $
    5,970,816
   2




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##### Table of Contents



JMAR TECHNOLOGIES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months Ended June 30, 2007 and 2006
 and Six Months Ended June 30, 2007 and 2006
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    1,213,326
    
    
    $
    1,289,903
    
    
    $
    2,325,660
    
    
    $
    2,507,428Costs of revenues
    
    
    476,457
    
    
    
    1,135,197
    
    
    
    1,326,501
    
    
    
    2,226,925Gross Profit
    
    
    736,869
    
    
    
    154,706
    
    
    
    999,159
    
    
    
    280,503Operating expenses:Selling, general, and administrative
    
    
    992,245
    
    
    
    1,906,349
    
    
    
    1,979,374
    
    
    
    3,353,518Research and development
    
    
    105,570
    
    
    
    961,090
    
    
    
    416,892
    
    
    
    1,855,509Asset writedowns
    
    
    117
    
    
    
    81,590
    
    
    
    125,117
    
    
    
    39,067Total operating expenses
    
    
    1,097,932
    
    
    
    2,949,029
    
    
    
    2,521,383
    
    
    
    5,248,094Loss from operations
    
    
    (361,063
    )
    
    
    (2,794,323
    )
    
    
    (1,522,224
    )
    
    
    (4,967,591
    )Interest and other income
    
    
    67,139
    
    
    
    17,083
    
    
    
    85,669
    
    
    
    51,120Interest and other expense
    
    
    (1,378,774
    )
    
    
    (101,387
    )
    
    
    (1,511,961
    )
    
    
    (158,292
    )Change in fair value of derivative liability
    
    
    683,797
    
    
    
    
    
    
    
    683,797
    
    
    
    Other income
    
    
    530,459
    
    
    
    
    
    
    
    530,459
    
    
    
    Net loss from continuing operations
    
    
    (458,442
    )
    
    
    (2,878,627
    )
    
    
    (1,734,260
    )
    
    
    (5,074,763
    )Income from discontinued operations
    
    
    
    
    
    
    289,624
    
    
    
    
    
    
    
    225,523Net loss
    
    
    (458,442
    )
    
    
    (2,589,003
    )
    
    
    (1,734,260
    )
    
    
    (4,849,240
    )Deemed preferred stock dividends
    
    
    (515,482
    )
    
    
    (305,723
    )
    
    
    (826,383
    )
    
    
    (654,670
    )Profit (loss) applicable to common
shareholders
    
    
    (973,924
    )
    
    
    (2,894,726
    )
    
    
    (2,560,643
    )
    
    
    (5,503,910
    )Basic and diluted loss per share applicable
to common stock
    
    $
    (0.02
    )
    
    $
    (0.07
    )
    
    $
    (0.06
    )
    
    $
    (0.14
    )Shares used in computation of basic and
diluted loss per share
    
    
    43,439,061
    
    
    
    39,340,328
    
    
    
    42,179,577
    
    
    
    39,321,380
   3




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##### Table of Contents



JMAR TECHNOLOGIES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2007 and 2006
(Unaudited)
 2007
    
    
    2006Cash flows from operating activities:Net Income (loss)
    
    $
    (1,734,260
    )
    
    $
    (5,074,763
    )Adjustments to reconcile net loss to
net cash used in operating activities:Depreciation and amortization
    
    
    177,648
    
    
    
    261,191Change in fair value of derivative liability
    
    
    (683,797
    )
    
    
    Amortization of debt discount and BCF
    
    
    1,236,467
    
    
    
    Stock based compensation expense
    
    
    106,084
    
    
    
    Services received in exchange for common stock/ warrants
    
    
    140,535
    
    
    
    241,807Services received in exchange for committed common stock
    
    
    71,800
    
    
    
    Assets writedowns
    
    
    125,000
    
    
    
    39,066(Increase) decrease in:Accounts receivable
    
    
    1,094,098
    
    
    
    410,495Inventories
    
    
    33,140
    
    
    
    (3,619
    )Prepaid expenses and other
    
    
    71,868
    
    
    
    (284,017
    )Increase (decrease) in:Accounts payable
    
    
    371,417
    
    
    
    (9,317
    )Accrued liabilities
    
    
    (36,293
    )
    
    
    Accrued payroll and related costs
    
    
    (196,337
    )
    
    
    Billings in excess of costs incurred
    
    
    (1,312,196
    )
    
    
    (559,278
    )Net cash used from continuing operations
    
    
    (534,826
    )
    
    
    (4,978,434
    )Income from
discontinued operations
    
    
    
    
    
    
    225,523Changes in net assets and liabilities of discontinued operations
    
    
    (11,795
    )
    
    
    2,735Net cash used in operating activities
    
    
    (546,621
    )
    
    
    (4,750,176
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (8,292
    )
    
    
    (28,425
    )Purchase of intangible assets, other assets and goodwill
    
    
    (39,918
    )
    
    
    (53,310
    )Net borrowings on notes receivable
    
    
    11,687
    
    
    
    10,000Net cash provided by (used in) investing activities
    
    
    (36,523
    )
    
    
    (71,735
    )Cash flows from financing activities:Net proceeds from the issuance of common stock
    
    
    384,182
    
    
    
    1,336,473Net payments on working capital line of credit
    
    
    (738,324
    )
    
    
    1,821,193Net borrowings on note payable
    
    
    750,000
    
    
    
    Cash payment of preferred stock dividends
    
    
    (270,244
    )
    
    
    (302,938
    )Net cash provided by financing activities
    
    
    125,614
    
    
    
    2,854,728Net increase (decrease) in cash and cash equivalents
    
    
    (457,530
    )
    
    
    (1,967,183
    )Cash and cash equivalents, beginning of period
    
    
    696,546
    
    
    
    5,279,691Cash and cash equivalents, end of period
    
    $
    239,016
    
    
    $
    3,312,508Cash paid for interest
    
    
    128,192
    
    
    
    28,744Supplemental Disclosure of Non Cash Activity:For the six months ended June 30, 2007:Repayment of deferred compensation proceeds from cash surrender
value of life insurance
    
    $
    123,459Conversion by Company of previously existing Series G & I Preferred Stock into
3,500,000 shares of common stock in the current quarter. (See footnote 10)
    
    $
    373,892In conjunction with the exchange of preferred stock to common stock, the
recognition of the excess fair value of the common stock over the carrying
amount of the preferred stock as a deemed dividend. (See footnote 10)
    
    $
    206,108Deemed preferred stock dividends
    
    $
    350,035Issuance of committed Series J Preferred Stock (see footnote 10)
    
    $
    408,800Establishment of derivative liability in conjunction with the issuance of
Series J Preferred Stock (see footnote 9)
    
    $
    1,244,530For the six months ended June 30, 2006:Excess value of purchased license rights
    
    $
    1,247,897Fair value of warrants issued in connection with the 2006 working capital
line of credit (see footnote 8)
    
    $
    471,926Discount recorded representing the difference between the fair value
of the convertible preferred stock and warrants immediately prior to and after
the March 28, 2006 amendment. (see footnote 8)
    
    $
    2,210,031
   4




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##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



The Fair Value Option for Financial Assets and
Financial Assets and Liabilities  Including an Amendment of FASB Statement No. 115 Accounting for Certain Investments in Debt and Equity Securities,
 (3)
    
    Stock-Based Compensation Plans
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Compensation
    
    $
    46,267
    
    
    $
    88,207
    
    
    $
    106,084
    
    
    $
    202,812Selling, general, & administrative
    
    
    44,078
    
    
    
    67,072
    
    
    
    100,380
    
    
    
    174,517Research and development
    
    
    2,189
    
    
    
    21,135
    
    
    
    10,915
    
    
    
    28,295
   7




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##### Table of Contents



2007
    
    
    2006Wtd. Avg.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Wtd. Avg.Wtd. Avg.
    
    
    Remaining
    
    
    Aggregate
    
    
    
    
    
    
    Wtd. Avg.
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    Intrinsic
    
    
    
    
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Life
    
    
    Value
    
    
    Shares
    
    
    Price
    
    
    Life
    
    
    ValueOutstanding at beginning
of period
    
    
    2,329,054
    
    
    $
    2.71
    
    
    
    6.5
    
    
    
    
    
    
    
    3,162,610
    
    
    $
    2.11
    
    
    
    
    
    
    
    Granted
    
    
    50,000
    
    
    $
    0.22
    
    
    
    
    
    
    
    
    
    
    
    344,095
    
    
    $
    0.79
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65,700
    )
    
    $
    1.09
    
    
    
    
    
    
    
    Forfeited
    
    
    (1,370,552
    )
    
    $
    2.90
    
    
    
    
    
    
    
    
    
    
    
    (966,200
    )
    
    $
    1.26
    
    
    
    
    
    
    
    Outstanding at end
of period
    
    
    1,008,502
    
    
    $
    1.42
    
    
    
    6.7
    
    
    
    
    
    
    
    2,474,805
    
    
    $
    2.58
    
    
    
    5.2
    
    
    
    Vested and Expected
to Vest
    
    
    990,673
    
    
    $
    1.44
    
    
    
    3.9
    
    
    
    
    
    
    
    2,422,804
    
    
    $
    2.61
    
    
    
    5.1
    
    
    
    Exercisable at end
of period
    
    
    621,833
    
    
    $
    1.82
    
    
    
    6.2
    
    
    
    
    
    
    
    1,736,176
    
    
    $
    2.58
    
    
    
    3.6
    
    
    
    
  2007
    
    
    2006Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    averagegrant-date
    
    
    
    
    
    
    grant-dateShares
    
    
    fair value
    
    
    Shares
    
    
    fair valueNon-vested at December 31,
    
    
    623,762
    
    
    $
    1.02
    
    
    
    815,657
    
    
    $
    1.21Granted
    
    
    50,000
    
    
    $
    0.11
    
    
    
    344,095
    
    
    $
    0.55Vested
    
    
    (168,664
    )
    
    $
    1.04
    
    
    
    (216,123
    )
    
    $
    1.26Forfeited
    
    
    (118,429
    )
    
    $
    1.66
    
    
    
    (205,000
    )
    
    $
    0.96Non-vested at June 30,
    
    
    386,669
    
    
    $
    0.79
    
    
    
    738,629
    
    
    $
    0.97
   8




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##### Table of Contents



(4)
    
    Accounts Receivable
  June 30, 2007
    
    
    December 31, 2006(Unaudited)Billed
    
    $
    492,543
    
    
    $
    1,402,953Unbilled
    
    
    40,411
    
    
    
    249,099532,954
    
    
    
    1,652,052Less-allowance for doubtful accounts
    
    
    (403,067
    )
    
    
    (428,067
    )$
    129,887
    
    
    $
    1,223,985
  (5)
    
    Inventories
  June 30, 2007
    
    
    December 31, 2006(Unaudited)Raw materials, components and sub-assemblies
    
    $
    134,609
    
    
    $
    136,811Work-in-process
    
    
    48,170
    
    
    
    174Finished goods
    
    
    313,749
    
    
    
    392,683496,528
    
    
    
    529,668Less-reserve for excess and obsolete inventory
    
    
    (10,268
    )
    
    
    (10,268
    )$
    486,260
    
    
    $
    519,400
 (6)
    
    Property and Equipment
  June 30, 2007
    
    
    December 31, 2006(Unaudited)Equipment and machinery
    
    $
    2,633,319
    
    
    $
    2,641,660Software
    
    
    599,752
    
    
    
    599,752Furniture and fixtures
    
    
    280,279
    
    
    
    280,229Leasehold improvements
    
    
    652,401
    
    
    
    652,4014,165,751
    
    
    
    4,174,042Less-accumulated depreciation
    
    
    (3,300,659
    )
    
    
    (3,146,803
    )$
    865,092
    
    
    $
    1,027,239
  (7)
    
    Segment Information
   9




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##### Table of Contents



Research Division/Vermont Operations
    TM
 Sensor Products Group
 TM
   10




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##### Table of Contents



Research
    
    
    Vermont
    
    
    SensorDivision
    
    
    Operations
    
    
    Products Group
    
    
    Corporate
    
    
    TotalSix Months Ended June 30, 2007Revenues
    
    $
    207,849
    
    
    $
    1,985,864
    
    
    $
    131,947
    
    
    $
    
    
    
    $
    2,325,660Operating (loss) profit
    
    
    (424,540
    )
    
    
    56,344
    
    
    
    (1,001,013
    )
    
    
    (153,015
    )
    
    
    (1,522,224
    )Total assets
    
    
    922,159
    
    
    
    405,877
    
    
    
    1,647,505
    
    
    
    1,356,594
    
    
    
    4,332,135Capital expenditures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depr. & amort.
    
    
    38,315
    
    
    
    12,658
    
    
    
    15,862
    
    
    
    110,813
    
    
    
    177,648Three Months Ended June 30, 2007Revenues
    
    
    107,135
    
    
    
    1,016,762
    
    
    
    89,429
    
    
    
    
    
    
    
    1,213,326Operating (loss) profit
    
    
    (121,203
    )
    
    
    192,746
    
    
    
    (214,224
    )
    
    
    (218,382
    )
    
    
    (361,063
    )Capital expenditures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depr. & amort.
    
    
    18,264
    
    
    
    6,013
    
    
    
    5,103
    
    
    
    62,539
    
    
    
    91,919Six Months Ended June 30, 2006Revenues
    
    
    865,742
    
    
    
    1,618,285
    
    
    
    23,401
    
    
    
    
    
    
    
    2,507,428Operating loss
    
    
    (1,147,759
    )
    
    
    (673,387
    )
    
    
    (2,220,759
    )
    
    
    (925,686
    )
    
    
    (4,967,591
    )Asset writedowns
    
    
    (34,420
    )
    
    
    
    
    
    
    (4,647
    )
    
    
    
    
    
    
    (39,067
    )Total assets
    
    
    1,041,676
    
    
    
    5,132,441
    
    
    
    1,734,340
    
    
    
    6,054,324
    
    
    
    13,962,781Capital expenditures
    
    
    
    
    
    
    1,242
    
    
    
    9,945
    
    
    
    21,923
    
    
    
    32,480Depr. & amort.
    
    
    49,347
    
    
    
    14,448
    
    
    
    11,951
    
    
    
    187,446
    
    
    
    263,192Three Months Ended June 30, 2006Revenues
    
    
    353,539
    
    
    
    926,364
    
    
    
    10,000
    
    
    
    
    
    
    
    1,289,903Operating loss
    
    
    (515,905
    )
    
    
    (389,177
    )
    
    
    (1,297,320
    )
    
    
    (591,921
    )
    
    
    (2,794,323
    )Asset writedowns
    
    
    (30,216
    )
    
    
    
    
    
    
    (1,652
    )
    
    
    
    
    
    
    (31,868
    )Capital expenditures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,484
    
    
    
    1,484Depr. & amort.
    
    
    24,714
    
    
    
    7,233
    
    
    
    6,222
    
    
    
    107,681
    
    
    
    145,850
  (8)
    
    Line of Credit and Notes Payable
   11




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(9)
    
    Derivative Liability
   Warrants Derivative Attached to Debt
   Conversion Feature Derivatives
   12




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##### Table of Contents



Warrants Issued to Non-employee Derivatives
   (10)
    
    Equity Transactions
 a.
    
    Laurus Preferred Stock and Warrants
       13




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##### Table of Contents



Net Balance at
    
    
    
    
    
    
    
    
    
    
    Net BalanceDecember 31,
    
    
    Discount
    
    
    
    
    
    
    at June 30,Series
    
    2006
    
    
    Amortization
    
    
    Redemption
    
    
    2007G
    
    
    1,374,197
    
    
    
    24,546
    
    
    
    (222,576
    )
    
    
    1,176,167I
    
    
    4,035,330
    
    
    
    273,444
    
    
    
    (151,316
    )
    
    
    4,157,458$
    5,409,527
    
    
    $
    297,990
    
    
    $
    (373,892
    )
    
    $
    5,333,625
    14




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##### Table of Contents



b.
    
    Sales of Common Stock and Warrants
  c.
    
    Issuances of Common Stock and Warrants for Services
  (11)
    
    Earnings Per Share
   (12)
    
    Discontinued Operations
   June 30, 2007
    
    
    December 31, 2006Current Assets:Cash
    
    $
    727
    
    
    $
    1,897Accounts receivable
    
    
    44,066
    
    
    
    44,066$
    44,793
    
    
    $
    45,963Current Liabilities:Lease accrual/deferred rent
    
    $
    233,190
    
    
    $
    233,190Accounts payable
    
    
    272,645
    
    
    
    272,645Accrued liabilities
    
    
    19,836
    
    
    
    32,801$
    525,671
    
    
    $
    538,636Non-Current Liabilities:Lease accrual/deferred rent
    
    $
    89,209
    
    
    $
    89,209
  15




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##### Table of Contents



Three and Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2006Revenues
    
    $
    1,773,253
    
    
    $
    2,937,127Costs of revenues
    
    
    1,437,318
    
    
    
    2,379,648Gross profit (loss)
    
    
    335,935
    
    
    
    557,479Selling, general and administrative
    
    
    75,330
    
    
    
    200,186Research and development
    
    
    16,142
    
    
    
    122,403Asset writedowns
    
    
    (49,722
    )
    
    
    Total operating expenses
    
    
    41,750
    
    
    
    322,589Loss from operations
    
    
    294,185
    
    
    
    234,890Interest and other expense
    
    
    (4,561
    )
    
    
    (9,367
    )Income from discontinued operations
    
    $
    289,624
    
    
    $
    225,523
 (13)
    
    Subsequent Events
     16




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17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
   TM
  Sources of Revenue
 Contract Research and Development, Technical Support, and Production Programs
     18




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##### Table of Contents



Standard Products
 TM
  New Products Under Development
   Results of Operations
 Revenues
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Research Division
    
    $
    107,135
    
    
    $
    353,539
    
    
    $
    207,849
    
    
    $
    865,742Vermont Operations
    
    
    1,016,762
    
    
    
    926,364
    
    
    
    1,985,864
    
    
    
    1,618,285Sensor Products Group
    
    
    89,429
    
    
    
    10,000
    
    
    
    131,947
    
    
    
    23,401$
    1,213,326
    
    
    $
    1,289,903
    
    
    $
    2,325,660
    
    
    $
    2,507,428
   19




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##### Table of Contents



Income (Losses) From Continuing Operations
   Gross Margins
 Selling, General and Administrative (SG&A).
 Research, Development and Engineering Program (RD&E).
 
    
    Customer-funded RD&E costs incurred, primarily related to the NAVAIR Contract, are
included in Costs of Revenues, and totaled $364,561 and 1,062,558 for the three months
ended June 30, 2007 and 2006, respectively, and $1,100,142 and $1,854,526 for the six-month
periods ended June 30, 2007 and 2006, respectively. The decrease in customer-funded RD&E
expenditures for the three and six months ended June 30, 2007, primarily consists of an
decrease of $568,338 and $514,788, respectively, related to the NAVAIR Contract and $129,659 and
$239,596 of DARPA Contract.
 
    
    Company-funded RD&E costs associated with product development are shown in Operating
Expenses and totaled $105,570 and $961,090 for the three months ended June 30, 2007 and
2006, respectively, and $416,892 and $1,855,509 for the six months ended June 30, 2007 and
2006, respectively. The decrease in 2007 is primarily due to reduced product development
expenditures related to BioSentry.
  20




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##### Table of Contents



Interest and Other Expense.
 Preferred Stock Dividends.
 Liquidity and Financial Condition
 General.
   21




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22




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23




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##### Table of Contents



Working Capital Line.
   Letter of Credit
 Cash
Used in Operations
  24




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##### Table of Contents



Cash
Generated (Used) in Investing Activities
 Cash
Provided (Used) in Financing Activities
 Commitments
  2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter
    
    
    TotalLeases
    
    $
    358,667
    
    
    $
    530,495
    
    
    $
    373,797
    
    
    $
    371,233
    
    
    $
    384,494
    
    
    $
    331,020
    
    
    $
    2,349,706Deferred compensation
    
    
    65,000
    
    
    
    130,000
    
    
    
    65,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260,000$
    423,667
    
    
    $
    660,495
    
    
    $
    438,797
    
    
    $
    371,233
    
    
    $
    384,494
    
    
    $
    331,020
    
    
    $
    2,609,706
  Preferred Stock Redemption Obligations
  GrossAmountOutstandingat June
    
    
    Scheduled RedemptionsDescription
    
    30, 2007
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    TotalSeries G Preferred
    
    $
    1,227,834
    
    
    $
    77,846
    
    
    $
    1,149,978
    
    
    $
    
    
    
    $
    1,227,834Series I Preferred
    
    $
    6,198,406
    
    
    
    415,316
    
    
    
    5,783,090
    
    
    
    
    
    
    
    6,198,406$
    493,162
    
    
    $
    6,933,068
    
    
    $
    
    
    
    $
    7,426,240
 Line of Credit
  Secured Promissory Note
   25




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##### Table of Contents



Derivative Warrants
  Net Operating Loss Carryforward
  Critical Accounting Policies and Estimates
   Revenues
   26




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##### Table of Contents



Goodwill and Intangible Assets
        27




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##### Table of Contents



Beneficial Conversion Feature and Warrant Valuation
   Allowances for Doubtful Accounts
  Deferred Taxes
  Derivatives
  Stock-Based Compensation Expense
 28
    Table of Contents  Item 3. Quantitative and Qualitative Disclosures about Market Risk.
  
 Item 4. Controls and Procedures.
     29
    Table of Contents  PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  Our cash requirements are significant and the failure to raise additional capital will have a
significant adverse effect on the Companys financial condition and its operations.
   30
    Table of Contents  In order to complete significant additional financings, we will be required to obtain the approval
of our shareholders to increase the number of authorized shares of capital stock.
  Our continuing decline in revenues and our net and operating losses are significant and could have
an adverse impact on our stock price.
  Weaknesses in our internal control over financial reporting could result in material misstatements
in our financial statements.
    If our outstanding options and warrants are exercised and if our preferred stock is converted it
will result in substantial dilution.
   31
    Table of Contents  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 (a) (i)
    
    Director Fees: In April 2007, the Company issued 13,636 shares of common stock to
its two outside Board Members in payment of $1,500 of the quarterly retainer for each of
the outside Board Members (except for Mr. Dickinson who received payment in shares for the
full $3,000 retainer). In April 2007, the Company issued 27,273 shares of common stock to
three of its three outside Board members in payment of $2,000 of the meeting fee for a
Board of Directors meeting in April 2007. Also in April 2007, the Company issued 18,799
shares of common stock to the Chairman of the Board in payment of his $2,000 per month
Chairmans fee for the months of March and April. In June 2007, the Company issued the
outside directors: 1) 46,846 shares of common stock to Mr. Dickinson in payment for the
June Board meeting fee, his Chairmans fee for May and June and meeting-related expenses;
and 2) 13,333 shares of common stock to each of Mr. Ressler and Gilman for their June Board
meeting fee. The Company valued the stock based on the fair value on the date of issuance.(a) (ii)
    
    Stock Awards to Key Employees: In April 2007, the Company issued a total of
123,333 shares of common stock from the 2006 Equity Incentive Plan to three executive
officers and a key employee under an executive bonus plan that was approved by the Boards
Compensation Committee in February 2007. In June 2007, the Company issued a total of
313,333 shares to four of its executive officers as awards under the 2006 Equity Incentive
Plan.(a) (iii)
    
    Option Awards: In April 2007, the Compensation Committee granted an option to
purchase 50,000 shares to the Companys Chief Financial Officer under the Companys 2006
Equity Incentive Plan.(a) (iv)
    
    On May 16, 2007, the Company entered into a Consulting Agreement with Market
Broker Relations which provided for the issuance of 150,000 shares of common stock and a
warrant for 150,000 shares in payment for services to be rendered under the agreement.
  
 Item 6. Exhibits.
 Exhibit 3.1
    
    Certificate to Set Forth Designations, Voting Powers, Preferences, Limitations, Restrictions and Relative Rights
of Series J Cumulative Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 filed with the
Companys Form 8K filed on July 17, 2007)
  32
    Table of Contents  Exhibit 4.1
    
    Warrant, dated April 11, 2007, for the purchase of 7,597,750 shares issued to Laurus Master Fund, Ltd. (Laurus)Exhibit 10.1
    
    Securities Purchase Agreement, dated April 11, 2007, between the Company and Laurus. ($750,000 loan)Exhibit 10.2
    
    Term Note, dated April 11, 2007, executed by the Company in favor of Laurus.Exhibit 10.3
    
    Registration Right Agreement, dated April 11, 2007, between the Company and Laurus.Exhibit 10.4
    
    Securities Exchange Agreement, dated April 23, 2007, between the Company and Laurus.Exhibit 10.5
    
    Consulting Agreement, dated May 8, 2007, between the Company and Market Broker Relations.Exhibit 10.6
    
    Securities Exchange Agreement, dated June 28, 2007, between the Company and Laurus. (Incorporated by reference to
Exhibit 3.1 filed with the Companys Form 8-K filed on July 17, 2007).Exhibit 10.7
    
    Securities Exchange Agreement, dated July 5, 2007, between the Company and Laurus. (Incorporated by reference to
Exhibit 3.1 filed with the Companys Form 8-K filed on July 17, 2007).Exhibit 10.8
    
    Securities Purchase Agreement, dated July 5, 2007, between the Company and Laurus. (Incorporated by reference to
Exhibit 3.1 filed with the Companys Form 8-K filed on July 17, 2007).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
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
2002.
   JMAR TECHNOLOGIES, INC.August 28, 2007
    By:
    /s/ C. Neil BeerC. Neil Beer, Chief Executive Officerand Chief Accounting OfficerBy:
    /s/ I. Michael SweatmanI. Michael Sweatman, Chief Financial Officer  33