UNITED STATES SECURITIES AND EXCHANGE
COMMISSION


WASHINGTON, D.C.
20549
 FORM
10-K
 þ
              
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For
the fiscal year ended December 31, 2007
 or
 o
              
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 Commission
file number 1-10515
 JMAR
Technologies, Inc.
 (Exact
name of registrant as specified in its charter)
 Delaware
              
              68-0131180(State
      or other jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification No.)10905
      Technology Place, San Diego, CA
              
              92127(Address
      of principal executive offices)
              
              (Zip
      code)
  Registrant’s
telephone number, including area code: (858) 946-6800
  (Former
name, former address and former fiscal year, if changed since last
report)
 Securities
      registered pursuant to Section 12(b) of the Act:
              
              Name
      of each exchange on which registeredTitle
      of each class
 Securities
registered pursuant to Section 12(g) of the Act:
 Common
Stock, $.01 par value
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No þ
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes o No þ
 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes þ No o
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. 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 o
Smaller 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
 The
aggregate market value of common stock held by non-affiliates of the Registrant
as of June 30, 2007 was approximately $6.5 million. The aggregate market
value was based on the closing price on June 30, 2007 for the common stock
as quoted on the over-the-counter bulletin board, multiplied by the number of
shares outstanding on June 30, 2007, excluding the common stock held by
executive officers, directors and stockholders whose ownership exceeded 5% of
the common stock outstanding at June 30, 2007. Exclusion of such shares
should not be construed to indicate that any such person possesses the power,
direct or indirect, to direct or cause the direction of the management or
policies of the Registrant or that such person is controlled by or under common
control with the Registrant.
 
 Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date (March 31, 2008).
 Common
Stock, $.01 par value: 53,839,559 shares
 
 DOCUMENTS INCORPORATED BY
REFERENCE
  
  TABLE OF
CONTENTS
 PART
      1
              
              3Item 1.
      BUSINESSES
              
              31A. RISK FACTORS
              
              72.
      PROPERTIES
              
              103.
      LEGAL PROCEEDINGS
              
              114.
      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
              
              11PART
      II
              
              11Item 
      5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER
      MATTERS  AND ISSUER PURCHASES OF EQUITY
    SECURITIES
              
              116.  SELECTED CONSOLIDATED FINANCIAL DATA
              
              117.
      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
      RESULTS   OF OPERATIONS
              
              117A. 
      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              
              248.
      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
              
              249.
      CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
              
              25Item  9A.
      CONTROLS AND PROCEDURES
              
              259B.
      OTHER INFORMATION
              
              26PART
      III
              
              26Item 
      10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
              
              2611.
      EXECUTIVE COMPENSATION
              
              2612.
      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
              
              26Item  13.
      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
              
              2614.
      PRINCIPAL AUDITOR FEES AND SERVICES
              
              26PART
      IV
              
              26Item   15.
      EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
      8-K
              
              26SIGNATURES
              
              51Index
      to Exhibits
              
              52EXHIBIT
      23.1EXHIBIT
      23.2EXHIBIT
      31.1EXHIBIT
      31.2EXHIBIT
      32.1
 
 
 
  PART I
 Item 1.
BUSINESS
 General
 JMAR
Technologies, Inc. (JMAR or Company) is a late-stage technology company with
expertise in the development and early 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 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 has
been further expanded to include the integration of analytic components for
system-level LIBS and laser-induced fluorescence (LIF) 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.
 Business Segments
 JMAR’s
products and services evolve from one or more of its four core competencies:
high brightness-high power solid state lasers, diode pumped laser-induced
breakdown and fluorescence spectroscopy, laser produced plasma generators for
soft x-ray light, and multi-angle light scattering for contamination warning and
particle classification. These competencies form the basis for JMAR’s research
and development projects, build out of prototype products and standard and
custom products going forward.
 JMAR
conducts its operations in the following two business segments:
 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.
 BriteLight
Lasers
 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. Government-owned BriteLight units are presently operating in
Japan, Korea, and at Lawrence Livermore National Laboratory (LLNL) to condition
the crystals used on DOE’s national fusion program. Further installations are
anticipated as BriteLight is also a designated element in the x-ray
microscope product for which a key customer expects commercial sales next
year.
 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.
 Double
Pulse Laser
 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
combine the LIF capability with DP-LIBS to provide verification of detected
elements.
 During
2007, the Research Division segment accounted for approximately
62.4%  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.
 3
 BioSentry
 JMAR
acquired new technology in 2005 and established the Sensor Products Group to
develop and field an innovative sensor for continuous, on-line, real-time
monitoring of water for the presence of harmful microorganisms. The BioSentry
successfully passed proof-of-concept site evaluation tests for several of the
applications mentioned above. A summary of the orders received to date for
BioSentry systems include:
 In
2005, we entered an early adopter contract with Kimpen, Mexico’s largest bottler
and subsidiary of a leading beverage manufacturing company (Bepensa), to install
the BioSentry system. Kimpen then purchased two BioSentry systems for
installation in beverage production facilities, which were shipped in 2006,
installed, and upgraded last year with product improvements;
 The
City of Wichita purchased two BioSentry systems to help protect the city’s
drinking water against the possible introduction of cryptosporidium and other
harmful microorganisms. These units were shipped in 2006, installed, tested and
recently upgraded;
 In
2007 we delivered a BioSentry system purchased by the University of Arizona
Water Quality Center to be used in extensive ongoing research for real-time
detection, tracking and remediation of bioterror and accidental contamination
events within water distribution systems. The City of Tucson is awaiting the
results of this research to determine the value of installing BioSentry systems
in their water treatment and distribution systems;
 In
March 2007 the Company received an order for a BioSentry unit to monitor source
water in a U.S. State Department facility overseas to detect the presence of a
variety of pathogens;
 The
U.S. Environmental Protection Agency (EPA) purchased and began their
evaluation of BioSentry for homeland security applications at the National
Homeland Security Research Center in Cincinnati, Ohio. The initial evaluation
was completed in April 2007, and test results obtained indicate that the
BioSentry system performed up to several orders of magnitude better than any
real-time monitor tested thus far by the EPA. A second test is now underway with
the system upgrades and those results are expected to be available in April
2008;
 In
August 2007, a BioSentry system was purchased and installed by JMAR’s Dutch
distributor, Interline Systems, as part of an on-line water monitoring station
at Vitens, the largest water company in the Netherlands.  The system
was subsequently purchased by Vitens for ongoing evaluation in a water
distribution system;
 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; and
 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.
 Recognizing
that JMAR does not possess the resources to commercialize BioSentry worldwide,
we are seeking marketing and distribution alliances with larger companies. JMAR
has agreed in principle with a Fortune 300 company to market and service
BioSentry in the municipal water market worldwide. In addition, we are
discussing a similar marketing, distribution and servicing agreement with a
major U.S. company to address the global pharmaceutical market. There can be no
assurance that we will sign agreements with either company. If unsuccessful in
establishing strategic partnerships to support the BioSentry product line, a
significant adverse impact on the BioSentry line of business and the Company
would result.
 During
2007, this segment accounted for 37.6% of the Company’s revenues.
 Markets
 BriteLight
 Applications
for short pulse DPSS lasers include materials science, analytical instruments,
research instruments, laser-induced breakdown spectroscopy (LIBS) for
remote detection of hazardous materials in the field, and laser manufacturing
applications such as modification and cleaning, vapor deposition, etching,
ablation and micro-machining. Our BriteLight laser has been applied to leading
edge applications including biological mass spectrometry, optical parametric
oscillator technology, and the conditioning of crystals used in ultra high power
lasers. Although JMAR has had limited sales of BriteLight lasers to date, we are
now offering this system to the market packaged as discrete modules or as a
complete, integrated system to better match specific customer requirements and
budgets. Sources of soft x-ray light have been limited to the approximately 30
synchrotron facilities worldwide. JMAR’s LPP based soft x-ray source offers for
the first time an alternative source that is sufficiently compact for placement
in research laboratories. Potential buyers include research centers,
universities, industrial research laboratories, and semiconductor equipment
suppliers.
 
 DoublePulse
Laser
 Double
pulse lends itself to a variety of applications to serve many markets.Several
product applications are in the development stage:
 DP-LIBS/LIF
is the prototype technology being productized at company expense, following the
government-funded technology development and demonstration of both man portable
and vehicle mounted prototype versions. The market applications for these
products span a wide gamut, from remote detection of trace explosives and drugs
to forensics, site exploitation, geology research, environmental contamination,
to agriculture crop yields and others. Because of anticipated sales, the Company
plans to outsource the production of this product through the use of a contract
manufacturer.
 4
 DP-VM
(velocity measurement) is the prototype technology now being developed for use
in wind tunnels, automotive research, and other applications where changes in
the velocity of gas flows is obtained through two separate laser pulses. The
Company feels that there are a number of existing market opportunities where the
superior DP-VM lasers would replace the current lasers in use for this
application. JMAR plans to build this product in its own
facilities.
 DP-DIAL
(differential atmospheric laser) is the prototype technology, with ozone
measurements heading the list, being proposed to NASA for development to be used
in several applications. JMAR plans to build this product in its own
facilities.
 UV
Laser is a CW (continuous) rather than a pulse laser, and is a JMAR-funded
development effort in response to a federal government program to build and
deploy Raman sensing systems for short range chemical detection. Because of the
large anticipated market for this product, the Company plans to outsource the
production of this product through the use of a contract
manufacturer.
 JMAR
will continue to pursue government R&D dollars on selected initiatives in
response to national and local security needs.
 BioSentry
 The
BioSentry product is a moderately priced, compact early warning system targeted
at providing value to the water industry for the real time detection of harmful
pathogens. Water municipalities, beverage and water bottlers, cruise ship
operators, and managers of facilities (e.g. government buildings, sports arenas,
large commercial buildings) can minimize the impact of contaminated water
through timely alerts. Presently, drinking water from utilities, cruise ships
and beverage producers is batch-sample tested for harmful pathogens on a
periodic basis. The samples are sent to laboratories for analysis and results
are typically obtained in 24 to 72 hours, allowing potentially contaminated
water to be consumed or requiring costly decontamination.
 In
addition, the BioSentry product may be used for water quality surveillance by
the food and beverage, pharmaceutical, and semiconductor industries during
production/fabrication processes in an effort to reduce product waste and
improve production yields by preventing batch losses caused by contaminated
water. We anticipate other applications will develop as the BioSentry gains
market exposure and acceptance and as the library of detectable pathogens
expands.
 The
Company feels that it has identified substantial markets for this product. For
example, there are approximately 57,000 water treatment utilities in the United
States, of which 3,000 have greater than 100,000 customers. In addition, there
are approximately 1,500 U.S. bottled water plants and 89,000 buildings greater
than 100,000 square feet. We have sold initial BioSentry units to a varied group
of commercial and governmental customers in various markets, but have yet to
receive any significant multi-unit orders. The Company feels that the
international market for BioSentry is an opportunity for high growth, especially
in Europe and Asia, due to the need to address drinking water contamination,
terrorist threats to government and military facilities, and expansion of
pharmaceutical manufacturing in China and India.
 Competition
 BriteLight
 Among a
large number of laser manufacturers, large and small, JMAR feels that it
occupies a specialized niche for simultaneous high brightness and high power,
short pulse, high beam quality DPSS lasers. These superior performance qualities
also result in Britelight being a high-priced laser system to acquire.
Competitors with products closest to BriteLight include Cutting Edge Optronics
and Coherent. JMAR believes its BriteLight lasers have competitive performance
advantages over lasers sold by its competitors, even though relatively few
BriteLight lasers have been sold to date.
 Double
Pulse Laser
 The
double pulse technology stems from a redesign of the patented BriteLight laser.
Coupled with the submitted DP process patent application, JMAR believes that
there are no competitors that have the unique technology of the double pulse
laser. Heretofore, a double pulse application required the use of dual lasers;
JMAR’s technology produces a double pulse with a single beam within one laser,
thereby greatly improving the pointing accuracy and in turn increasing the
optical signal emitted from the micro-plasma generated by the double
pulse.
 BioSentry
 JMAR
purchased the invented technology and the technology licenses for MALS
(multi-angle light scattering) in 2005. Since then JMAR designed, implemented
and patented the 2D improvement to collect and process 6,000 images per second,
greatly improving the capability of the original technology to detect and
classify bacterial contamination. The Company also developed and submitted
patent applications on a much broader set of processing algorithms. JMAR
believes there is no direct competition for this product. There are particle
counters that give a measure of debris in water, and there are the traditional
grab sample techniques for using lab microscopes to identify contaminants, but
there is no real-time continuous monitoring warning system between those two
extremes, except BioSentry.
 Customers and End
Users
 For
fiscal years 2007 and 2006, the United States Government accounted for
approximately 36% and 65%, respectively, of total continuing sales. A major
portion of the Company’s government contract sales involves research and
development aimed at producing commercially-viable products and
technology.
 5
 BriteLight
Laser
 Lawrence
Livermore National Laboratory, a customer since 2004, purchased additional
BriteLight laser heads in 2007. This new application was first demonstrated
during SIGGRAPH 2006 by AIST, using a JMAR laser for creating air-breakdown
plasma dots controlled to produce 3D graphics figures. Together we are
demonstrating 3D figures in motion, including the “butterfly” demo. Interested
parties include billboard advertisers and several film
studios.
 JMAR
recently received an order from Argonne National Laboratories and expects
additional orders from similar government laboratory customers needing the
unique features offered by BriteLight, as well as a pending order from a
commercial company requiring BriteLight as a source for soft X-ray
production.
 Double
Pulse Laser
 JMAR was
competitively selected for a Phase I SBIR grant by the U.S. Army to conduct
research leading to the development of a compact laser system capable of
real-time spectro-chemical hazard analysis in the field. In September 2006,
we received an award for $711,000, Phase II SBIR funding, including a $210,000
option that was exercised in 2007 to continue this development. Under the Phase
II contract, we are designing and building two prototypes to demonstrate both
man-portable and vehicle-mounted systems.
 There are
currently no orders for the DP lasers presently being product-engineered by the
third party firm, D&K Engineering, under contract to build the commercial
configuration from the laboratory prototype, but as described above the
applications are far ranging for both government and commercial sales. The man
portable version of the DP-LIBS laser is scheduled for demonstration next month.
Those results will have a direct bearing on the number & frequency of
sales.
 BioSentry
 In
February 2008, the Company delivered two BioSentry systems under a purchase
order from Aquatec, a Swiss distributor of water control systems, and in January
a trial system was delivered to Pfizer, the pharmaceutical firm who contracted
with JMAR to evaluate the system for monitoring high purity water in their
laboratories. Going forward, wee are establishing a sales and marketing strategy
and staff within JMAR, which is expected to produce sales in utility water
security, pharmaceutical, homeland security, beverage processing, power
generation and other markets in 2008, as well as to selected government sites
for warning against possible contamination acts. In addition, JMAR is expecting
to finalize agreements with large successful commercial companies to enlist
their efforts in marketing, sales, distribution and servicing in designated
market segments.
 Manufacturing
 JMAR has
sufficient facilities and staff for limited production of its BioSentry and
laser products. We will depend on third parties for volume manufacturing of our
products and on suppliers for components used in the development and manufacture
of our products. In both cases, we are confident of our ability to engage
outside contract engineering and manufacturing, as well as confident of the
stability among our current vendors. In addition, we believe the inputs and
recommendations from D&K Engineering, our contract engineering and
manufacturing firm, coupled with anticipated volume purchases, will result in
lower manufacturing costs, making our new systems more competitively
priced.
 Although
we anticipate having alternate sources of product engineering and manufacturing
supply for the components used in our future production systems, there are no
assurances that additional suppliers will materialize.
 Sales and
Marketing
 During
2007,comprehensive cost reduction measures were implemented. Due to the
fact that JMAR had never exercised a successful go-to-market strategy, effort
was focused on entering into representation and distribution agreements with
large corporations to provide sales, distribution and service. These discussions
are related to the commercialization of our BioSentry product and are ongoing
with three large and very successful commercial corporations. In regard to the
laser products described above, with the exception of the BriteLight laser
system, JMAR intends to strengthen and execute closer relationship management
and sales activities with government customers, as well as pursue strategic
partnerships with large established companies to respond to commercial market
needs.
 Currently,
nineteen representatives and distributors worldwide are contracted to sell
BioSentry systems in various markets including water municipalities,
pharmaceutical and marine in select areas in the U.S., Europe, Mexico, Asia and
Australia. Additionally, JMAR has entered into representation and sales
agreements with LOT-Oriel, Lastek Pty, and SP Systec, Ltd. for representation of
the BriteLight laser. As part of its marketing activities, JMAR also showcases
products at select industry conferences to broaden the exposure of its products
to new customers.
 Finally,
given the increased emphasis in 2008 within JMAR on shifting our focus from
technology-centric to customer and market-centric, we anticipate greater
commercial success through accelerated and repeat sales. JMAR has taken steps to
strengthen its sales and marketing capability, as well as the company focus on
customer relationship management.
 Research and
Development
 The
majority of JMAR’s R&D effort has been carried out under contracts from the
Department of Defense (DOD). This work focuses on solving technology problems of
importance to the United States because of defense needs or critical
considerations of industry. JMAR also carries out IR&D in areas of interest
to commercial markets as well as the DOD. Finally, JMAR independently funds
technology and product development work intended to grow the Company through new
products and an expanded customer base.
 Company-funded
expenditures for research, development and engineering (RD&E) were $956,065
and $2,612,289 for the years ended December 31, 2007 and 2006,
respectively. Total expenditures for RD&E, including funding provided by
third party contracts from the U.S. government and other companies, were
$1,268,519 and $3,908,818, for the years ended December 31, 2007 and 2006,
respectively.
 6
 Since
January 2004, the Company has received approximately $20 million in
financing from various institutional and accredited investors. JMAR has used
these funds to initiate and advance new product research and development efforts
and to acquire or license products and technologies, as well as market its
BioSentry and laser product lines.
 Intellectual
Property Rights
 JMAR’s
patent protection efforts have resulted in the issuance of 14 U.S. patents. JMAR
currently has filed 9 pending U.S. patent applications, 2 pending foreign
applications and 4 Patent Cooperation Treaty (PCT) applications. The issued
patents contain numerous claims covering various types of laser plasma x-ray
sources, high-brightness solid state lasers, improved laser amplifiers, laser
ablation of materials, each of which represents an opportunity for growth for
JMAR. The expiration dates of these patents range from 2010 to 2024. Some of the
more recent pending and provisional applications cover aspects of the BioSentry
product and the double pulse laser technology.
 In 2004
and 2005, JMAR entered into exclusive licenses with Point Source Technologies,
LLC and The LXT Group covering technology, including issued U.S. patents and
pending patent applications that are related to our BioSentry products. In
addition, JMAR has six patents pending for BioSentry hardware and software and
in specific applications.
 The
Company’s policy is to apply for a patent on each of its significant inventions
not only to preserve its proprietary rights but also to protect against reverse
engineering by others and to avoid being “locked out” of the use of its own
technology by other patents. However, the Company does not place its principal
reliance on patent protection; rather, it seeks to maintain a competitive
advantage through an aggressive R&D program, protection of non-patented
proprietary data, maintenance of its advanced laser-optics expertise, superior
product performance and active marketing of its products. However, it is
recognized that each of our products are in areas that are the subject of very
substantial R&D activity by many very competent companies and that other
approaches may be developed and patented, making the field very
competitive.
 Employees
 Currently,
the Company has 16 full-time employees. In connection with cost-cutting measures
in 2007, the Vermont Division was closed down in October, its employees
terminated, and the assets sold to another company. Further, a number of the
Company’s employees were terminated and several others resigned. In addition,
two Chief Financial Officers resigned to pursue other interests. In the fall of
2007, the Company hired a new Chief Financial Officer who is focused on
rationalizing and controlling the resources of the Company in line with its
growth plans. The Company is not subject to any collective bargaining agreements
and believes that it maintains excellent relations with its
employees.
 INFORMATION REGARDING INDUSTRY
SEGMENTS, SIGNIFICANT CUSTOMERS AND EXPORT SALES
 The
Company operates in two segments: the Research Division and Sensor Products
Group. Financial information relating to the Company’s segments, significant
customers and export sales for the two years ended December 31, 2007 is
incorporated by reference from Note 14 of Notes to Consolidated Financial
Statements.
 Item 1A. RISK
FACTORS
 Our
ability to achieve our operating and financial goals is subject to a number of
risks, including risks relating to our business operations, our ability to
finance our operations, and technical risks associated with our new products. If
any of the risks actually occur, our business, operating results, prospects or
financial condition could be materially and adversely affected. The risks below
are not the only ones that we face. Additional risks not presently known to us
or that we currently deem immaterial may also affect our business
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, excluding discontinued operations, for the years ended
December 31, 2007 and 2006 were $869,662 and $1,998,183, respectively. Our
net loss for 2007 and 2006, excluding discontinued operations, was $2,163,231
and $7,583,172, 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.
 Our cash requirements are significant
and the failure to generate sufficient funds from operations or obtain
additional financing has had and will continue to have a significant adverse
effect on the Company’s financial condition and its
operations.
 Our cash
used in operating activities for the years ended December 31, 2007 and 2006
was $3,682,771 and $6,019,946, respectively. These negative cash flows are
primarily related to operating losses, discontinued operations, and fluctuations
in working capital items caused by
a change in derivative liability.
 We will
continue to use cash in 2008 for 1) market and product development efforts, and
to acquire or license products, technologies or businesses; 2) corporate costs,
primarily related to the cost of being a public company; 3) preferred stock
dividends; and 4) other working capital needs. Although we have been successful
in raising funds in the past, there can be no assurance that we will be able to
successfully continue to draw down under our $7.5 million Term Note and raise
additional capital in the future. The failure to draw down additional funds and
raise additional capital will have a significant adverse effect on the Company’s
financial condition and its operations.
 You will experience additional
dilution if the Company is not successful in selling its new
products.
 In order
to continue our new product development programs,  seek corporate
partners for product marketing, distribution and service and continue our
internal sales and marketing activities we will need to draw down funds from our
$7.5 million Term Note in order to cover these and other working capital needs
in 2008. There can be no assurance, however, that we will continue to be able to
drawn down under our $7.5 million Term Note, enter into such partnerships or
raise additional financing.
 7
 Our outstanding preferred stock has a
liquidation preference of $7,684,251, which is in excess of our total
stockholders’ equity.
 Our
currently outstanding Convertible Preferred Stock has a total Stated Value of
$7,684,251 as of March 31, 2008. Upon the dissolution, liquidation or
winding up of the Corporation, whether voluntary or involuntary, the holders of
the Company’s Preferred Stock are entitled to receive, before any payment or
distribution shall be made on the common stock out of the assets of the
Corporation available for distribution to the stockholders, the Stated Value per
share of the Company’s Preferred Stock then outstanding and all accrued and
unpaid dividends. In the event of a dissolution, liquidation or winding up of
the Corporation, holders of common stock may lose their entire
investment.
 Our term loan, as well as the
obligations under our Preferred Stock, are secured by the grant of a security
interest in all of our assets and upon a default the lender may foreclose on all
of our assets.
 Pursuant
to the terms of the Preferred Stock, the Company is required to make monthly
dividend payments and to make a large balloon payment due in August 2009. These
obligations, as well as the Company’s obligations under its term loans with the
same party (the combined outstanding balances, including accrued interest, of
which were approximately $17,013,514 at December 31, 2007), are secured by the
grant of a security interest in all of the Company’s assets. In the event of the
Company’s failure to make such payments or to comply with the terms of the
working capital line of credit, the other party can declare a default and seek
to foreclose on the Company’s assets. If the Company is unable to repay or
refinance such indebtedness, the holders of the Company’s common stock may lose
their entire investment.
 If our product development programs
are not successful, it will harm our business.
 The
development of sophisticated laser-based systems and sensors, such as our
BioSentry, BriteLight, and double pulse laser products, is a lengthy and capital
intensive process and is subject to unforeseen risks, delays, problems and
costs. We have had limited success in past product development efforts,
including the failure to establish a standard semiconductor products business.
We cannot assure you that we will be able to successfully develop our new
products, or that unanticipated technical or other problems will not occur which
would result in delays in our development programs.
 Achieving
market acceptance for our new products requires a significant effort to convince
customers to adopt our products and technologies over other alternative products
and technologies. In the case of each of our new product development efforts,
this requires demonstrating that our products have superior performance to the
alternative products and technologies and are more cost-effective. In addition
to the expenditures required to complete and commercialize these products, this
will require substantial technical, marketing and sales efforts and the
expenditure of significant funds to create customer awareness of and demand for
our products. We cannot assure you that our new products will achieve
significant market acceptance in the future or result in significantly increased
levels of revenues.
 In
addition to the technical performance of our products, the success of the
BioSentry and other product lines is dependent in part on the Company’s
estimates of the potential market for such systems. Because many of the expected
markets do not presently exist or have not been penetrated for a detection
system such as the BioSentry, as well as for the Company’s laser products, the
Company has had to make a number of assumptions about the size and needs of such
markets. As a result, the Company’s estimates about the size and nature of the
expected markets for the BioSentry and other products may be inaccurate and the
ultimate markets, and the actual sales of products into those markets, could be
significantly less than JMAR’s current estimates reflect. If the actual markets
for the new products are not of the magnitude expected, or if they do not
develop at the rate the Company expects, the revenues and financial condition
will be adversely affected.
 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.
 We depend on third party suppliers of
various components for our equipment business and our business will be harmed if
the supply of key components is interrupted or discontinued.
 Our
Research Division and our Sensor Products Group are dependent on third party
engineering product development and manufacturing firms and on suppliers for
components used in the development and manufacture of our products. If there are
delays at the engineering firm to package our systems for marketability and
certain key components are delayed or unavailable, we might have to reengineer
our products, resulting in delays and increased costs, or we may have to pay
more to other engineering firms and suppliers to obtain those components, which
could adversely affect our business. In addition, our plans contemplate that
product engineering, multiple suppliers and greater volume purchases will bring
down the manufacturing costs to make our new systems more competitively
priced.
 Although
we anticipate having multiple sources of supply for the components used in our
future production systems, there are no assurances that additional suppliers
will materialize. Our product development & engineering efforts also rely on
certain complex optics. If we cannot obtain these complex optics when needed at
an acceptable cost, then we may have to redesign the product, which would
involve additional re-engineering, related delays and additional costs which
could adversely affect our business.
 8
 The success of our business is
dependent on our ability to compete effectively, particularly against larger,
more established companies with greater resources.
 The
markets for our products are highly competitive and are characterized by rapid
technological change and evolving industry standards. For example, although we
are not aware of any products in the market for detecting and classifying
microorganisms similar to our BioSentry product, water utilities and other water
industry customers currently employ other products and technologies, such as
filters and ultraviolet disinfection systems, to remove or neutralize
microorganisms from the water supply. Similarly, for short range,
up close applications of the LIBS technology, the double pulse laser is not
required, in which case the advantages provided by the JMAR product are
minimized.
 Further
development by others of new or improved products, processes or technologies may
make our products obsolete or less competitive. Our ability to compete is
dependent on our ability to continually enhance and improve our products and to
successfully develop and market new products. Many of our competitors have
greater financial, managerial and technical resources than we have. We cannot
assure you that we will successfully differentiate ourselves from our
competitors, that the relevant markets will consider our products to be superior
to our competitors’ products or that we will be able to adapt to evolving
markets and technologies, develop new products or achieve and maintain
technological advantages.
 A substantial portion of our current
revenue depends on sales to a few customers. We have relied on funding from the
U.S. Department of Defense for a significant portion of our research and
development activities in the past and expect significantly less funding of our
new product developments from the government in the future.
 Over the
past 10 years, our development programs received in excess of $62 million in
funding under DARPA contracts, ending in 2006. 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.
 Our BioSentry product may be subject
to various governmental approvals that may limit our ability to market and sell
our product.
 In some
cases, the use of our BioSentry product by the water utility industry, the
commercial water bottling industry and others may require approval by
governmental regulators prior to the commercial use of such units by our
customers. In other cases, the acceptance of our BioSentry product may be
enhanced by certification or other approvals by industry groups or government
regulators. The failure to obtain approval of various state and federal agencies
could adversely impact the sale of our BioSentry products
 Our quarterly operating results may
fluctuate significantly. As a result, we may fail to meet or exceed the
expectations of securities analysts and investors, which could cause our stock
price to decline.
 Our
quarterly revenues and operating results have fluctuated in the past and may
continue to vary from quarter to quarter due to a number of factors, including
the risk factors set forth in this section. If our operating results do not meet
the expectations of securities analysts or investors, our stock price may
decline.
 If we lose key personnel or are
unable to attract and retain additional, highly skilled personnel required for
the expansion of our activities, our business will suffer.
 In order
to reduce costs, in 2007 we laid-off several employees and several key employees
resigned, including our Chief Financial Officer (who resigned to pursue other
interests) and who has been replaced. Our success is substantially dependent on
the efforts of certain key personnel. In particular, our nanotechnology product
development efforts rely on the skill of several key laser and laser plasma
scientists and engineers and our BioSentry product development effort relies on
the skills of several key technical personnel in the areas of
scattered-light-based detection systems, algorithms used to interpret the
results of scattered light and microorganism morphology, as well as personnel
experienced in the water industry. The loss of such personnel would adversely
affect our business and prospects. In such event, we cannot assure you that we
would be able to employ qualified persons on terms favorable to us. In seeking
and retaining qualified personnel, we are required to compete with companies
having greater financial and other resources than we have. Since our future
success is dependent upon our ability to retain or attract qualified personnel,
our failure to do so could have an adverse impact on our business.
 Asserting, defending and maintaining
intellectual property rights is difficult and costly and the failure to do so
could harm our ability to compete and the results of our
operations.
 We rely
to a significant extent on patents, trade secrets and confidentiality agreements
to protect our proprietary technology. We cannot assure you as to the breadth or
degree of protection which existing or future patents, if any, may afford us, or
that patents will not be circumvented or invalidated, or that our products do
not and will not infringe on patents or violate proprietary rights of others. In
the event a patent infringement claim is asserted against us, or we are required
to enforce our rights under an issued patent, the cost of such actions may be
very high, whether or not we are successful. While we are unable to predict what
such costs, if any, will be if we are obligated to pursue patent litigation, our
ability to fund our operations and to pursue our business goals may be
impaired.
 Our
BioSentry product uses scattered light to detect particles in fluids. This field
is the subject of substantial patent activity. We have entered into License
Agreements with Point Source Technologies and The LXT Group, covering the
license of technologies related to the BioSentry product area. Although JMAR
believes that the patents and technology licenses from Point Source and LXT, as
well as the technology that we have developed in-house, provide adequate
coverage for our current BioSentry product, we can give no assurances that the
technologies that we want or need to use in the future in this field may not
infringe on the patents or proprietary rights of others. If we need to use
technologies owned by third parties in connection with our BioSentry products
and cannot license them on reasonable terms, our ability to develop, manufacture
and commercialize our BioSentry products will be adversely impacted, which would
adversely affect our business and our stock price.
 9
 If our outstanding options and
warrants are exercised and if our preferred stock is converted it will result in
substantial dilution.
 As of
December 31, 2007, we had outstanding 53,839,559 shares of common stock.
Substantially all of the outstanding shares of the Company’s common stock are
freely tradable without restriction or further registration under the Securities
Act. Affiliates may sell the shares they own pursuant to Rule 144, subject
to certain notice filing and volume limitations.
 As of
December 31, 2007, there were 133,689,415 shares of common stock subject to
issuance upon exercise of outstanding options and warrants. As of March 31,
2008, we had outstanding $7,684,251 stated value of Series G, I and J
Convertible Preferred Stock. The outstanding Series G and I Preferred Stock
is convertible into shares of common stock at $0.15 per share and the
outstanding Series J Preferred Stock is convertible into shares of common
stock at between $0.1022 and $0.12 per share. Subject to a 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.
 To the
extent that outstanding options and warrants are exercised prior to their
expiration dates, additional funds will be paid into 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.
 If product liability claims are
brought which exceed our liability insurance limits our business would be
harmed.
 We may be
exposed to potential product liability claims arising out of the use of our
products. Although we maintain product liability insurance on certain former
products, we cannot assure you that such insurance will be sufficient to cover
potential claims or that the present level of coverage will be available in the
future at a reasonable cost. A partially or completely uninsured successful
claim against us could have a material adverse affect on our business. There can
be no assurance that as we complete the commercialization and introduction of
new products that insurance will be available on economically favorable terms or
in amounts adequate to cover the risks associated with these new
products.
 We do not presently intend to pay
cash dividends to our shareholders.
 We have
never paid cash dividends on our common stock and intend, for the foreseeable
future, to retain our earnings, if any, to finance our business. Future dividend
policy will depend on our earnings, capital requirements, financial condition,
debt covenants and other factors considered relevant by our Board of
Directors.
 Our ability to use our entire net
operating loss carryforward is limited by prior changes in ownership and may be
further limited in the future.
 We have
federal net operating loss (NOL) carry-forwards of approximately
$60 million at December 31, 2007. 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.
 If we issue shares of preferred stock
with greater rights than the common stock, it could result in the decrease in
market price of the common stock and could delay or prevent a change in control
of us.
 Our Board
of Directors is authorized to issue up to 5,000,000 shares of preferred stock,
of which 738,329 shares of Series G, I and J Preferred Stock were
outstanding as of March 31, 2008. As a result, 4,261,671 shares of
Preferred Stock are available for issuance in the future. Our Board of Directors
has the power to establish the dividend rates, liquidation preferences, voting
rights, redemption and conversion terms and privileges with respect to any
series of preferred stock. The issuance of any shares of preferred stock having
rights superior to those of the common stock may result in a decrease in the
value or market price of the common stock. Holders of preferred stock may have
the right to receive dividends, certain preferences in liquidation and
conversion rights. The issuance of preferred stock could, under certain
circumstances, have the effect of delaying, deferring or preventing a change in
control of us without further vote or action by the stockholders and may
adversely affect the voting and other rights of the holders of common
stock.
 Item 2.
PROPERTIES
 The
Company’s corporate headquarters, Research Division and Sensor Products Group
lease 23,080 square feet of office, laboratory and storage space in a single
facility in Northern San Diego County. That lease expires in 2012.
 10
 Item 3. LEGAL PROCEEDINGS
 Mezzetti
Financial Services, Inc, the assignee of Ray L. Hellwig Plumbing & Heating
(Hellwig), is the plaintiff in a lawsuit against JMAR, JSI Microelectronics,
Inc. and JMAR Precision Systems, Inc. to recover $115,142 including interest and
fees, amounts alleged to be owed by the defendants in connection with work
performed by Hellwig for JSI Microelectronics, Inc.  This lawsuit has
been overturned by the court, subject to appeal.
 Also, as
reported previously, McClellan Business Park, LLC has requested a judgement
against JSI Microelectronics, Inc., the Company’s wholly-owned subsidiary, in
the amount of $380,390 including interest and fees related to the lease of the
premises located in Sacramento County. Since JSI Microelectronics had already
vacated the premises and has no material assets, no action is being taken to
resist this legal action. JMAR Technologies, Inc. is not a guarantor on this
lease and believes it has no legal responsibility for the obligations of JSI
Microelectronics, Inc. JMAR has not been named in this lawsuit.
 Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 None
 
 PART
II
 Item 5. MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
 The
Company’s common stock is traded on the OTC Bulletin Board under the symbol
JMAR.OB. The 2007 and 2006 high and low transaction prices for the common stock
as reported by NASDAQ (through December 22, 2006) and the OTC Bulletin
Board (after December 22, 2006) are set forth in the following
table.
 Common Stock
Price
 High
              
              Low2007First
      Quarter
              
              
              0.30
              
              
              
              0.18Second
      Quarter
              
              
              0.23
              
              
              
              0.14Third
      Quarter
              
              
              0.20
              
              
              
              0.07Fourth
      Quarter
              
              
              0.10
              
              
              
              0.042006First
      Quarter
              
              
              1.25
              
              
              
              0.86Second
      Quarter
              
              
              0.94
              
              
              
              0.41Third
      Quarter
              
              
              0.68
              
              
              
              0.32Fourth
      Quarter
              
              
              0.45
              
              
              
              0.15
 As of
March 31, 2008, there were approximately 9,800 beneficial owners of JMAR’s
common stock and approximately 600 record holders. As of March 31, 2008,
the Company’s common stock price was $0.12.
 The
Company has never paid cash dividends on its common stock. The Company currently
intends to retain earnings for use in the operation and expansion of its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future. The payment of dividends in the future by the Company on its
common stock will be dependent on its earnings and financial condition and such
other factors considered relevant by the Company’s Board of
Directors.
 
 Item 6. SELECTED CONSOLIDATED
FINANCIAL DATA See Note 14 to the Consolidated Financial Statements -
Segment Information
 
 Item 7. 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.
 11
 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. 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, in March 2007 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.
 In September 2007, the Company
negotiated a $7,500,000 Term Note with Laurus (the “$7.5 million Term Note”)
(See Note 8 –Notes Payable and Other Long-term
Obligations). 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. Accordingly, the Company has
reflected the Vermont Operations as discontinued operations for all periods
included in this Form 10-K.
 Management believes that with the
financing provided by the $7.5 million Term Note (see Note 8 –Notes Payable and Other Long-term
Obligations) it has,
subject to periodic reviews with Laurus, adequate resources to fund its
operations throughSeptember 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 has an agreement in principle with a Fortune 300 company for the
worldwide marketing, distribution and service of its BioSentry sensor for
continuous, on line, real-time monitoring of drinking water for the presence of
microorganisms in municipal water supply systems. 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.
 12
 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 and laser-induced
fluorescence (LIF) applications designed to detect and identify biological
contaminants and chemicals used in explosives, 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.
 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 Item 1A above for more information on the
risks and uncertainties faced by JMAR.
 Results of
Operations
 Year Ended December 31, 2007
Compared to Year Ended December 31, 2006
 Revenues.Total revenues for
the years ended December 31, 2007 and 2006 were $869,662 and $1,998,183,
respectively, the majority of which were contract revenues. Revenue breakdown
for 2007 and 2006 were as follows:
 2007
              
              
              2006Research
      Division
              
              $
              542,767
              
              
              $
              1,898,497Sensor
      Products Group
              
              
              326,895
              
              
              
              99,686$
              869,662
              
              
              $
              1,998,183
 The
decrease in revenues for the year ended December 31, 2007 compared to the
year ended December 31, 2006 was primarily attributable to a decrease of
$942,717 related to the DARPA Contract and a decrease of $377,318 related to the
NAVAIR subcontract. The decrease in the NAVAIR contract revenues is due to the
completion of that program in at Vermont in 2007. These decreases were offset in
part by an increase in BioSentry revenues of $227,209
 Losses.The net loss for the
years ended December 31, 2007 and 2006 was $(1,623,906) and $(13,106,681),
respectively. The loss from continuing operations for those same periods was
$(2,163,231) and $(7,583,172), respectively, while the loss from operations for
those same periods was $(4,112,218) and $(7,227,461), respectively. Included in
the net loss for the years ended December 31, 2007 and 2006 are costs
invested in product development (see further discussion below) of $956,065 and
$2,612,289, respectively, income/(loss) from discontinued operations of $539,325
and $(5,523,509), respectively, and impairments of long-lived assets of $221,328
and $87,845 in 2007 and 2006, respectively.   In addition, there
was change in fair value of derivative liability $(10,307,573) offset by the
amortization of debt discount of $8,314,577 and a $175,615 lower SFAS No. 123(R)
non-cash compensation charge in 2007 as compared
to 2006.
 Gross Margins. Gross margins
for the fiscal years ended December 31, 2007 and 2006 were 27.0% and 23.6%,
respectively. The increase in the gross margin for the year ended
December 31, 2007 compared to the prior year is primarily due to a greater
mix of higher margin BioSentry commercial sales in 2007 as compared to higher
subcontract and material costs on the NAVAIR government Contract that negatively
affected gross margins in 2006.
 Selling, General and Administrative
(SG&A).SG&A expenses for the fiscal years ended December 31,
2007 and 2006 were $3,169,747 and $4,998,694, respectively. The decrease in
SG&A expenses for 2007 was primarily attributable to overall cost reductions
in 2007 compared to 2006. The key reductions were: salaries and benefits
decreased by $741,517;  non-cash compensation
charges  related to SFAS No. 123(R) decreased by
$175,616, legal and consulting decreased by $174,056, board of directors
fees decreased by $146,187, advertising, shows and travel by $123,499 and
liability and D&O insurance by $123,260.
 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 DARPA Contract and the
      NAVAIR Contract, are included in “Costs of Revenues” and totaled $312,454
      and $1,296,529 for the fiscal years ended December 31, 2007 and 2006,
      respectively. The decrease for the year ended December 31, 2007
      compared to the year ended December 31, 2006 was primarily
      attributable to a decrease of $647,024  related to the DARPA
      Contract and a decrease of $416,158  related to the NAVAIR
      contract. The decrease in the NAVAIR contract revenues is due to the
      completion of that program in 2007.•
              
              Company-funded
      RD&E costs associated with product development are shown in “Operating
      Expenses” and totaled $956,065 and $2,612,289 for the fiscal years ended
      December 31, 2007 and 2006,
respectively.
  13
 Total
RD&E expenditures for 2007 and 2006 were $1,268,519  and
$3,908,818, respectively. Total RD&E expenditures as a percentage of
revenues were 146% and 196% for the years ended December 31, 2007 and 2006,
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.
 Goodwill Write-off.The
goodwill write-off in 2006 relates to the goodwill of the Research
Division/Vermont Operations which was the reporting unit at that time.
Management performed an evaluation of goodwill as of December 31, 2006, in
accordance with FASB Statement No. 142 (see Critical Accounting Policies
and Estimates). Of the total write-off, $4,415,932 is included in discontinued
operations. Impacting the analysis was the Company’s low market capitalization
due to its reduced stock price. In addition, the discounted cash flow analysis
was impacted by the agreement reached with a leading microscopy company whereby
the Company sold its XRM technology in exchange for an up front cash payment and
future royalties and was appointed exclusive laser supplier for the XRM. In
addition, based on the status of the Company’s BioSentry partner search
initiated in June 2006, for purposes of the goodwill analysis, the
assumption was that BioSentry manufacturing would be outsourced at some time in
the future.
 Discontinued Operations. The
income/(loss) from operations of discontinued operations of $539,325 and
$(5,523,509) for the years ended December 31, 2007 and 2006, respectively.
All of the amount in 2007 and $5,270,713 in 2006 relates to the closure of the
Vermont Operations as of September 30, 2007. The balance of $252,796 in 2006
relates to the Microelectronics Division. The 2006 amount includes a goodwill
write-off of $4,415,932 related to the Vermont Operations, an expense of
$127,911 for assets to be disposed at the Microelectronics Division and $262,246
related to leases of the Microelectronics Division, primarily the facility
lease, based on an appropriate discount rate.
 Until
mid-2006, a major source of funding was the subcontract between JMAR’s
Microelectronics Division (operated by JSI Microelectronics, Inc., a subsidiary
of JMAR) and General Dynamics Advanced Information Systems (GDAIS) to
enhance and maintain the semiconductor wafer fabrication processes installed at
the McClellan Air Force Base in Sacramento for the DMEA. This work, which
started in 1998, resulted in a new subcontract each year out of funds available
in the DMEA’s budget as an element of the Department of Defense’s Advanced
Technology Support Program. The Company received $3.5 million in contracts
in 2004 and $2.3 million in letter contracts in 2005. In February, 2006,
the last of this funding was received and since the viability of the
Microelectronics Division was questionable the operation was closed as of
September 30, 2006.
 The
Vermont Operations carried out contract research and development involving
advanced materials, nanolithography, semiconductor memory chip designs and
served as JMAR’s manufacturing arm for the BioSentryTM
product.  Contract research and development was completed under
contracts for DARPA and Naval Air Systems Command (NAVAIR). A major source of
funding to the Vermont Operations was a contract issued by NAVAIR which
supported continued x-ray lithography technology and infrastructure development.
Under this contract, JMAR procured sub-100 nm feature size x-ray masks used in
the development of high performance computer memory chips. A total of
approximately $15.5 million was received under this contract, including
approximately $3.1 million funded in August 2006. Incremental funding
under the contract was sought on an annual basis. However, losses in the Vermont
Operations continued despite government contract funding. Pursuant to the
$7,500,000 Securities Purchase Agreement entered into with Laurus in September
2007, 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. The Vermont Operations were closed on October 16, 2007 and
on November 7, 2007, the Company executed an Asset Purchase Agreement (the
"Agreement") with Applied Research Associates, Inc. (ARA) of Randolph, Vermont.
Under the Agreement the Company agreed 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 is 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.
 Accordingly,
the Company has reflected the Vermont Operations and Microelectronics Division
as discontinued operations for all periods included in this Form
10-K.
 Interest and Other Expense.
Interest and other expense for the years ended December 31, 2007 and 2006
was $9,045,438 and $408,804, respectively. Interest expense was higher for
2007 compared to 2006 due to non-cash interest of $8,314,577, 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 $8,314,577 and $256,169 included in interest expense
for the years ended December 31, 2007 and 2006, respectively, is 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
years ended December 31, 2007 and 2006 are preferred stock dividends of
$1,703,607 and $1,283,668, respectively. The amount for the years ended
December 31, 2007 and 2006 represents $631,290 and $633,451, respectively,
of preferred stock dividends paid or payable in cash and $1,072,317 and
$650,217, 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.
 14
 Liquidity and Financial
Condition
 General.Cash and cash
equivalents at December 31, 2007 and 2006 were $174,879 and $686,832,
respectively. In 2007 and 2006, we funded our operations primarily from
borrowings under the working capital line and term notes and the sale of
preferred and common stock. The decrease in cash and cash equivalents during the
year ended December 31, 2007 of $511,953 resulted primarily from cash used
in operations of $3,682,771 largely related to operating losses of $1,623,906
and changes and a reduction of net assets of discontinued operations of
$1,082,329, a decrease in unearned revenue of $156,030, an increase in
inventories of $71,874 and a decrease in accounts payable of $41,772. This was
offset largely by net borrowings, net of restricted cash of $2,713,329, and in
part by a services received in exchange for common stock and warrants of
$363,780, a reduction in accounts receivable (collections) of $339,847 and
proceeds from the issuance of common stock of $382,122.
 Working
capital (deficit) as of December 31, 2007 and 2006 was $(6,384,787)
and $(2,584,566), respectively. The decrease in working capital is primarily due
to the Company’s losses and payment of preferred stock dividends, offset mostly
by increased borrowings, net of restricted cash, and gross proceeds from the
issuance of common stock of approximately $382,122 and $2,717,363,
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 (see Note 8–Notes Payable and Other Long-term
Obligations) the Company
has, subject to periodic reviews with Laurus, adequate resources to fund its
operations throughSeptember 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 Item 1A above.
 Sales of Common
Stock. On
December 28, 2005 and January 4, 2006, the Company entered into
Securities Purchase Agreements and completed the sale of $3.63 million of
the Company’s common stock and warrants to nine institutional investors and four
accredited individual investors (December Investors). Pursuant to the Securities
Purchase Agreements, the Company issued a total of 3,025,001 shares of common
stock and warrants to purchase 2,117,501 shares of common stock to the December
Investors. The warrants have an exercise price of $1.44 per share and a term of
five and one-half years. After expenses of the transaction and the advisor’s
fee, the Company received net proceeds of approximately $3.4 million, of
which approximately $1.4 million was received after December 31,
2005.
 In the
first quarter of 2007, JMAR entered into Securities Purchase Agreements and
completed the sale of $386,682 of the Company’s common stock to Laurus. Pursuant
to the Securities Purchase Agreements, the Company issued a total of 2,254,467
shares of common stock.
 In the
first quarter of 2007, the Company issued 108,083 shares of common stock for
services. These issuances were valued based upon the fair market value of the
Company’s common stock at the date of issue.
 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 (“Note”), together with a Warrant to purchase 7,597,750
shares of Common Stock (See Note 11 — Derivative Accounting Regarding the
Warrants).
 In
connection with the $750,000 Note, the Company issued 461,539 shares of
restricted common stock in payment of a fee to Midtown Partners & Co., LLC
(“Midtown”). These issuances were valued based upon the fair market value of the
Company’s common stock at the date of issue.
 On
April 23, 2007, the Company and Laurus entered into a Securities Exchange
Agreement that provided for the issuance by the Company to Laurus of a total of
1,500,000 shares of Common Stock in exchange for and in cancellation of i)
$194,754 of stated value of Series G Preferred Stock held by Laurus, and
ii) $18,996 of stated value of Series I Preferred Stock.
 In the
second quarter of 2007, the Company issued 608,502 shares of common stock for
services. These issuances were valued based upon the fair market value of the
Company’s common stock at the date of issue.
 On
July 5, 2007, the Company entered into a second Securities Exchange
Agreement with Laurus which provided for the issuance to Laurus of two million
(2,000,000) shares of Common Stock in exchange for and cancellation of another
$204,400 stated value of Series G and I Preferred Stock.
 15
 On
August 8, 2007, Laurus purchased 2,100,000 of Common Stock in exchange for
and cancellation of $252,000 stated value of Series G and Series I
Preferred Stock held by Laurus (see Note 12 – Equity Transactions- Laurus
Preferred Stock and Warrants).
 On August
31, 2007, Laurus completed a cashless exercise, in accordance with its warrant
agreement, of 2,388,189 warrants with an exercise price of $0.01, resulting in
the purchase of 2,197,134 shares of common stock. These issuances were valued
based upon the fair market value of the Company’s common stock at the dates of
issue and conversion.
 In the
fourth quarter of 2007, the Company issued 946,976 shares of common stock for
services. These issuances were valued based upon the fair market value of the
Company’s common stock at the date of issue.
 Issuances of Preferred Stock.
On February 1, 2005, the Company entered into agreements with Laurus to
amend the Company’s Series E, F, G and H Convertible Preferred Stock (2005
Amendments). As discussed below, the Series E was fully redeemed at the end
of 2005 and the Series F-H were further amended in 2006. The 2005
Amendments provided for, among other things, 1) the deferral of approximately
$3.8 million in monthly redemption payments, as follows: a) payments of the
remaining 12 months of redemption payments ($83,333 per month plus a 2%
fee) for the Series E Preferred Stock were deferred and due in full in
July, 2006, and b) the next 18 months of redemption payments due under the
Series F, G and H Convertible Preferred Stock ($150,000 per month plus a 2%
fee) were deferred until February, 2007; and 2) the reduction in the conversion
prices of the Series E-H Preferred Stock (originally ranging from $2.85 to
$3.47) to $2.00 per share. Pursuant to the 2005 Amendments, the $150,000 in
monthly redemption payments under the Series F-H Preferred Stock was
scheduled to recommence in August, 2006 and continue until January, 2007, with
the balance of approximately $4.25 million in the stated amount of the
Series F-H Preferred Stock due in February, 2007. These redemption payments
would be reduced to the extent that there were conversions of the Preferred
Stock into common stock.
 On
March 28, 2006, the Company issued a new Series I Convertible
Preferred Stock to replace $6,393,980 of the Series F-H Convertible
Preferred Stock, leaving $1,456,020 of the Series G Preferred Stock
outstanding. The parties also amended the remaining redemption schedule of the
Series G Preferred Stock (the issuance of the Series I and the
amendments to the Series G are referred to below as the 2006 Amendments.)
The 2006 Amendments had the effect of deferring the $7,850,000 in redemption
payments, as follows: a) 6 monthly redemption payments originally
commencing August 2006 ($150,000 per month plus a 2% fee) were deferred one
year and reduced to $122,178 per month; b) $6,588,314 of the redemption payment
originally due February 2007 is deferred until August 2009; and c) the
remaining $528,618 is payable at $27,822 per month starting February 2007
through August 2008. The conversion price for the $6,393,980 of the
Series F-H Preferred Stock was originally $2.00, while the new $6,393,980
of Series I Preferred Stock has a conversion price of $1.16 per share. In
addition, the exercise price (originally ranging from $3.42 to $3.82) of the
warrants exercisable into 200,000 shares originally issued in connection with
the Series F-H Preferred Stock was reduced to $1.16. The redemption
payments will be reduced to the extent that there are conversions of the
Preferred Stock into common stock. The rights and privileges of the
Series I Preferred Stock are the same as the Series F-H Preferred
Stock, other than the conversion price and redemption payments.
 In
connection with all of the above financing transactions with Laurus, including
the prior issuances of Series A-D Preferred Stock in 2003 and the Working
Capital Line, the Company issued warrants to Laurus to purchase a total of
1,786,375 shares of common stock at prices ranging from $1.058 to $5.15. In
addition, in connection with the 2006 Working Capital Line on March 28,
2006 Laurus was granted two warrants to purchase up to 458,181 shares of common
stock (based on the level of indebtedness under the line) at an exercise price
of $0.01 per share.
 If not
previously converted to common stock, the outstanding amount of Series G
and I Preferred Stock must be redeemed in cash (or it could be redeemed with
common stock if the closing market price of the Company’s common stock is 118%
of the Conversion Price or higher for the 11 trading days prior to the
redemption date) at various amounts and dates (see below under
“Commitments”).
 The
shares of common stock issuable to Laurus under all of the preferred stock and
warrants described above have been included in registration statements declared
effective by the Securities and Exchange Commission, except for the warrants to
purchase up to 458,181 shares of common stock described above.
 On
April 23, 2007, the Company and Laurus entered into a Securities Exchange
Agreement that provided for the issuance by the Company to Laurus of a total of
1,500,000 shares of Common Stock (the “Shares”) in exchange for and in
cancellation of i) $194,754 of stated value of Series G Preferred Stock
held by Laurus, and ii) $18,996 of stated value of Series I Preferred
Stock. Following this exchange, Laurus owned a total of $1,261,266 of stated
value of Series G Preferred Stock and $6,374,984 of stated value of
Series I Preferred Stock. As a result of the payment of the Shares, a total
of $213,750 was applied to pay monthly redemption payments owing under the
Preferred Stock in chronological order as follows: (i) the entire monthly
redemption amounts ($27,822 per month) owing under the Series G Preferred
Stock for the months of February through August, 2007 (for a total of $194,754),
and (ii) $18,996 of the redemption amount owing under the Series I
Preferred Stock for the month of August 2007.
 As a
result of the redemption on April 23, 2007, the Company recorded in the
quarter ended June 30, 2007 the excess of the fair value of the
consideration issued to Laurus ($300,000) over the carrying amount of the
Series G and I Preferred Stock ($209,457) as preferred stock dividends and
an increase in paid-in-capital.
 16
 In June, 2007, the Company committed to
a transaction with Laurus by executing a term sheet providing for the sale from
time to time of up to $3.5 million of a new Series J preferred stock.
The definitive terms of this agreement are contained in a Securities Purchase
Agreement, dated July 5, 2007, between the Company and Laurus (the “Series J
SPA”).  Such sales are intended to be done following the conversion or
exchange by Laurus of an equivalent amount of its existing preferred stock. On
June 28, 2007, the Company entered into a Securities Exchange Agreement
with Laurus which provided for the issuance to Laurus of two million (2,000,000)
shares of Common Stock in exchange for and cancellation of $204,400 stated value
of Series G and Series I Preferred Stock held by Laurus. On
July 5, 2007, the Company entered into a second Securities Exchange
Agreement with Laurus which provided for the issuance to Laurus of another two
million (2,000,000) shares of Common Stock in exchange for and cancellation of
another $204,400 stated value of Series G and I Preferred Stock. As a
result of these two transactions, a total of $408,800 of Series G and
Series I Preferred Stock were redeemed and this dollar amount was applied to pay
the monthly redemption payments due under the outstanding Series G and I
Preferred Stock such that the remaining monthly redemption payment owing in
August, the entire September and October monthly redemption payments and a
portion of the November monthly redemption payment were
canceled.
 As a result of the redemption of the
Series G and Series I Preferred Stock, in the quarter ended June 30, 2007 the
Company recorded the excess of the fair value of the consideration issued to
Laurus ($280,000) over the carrying amount of the Series G and I Preferred
Stock ($164,435) as preferred stock dividends and an increase in
paid-in-capital.
 In conjunction with the June 28,
2007 transaction and the commitment to issue 408,800 of the Series J
Preferred, as of June 30, 2007 the Company created a derivative liability
(See Note 11 — Derivative Liability).
 On
July 5, 2007, the Company and Laurus entered into a Securities Purchase
Agreement (the “Series J SPA”) The Series J SPA provides for the issuance from
time to time of up to $3.5 million shares of Series J Cumulative
Convertible Preferred Stock (“Series J Preferred Stock”). Pursuant to the
Series J SPA, the Company’s Board of Directors created a new Series J
Cumulative Convertible Preferred Stock, with a stated value of $1,000 per share,
and authorized sale and issuance from time to time of up to 3,500 of such
shares. Pursuant to the Series J SPA, purchases by Laurus of shares of
Series J Preferred Stock will be made from time to time in such amounts and
at such times as Laurus may determine in its sole discretion. The Series J
Preferred Stock accrues dividends at the rate of 9.5% per annum and is
convertible into shares of the Company’s Common Stock at a conversion price
equal to lesser of (i) $0.15 or (ii) the equivalent price at which Laurus
has most recently exchanged shares of Common Stock for shares of Series G
and I. In the event that any shares of Series J Preferred Stock remain
outstanding on the second anniversary of the issuance of such shares, such
shares must be redeemed in cash by the Company. The Series J Preferred
Stock also provides that the Company can force the conversion of the
Series J Preferred Stock at $0.50 per share if the bid price of the
Company’s Common Stock for ten consecutive trading days equals or exceeds $0.50
per share and the trading volume during such ten day period exceeds 100,000
shares per day. The provisions of the Series J Preferred Stock restrict
Laurus from converting into shares of Common Stock if Laurus would have
beneficial ownership of more than 9.99% of the Company.
 The Series J SPA also provided that 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.
 The
Company agreed that it would file a Form S-1 Registration Statement with the SEC
to register the resale of the shares of Common Stock issuable on conversion of
the Series J Preferred Stock within 60 days after an aggregate of
$1 million of Series J Preferred Stock had been sold. The Company
agreed to use its best efforts to obtain effectiveness of the registration
statement within 120 days after filing with the SEC and to pay a penalty
equal to one percent (1%) per month for a maximum of eight months if the
registration statement was not filed or declared effective within the required
deadlines.   As of December 31, 2007, an aggregate of $1 million
or more of Series J Preferred Stock had not been sold and the Company is not yet
obligated to file such a registration statement.
 On July 5, 2007, Laurus purchased
408.8 shares of Series J Preferred Stock (with a stated value per share of
$1,000) for gross proceeds of $408,800. The shares of Series J Preferred
Stock issued in this transaction have a conversion price of $0.1022 per share
(the price at which Laurus had most recently received shares of Common Stock in
exchange for its Series G and Series I Preferred Stock). In connection
with the sale of the Series J Preferred Stock, the Company paid Midtown
Partners & Co., LLC (“Midtown Partners”) a fee equal to eight percent (8%)
of the gross proceeds from the sale of the Series J Preferred Stock and a
warrant to purchase 320,000 shares of Common Stock, with a term of
5-1/2 years, an exercise price of $0.1022 per share and a provision
enabling the holder to effect a cashless exercise of the Warrant. As a result of
this issuance of Series J Preferred Stock, pursuant to the SPA the
conversion price for a total of $817,600 of stated value of Series I
Preferred Stock was reduced to $0.15 per share. As a result of the June 28,
2007 exchange of preferred for common stock transaction and the issuance of the
new Series J Preferred Stock a derivative liability was created (See Note
11 — Derivative Liability).
 On July 20, 2007 the Company and
Laurus entered into an Agreement which provides that certain of the convertible
securities owned by Laurus may not be converted into common stock unless and
until the Company’s shareholders have approved an amendment to the Company’s
Certificate of Incorporation to increase the authorized capital stock from
80,000,000 shares of Common Stock to 300,000,000 shares of Common Stock. The
shares which will not be convertible consist of 1) those shares of Series I
Preferred Stock with a stated value of $817,600 that were amended on
July 5, 2007 to reduce their conversion price as noted above, 2) the shares
of Series J Preferred Stock with a stated value of $408,800 with a
conversion price of $0.1022 that were issued on July 5, 2007, and 3) up to
another $817,600 of Series J Preferred Stock and up to another $1,635,200
of Series G and Series I Preferred Stock to be adjusted in connection
with the sale of such Series J Preferred Stock. As of December 31, 2007,
only $300,000 of the $817,600 of additional shares of Series J Preferred Stock
has been sold and the conversion price of $600,000 of Series G and I Preferred
Stock has been reduced as provided. On February 20, 2008, the Company’s
shareholders approved an increase in authorized shares of Common Stock to
380,000,000 shares.
 17
 On
August 8, 2007, Laurus purchased 2,100,000 shares of Common Stock in
exchange for and cancellation of $252,000 stated value of Series G and
Series I Preferred Stock held by Laurus. As a result of this transaction,
$252,000 of Series G and Series I Preferred Stock has been redeemed
and this dollar amount has been applied to pay the monthly redemption payments
due under the outstanding Series G and I Preferred Stock such that the
remaining monthly redemption payment owing under the Series G for November,
2007 was satisfied, the entire monthly redemption payment under the
Series I for November was satisfied and $107,618 of the $122,178 December
redemption payment under the Series I was satisfied. As a result of the
August 8, 2007 exchange of preferred for common stock transaction and the
issuance of Series J Preferred Stock a derivative liability was created.
See Note 11 — Derivative Liability.
 On
August 9, 2007, Laurus purchased $300,000 of shares of Series J
Cumulative Convertible Preferred Stock (“Series J Preferred Stock”) with a
stated value of $1,000 per share. These shares of Series J Preferred Stock
have a conversion price of $0.12 per share. The Series J Preferred Stock
accrues dividends at the rate of 9.5% per annum.
 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
9.9% 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 years ended December 31, 2007 and 2006 are preferred
stock dividends of $1,703,607, and $1,283,668, respectively. The amount for the
years ended December 31, 2007 and 2006 represents $631,290, and $633,451,
respectively, of preferred stock dividends paid or payable in cash and
$1,072,317, and $650,217, 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.
 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
(see below). The Working Capital Line allowed the Company to borrow from
time-to-time up to 85% of eligible accounts receivable of the Company to a
maximum of $3 million. Advances in excess of this formula were allowed,
however, with the consent of Laurus. Laurus could convert any portion of the
principal outstanding to common stock at a fixed price per share (Conversion
Price) any time the market price of the Company’s common stock was in excess of
the Conversion Price. The Company could convert a portion of the principal
outstanding to common stock at the Conversion Price if the market price of the
Company’s common stock averaged 118% of the Conversion Price or higher for 22
consecutive trading days. The initial terms of the Working Capital Line provided
that after $2 million of conversions into equity, the Conversion Price
would be increased. The Conversion Price initially was $.92, but was increased
to $2.85 in January 2004 after $2 million of the Working Capital Line
had been converted.
 The
interest rate on the Working Capital Line was equal to the prime rate plus
0.75 percent, subject to a floor of 5.00 percent. The Working Capital
Line required that the Company’s quick ratio, as defined, be 0.90 or higher. The
quick ratio was defined as the sum of cash and accounts receivable divided by
the sum of current liabilities, exclusive of current liabilities of discontinued
operations.
 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 Working Capital Line are secured by a security interest in
all of JMAR’s assets. Upon a default by JMAR under the 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 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 (9.25% as of December 31, 2007). The 2006 Working
Capital Line terminates in August 2009. As of December 31, 2007, there was
$649,911 outstanding under the 2006 Working Capital Line, including a $500,000
Overadvance.
 18
 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
NotesOn 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. (See Note 11 — Derivative Liability – Warrants
Attached to Debt). 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 11 — 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 with Laurus a Securities Purchase
Agreement (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
$7,500,000 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 $7,500,000 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 $7,500,000 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 $7,500,000 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 $7,500,000
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 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 $7,500,000 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.
 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%.
 19
 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.
 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 operations was $3,682,771 in 2007 compared to $6,019,946 in 2006. The
loss from operations net of non-cash items (depreciation, amortization, debt
discount, services received in exchange for common stock or warrants and asset
write-downs) was $2,600,422
and $12,440,650 in 2007 and 2006, respectively. The lower use of cash related to
the loss from operations net of non-cash items in 2007 is primarily due to the
lower relative income/(loss) of discontinued operations of $6,062,834 and
relatively lower SG&A and RD&E expenses of $1,828,947 and $1,656,224,
respectively,  in 2007 as compared to 2006. This improvement was
partially offset by lower gross profit of $236,445 in 2007 compared to 2006.
Adversely affecting cash flow from operations in 2007 was a decrease in unearned
revenue of $156,030, an increase in inventories of $71,874 and a decrease in
deferred compensation of $94,165. Positively impacting cash flow from operations
was a decrease in accounts receivable (collections) of $339,847 and a reduction
in prepaid expenses of $18,223.
 Cash Used in Investing
Activities. In 2007, cash used in investing activities was $13,228
compared to $(35,001) in 2006. The positive amount in 2007 is primarily due to
an increase of $4,895 in intangible assets compared to a reduction of $142,344
in 2006.
 Cash Provided by Financing
Activities. In 2007, cash provided by financing activities, net of
restricted cash, was $3,157,590 compared to $1,713,431 in 2006. Net proceeds
from the sale of common stock were $382,122 and $1,358,092 in 2007 and 2006,
respectively. Net proceeds from the sale of preferred stock were $643,594 and
$471,926 in 2007 and 2006, respectively. During 2007, the Company made preferred
stock redemptions of $874,550 (see preferred stock amendments discussed above).
Preferred stock cash dividends in 2007 and 2006 were $631,290 and $633,451,
respectively.
 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
              
              December
      31, 2007
              
              
              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.
 License
Agreements
 In
January 2005, JMAR and Point Source Technologies, LLC (Point Source)
entered into a License Agreement granting the Company an exclusive license
covering all Point Source patents and other intellectual property related to the
manufacture and sale of scattered-radiation-based products used to detect or
classify microorganisms in water and other media. Pursuant to the License
Agreement, Point Source also sold substantially all of its laboratory and
engineering room equipment to the Company. The License Agreement provides for
the payment by JMAR of a royalty of 2.5% of the net sales of certain “licensed
products” for a six year period, with the right to reduce the royalty to 1.25%
after four years if we are no longer using the Point Source technology. The
“Licensed Products” consist of any scattered-radiation-based products used to
detect or classify microorganisms in water (including our BioSentry product) and
any other product that is within the scope of the licensed Point Source patents.
As additional consideration for the License Agreement, we also entered into a
Securities Purchase Agreement providing for the issuance to Point Source of
520,000 shares of common stock (Point Source Shares) and warrants (Point Source
Warrants) to purchase 333,333 shares of common stock (Point Source Warrant
Shares), with an exercise price of $1.38 per share, and a term of 5 years.
Point Source was also granted the right to purchase additional shares in an
amount equal to 1.66% of the shares sold in certain subsequent issuances by us
on the same terms as such issuance. Point Source subsequently assigned this
additional purchase right to its affiliates (Point Source Investors), together
with 500,000 of the Point Source Shares and all of the Point Source Warrants.
This purchase right expired in July 2006. The Point Source Investors
exercised this purchase right as it related to the February 1, 2005
offering and purchased 53,548 shares of common stock and warrants to purchase
20,081 shares of common stock with an exercise price of $1.73.
 20
 On
February 21, 2005, JMAR and LXT executed a Technology Transfer and License
Agreement (License Agreement) with Gregory Quist and David Drake, dba The LXT
Group (LXT Group). The License Agreement provides for the transfer to JMAR of
certain trademarks and rights to certain designs and data related to the
BioSentry product, plus the grant of an exclusive, perpetual, worldwide license
by LXT to JMAR to use certain technology covered in a pending utility patent
application filed by LXT in January, 2005 with the United States Patent &
Trademark Office entitled “Continuous On-Line Real-Time Surveillance System.”
The scope of this license is limited to the use of light scattering for
detection of microorganism contamination and other particles in water. In
consideration for the transfer of the rights and license of the technology
described above, JMAR agreed to pay LXT a royalty equal to two percent (2%) of
the gross revenue of any nature arising from the BioSentry system used for the
detection of microorganisms in water regardless of the technology employed,
commencing on the date JMAR receives the first dollar of BioSentry revenue
(Revenue Start Date) and continuing until the seventh anniversary thereof. The
royalty payments are payable on a quarterly basis within 45 days after the
end of each quarter. The License Agreement also modified an outstanding $125,000
loan to the LXT Group to provide that it will no longer be secured by the LXT
assets and to provide that it shall be satisfied solely from royalty payments
generated from revenues received after the third anniversary of the Revenue
Start Date and shall be repaid by payment of 50% of such royalty payments until
repaid in full (Amended Loan). The Amended Loan accrues interest at the “prime
rate” until satisfied or discharged.
 On
February 10, 2006, JMAR and Colorado State University Research Foundation
(CSURF) as agent for Colorado State University entered into a License
Agreement for the use of CSURF’s discharge pumped soft X-ray laser technology,
developed under the auspices of the National Science Foundation’s Engineering
Research Center for Extreme Ultraviolet Science and Technology. The laser
produces high-intensity radiation at a wavelength shorter than any other laser
on the market today and complements JMAR’s Laser Produced Plasma X-ray source
that produces shorter wavelengths still. The License Agreement calls for an
up-front payment of $10,000; a royalty of 3% of net sales for the first
$1 million in net sales and then 2% thereafter; and a minimum annual
royalty of $10,000 starting for calendar years after the year in which the first
commercial sales are made. In addition, as part of the License Agreement, the
Company agreed to enter into a sponsored research agreement with CSURF valued at
$64,000 to demonstrate the applicability of the technology as a nanoprobe
source.
 Net Operating Loss
Carryforward
 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 discussed below. Also, the Company has
approximately $24.6 million of state net operating loss carryforwards that
expire from 2011 to 2017.
 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 each
of the two years ended December 31, 2007 and 2006, of approximately 36% and
65% of the Company’s revenues, respectively, were contract revenues, with the
remainder consisting BriteLight and BioSentry sales, spare parts sales and
service. 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.
As appropriate, the program manager prepares a statement of work, schedule and
budget for each contract. At least quarterly, actual costs are compared to
budget and technical progress is compared to the planned schedule. The Company
prepares an estimate of costs to complete for each contract at least quarterly.
Estimated losses based on this review are fully charged to operations when
identified. 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.
 21
 Goodwill and Intangible
Assets
 In
accordance with FASB Statement No. 142, “Goodwill and Other Intangible
Assets,” the Company established reporting units and applied a two-step fair
value approach to evaluating goodwill impairment, using at least an annual
assessment. The Company compared the fair value of the business unit with the
carrying amount of the assets associated with the business unit. The fair value
of each business unit was determined using a risk adjusted discount rate to
compute a net present value of estimated future cash flows and a consideration
of market capitalization of the Company. The second step measured the amount of
the impairment, if any.
 Management
performed an evaluation of goodwill as of December 31, 2006. Until
September 30, 2006, the business units identified were Vermont
Operations/Research Division, Microelectronics Division and Sensor Products
Group. At December 31, 2006, with the discontinuance of the Microelectronics
Division, the Company had two business units. All of the Company’s goodwill
arose from the acquisition of SAL, Inc. (the predecessor to the Vermont
Operations) and was allocated to the Vermont Operations/Research Division
business unit. The Research Division and Vermont Operations were viewed as one
business unit due to the interrelations of their businesses (i.e., x-ray source
related development and commercialization, with the source and technology
development coming from the Research Division and the product design,
manufacturing engineering, integration, testing and assembly performed by the
Vermont Operations, as well as the zone plate optics development and
manufacturing for the future laser based products to be performed by the Vermont
Operations). Additionally, the Vermont Operations used its core capabilities to
perform manufacturing for other products of the Company.
 The
discounted cash flow analysis was based on a 7-year projection of revenue,
operating expenses, capital expenditures, and working capital requirements and a
continuity value of 5 times the 7th year cash flow. The discount rate used was
30% that took into account the riskiness of the new products. Sensitivity
analysis was also performed to determine the appropriateness of the assumptions
used in the discounted cash flow analysis. As a majority of the Company’s
expected revenues in the future were based on products that were under
development, the Company estimated the expected revenues in the future based on
its then-current knowledge of the market and the expectations of successfully
penetrating those markets.
 The
market capitalization test was used as a complementary test to the discounted
cash flow analysis. The Company estimated its market capitalization based on the
average stock price over the preceding year and estimated the two business
units’ relative contribution to the market value of the Company based on
shareholder inquiries, emphasis by the Company in discussions with shareholders
and others, and emphasis in formal shareholder communications (i.e., press
releases).
 Based on
the Company’s analysis as of December 31, 2006, the entire amount of
goodwill of $4,415,932 was written off in 2006. 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.
 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.
 Derivative
Liabilities
 JMAR
accounts for certain derivative instruments at their fair value. 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.
 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.
 22
 Income
Taxes
 The
company adopted Financial Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement 109,
(FIN 48) on January 1, 2007. FIN 48 clarifies the accounting for income tax
uncertainties. The company has developed and implemented a process based on the
guidelines of FIN 48 to ensure that uncertain tax positions are identified,
analyzed and properly reported in the company’s financial statements in
accordance with SFAS 109. Based on all known facts and circumstances and current
tax law, the company believes that the total amount of unrecognized tax benefits
as of January 1, and December 31, 2007, is not material to its results of
operations, financial condition or cash flows. The company also believes that
the total amount of unrecognized tax benefits as of January 1, and
December 31, 2007, if recognized, would not have a material effect on its
effective tax rate. The company further believes that there are no tax positions
for which it is reasonably possible that the unrecognized tax benefits will
significantly increase or decrease over the next 12 months producing,
individually or in the aggregate, a material effect on the company’s results of
operations, financial condition or cash flows.  The Company recognizes
interest and penalties as a component of income tax expense. The interest and
penalties as of December 31, 2007 and for the years ended December 31, 2007 and
2006 were zero.
 The
Company’s United States federal income tax returns for tax years since 2005 are
subject to examination by the Internal Revenue Service and its state income tax
returns since 2004 are subject to examination by the state tax
authorities.
 Net
operating losses from years from which the statute of limitations have expired
(2005 and prior for federal and 2004 and prior for state) could be adjusted in
the event that the taxing jurisdictions challenge the amounts of net operating
loss carryforwards from such years.
 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.
 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). 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 13 to
the Consolidated Financial Statements for a further discussion of stock-based
compensation.
 Recent Accounting
Pronouncements
 In
February 2006 the FASB issued SFAS No. 155 “Accounting for Certain
Hybrid Financial Instruments”. SFAS No. 155 amends SFAS No. 133 to
narrow the scope exception for interest-only and principal-only strips on debt
instruments to include only such strips representing rights to receive a
specified portion of the contractual interest or principal cash flows. SFAS
No. 155 also amends SFAS No. 140 to allow qualifying special-purpose
entities to hold a passive derivative financial instrument pertaining to
beneficial interests that itself is a derivative financial instrument.
Generally, SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities”, requires that a derivative embedded in a host contract that does
not meet the definition of a derivative be accounted for separately (referred to
as bifurcation) under certain conditions. That general rule notwithstanding,
SFAS No. 133 (prior to amendments made to it by SFAS No. 155) provides
a broad exception for interest-only and principal-only strips initially
resulting from the separation of rights to receive contractual cash flows of a
financial instrument that itself does not contain an embedded derivative that
would have been accounted for separately. SFAS No. 155 amends SFAS
No. 133 to restrict the scope exception to strips that represent rights to
receive only a portion of the contractual interest cash flows or of the
contractual principal cash flows of a specific debt instrument. Prior to
amendments made by SFAS No. 155, SFAS No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”,
permitted a qualifying special-purpose entity (SPE) to hold only passive
derivative financial instruments pertaining to beneficial interests (other than
another derivative financial instrument) issued or sold to parties other than
the transferor. SFAS No. 155 amends SFAS No. 140 to allow a qualifying
SPE to hold a derivative instrument pertaining to beneficial interests that
itself is a derivative financial instrument. This statement is effective for all
financial instruments acquired, or subject to a remeasurement event occurring
after the beginning of an entity’s first fiscal year end that begins after
September 15, 2006. The adoption of SFAS No. 155 did not have a
material impact on the Company’s financial statements.
 In
March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of
Financial Assets”, which provides an approach to simplify efforts to obtain
hedge-like (offset) accounting. This Statement amends SFAS No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities”, with respect to the accounting for separately recognized
servicing assets and servicing liabilities. The Statement (1) requires an
entity to recognize a servicing asset or servicing liability each time it
undertakes an obligation to service a financial asset by entering into a
servicing contract in certain situations; (2) requires that a separately
recognized servicing asset or servicing liability be initially measured at fair
value, if practicable; (3) permits an entity to choose either the amortization
method or the fair value method for subsequent measurement for each class of
separately recognized servicing assets or servicing liabilities; (4) permits at
initial adoption a one-time reclassification of available-for-sale securities to
trading securities by an entity with recognized servicing rights, provided the
securities reclassified offset the entity’s exposure to changes in the fair
value of the servicing assets or liabilities; and (5) requires separate
presentation of servicing assets and servicing liabilities subsequently measured
at fair value in the balance sheet and additional disclosures for all separately
recognized servicing assets and servicing liabilities. SFAS No. 156 is
effective for all separately recognized servicing assets and liabilities as of
the beginning of an entity’s fiscal year that begins after September 15,
2006, with earlier adoption permitted in certain circumstances. The Statement
also describes the manner in which it should be initially applied. The adoption
of SFAS No. 156 did not have a material impact on its financial position,
results of operations or cash flows of the Company.
 23
 In
July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (FIN 48). FIN 48 clarifies the accounting for
income taxes by prescribing a minimum probability threshold that a tax position
must meet before a financial statement benefit is recognized. The minimum
threshold is defined in FIN 48 as a tax position, that based solely on its
technical merits is more likely than not to be sustained upon examination by the
applicable taxing authority. The tax benefit to be recognized is measured as the
largest amount of benefit that is greater than fifty percent likely of being
realized upon ultimate settlement. FIN 48 must be applied to all existing tax
positions upon initial adoption. The cumulative effect of applying FIN 48 at
adoption, if any, is to be reported as an adjustment to opening retained
earnings for the year of adoption. FIN 48 is effective for fiscal years
beginning after December 15, 2006, although early adoption is permitted.
The adoption of FIN 48 did not have a material impact on the Company’s financial
statements.
 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
September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans (SFAS No. 158). SFAS
No. 158 requires an employer to recognize the overfunded or underfunded
status of a defined benefit pension plan and other postretirement plans as an
asset or liability on its balance sheet and recognize changes in its funded
status in the year in which the change occurs through accumulated other nonowner
changes in equity. We do not expect the adoption of SFAS 158 to have an
impact on our results of operations or financial condition.
 In
September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 108 to address diversity in practice in
quantifying financial statement misstatements. SAB 108 requires that registrants
quantify the impact on the current year’s financial statements of correcting all
misstatements, including the carryover and reversing effects of prior years’
misstatements, as well as the effects of errors arising in the current year, SAB
108 is effective as of the first fiscal year ending after November 15,
2006, allowing a one-time transitional cumulative effect adjustment to retained
earnings as of January 1, 2006, for errors that were not previously deemed
material, but are material under the guidance in SAB No. 108. There was no
impact on our consolidated financial statements with respect to the adoption of
SAB NO. 108.
 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.
 Item 7A.
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 borrowing under our
$7.5 million and $750,000 Term Notes, $3 million Working Capital Line and
Preferred Stock, all of which bear interest and dividends, respectively, based
on the prime rate. As of December 31, 2007, we had $8.25 million
outstanding under the Term Notes $649,911 under the Working Capital Line and
$7.68 million of Preferred Stock outstanding. An immediate change of one
percentage point in the prime rate would have caused an increase or decrease of
approximately $165,000 on an annual basis.
 Item 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
 The
Company’s consolidated financial statements prepared in accordance with
Regulation S-X and the Report of the Independent Registered Public
Accounting Firm is set forth at the end of this Report on pages
28 through 50.
 24
 Item 9. CHANGES AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
 None.
 Item 9A(T)  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
this Annual Report on Form 10-K, 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 December 31, 2007, the end of the period covered by this
report.
 Based
upon the evaluation conducted by management in connection with the audit of the
Company’s financial statements for the years ended December 31, 2007 and
2006, we identified material weaknesses in our internal control over financial
reporting. A material weakness is “a significant deficiency, or a combination of
significant deficiencies, that results in more than a remote likelihood 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 December 31,
2007.
 Management’s Evaluation of Internal Control over
Financial Reporting
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting.  The Company’s internal control over
financial reporting is designed to provide reasonable assurances regarding the
reliability of financial reporting and the preparation of the consolidated
financial statements of the Company in accordance with U.S. generally accepted
accounting principles.  Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree or compliance with the policies or procedures may
deteriorate.
 With the participation of our Chief
Executive Officer and our Chief Financial Officer, our management conducted an
evaluation of the effectiveness of our internal control over financial reporting
as of December 31, 2007 based on the framework inInternal
Control—Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission.  Based on our evaluation and
the material weaknesses described below, management concluded that the Company
did not maintain effective internal control over financial reporting as ofDecember 31,
2007based on the specified
criteria. Management has identified control deficiencies regarding 1) lack of
segregation of duties; 2) lack of timely completion of financial control and
reporting processes 3) need for stronger internal control environment and
4) revenue recognition and sales cut-off. Management of the Company believes
that these material weaknesses are due to the small size of the Company’s
accounting staff, exacerbated by the resignation of the Company’s Chief
Financial Officer and Corporate Controller earlier in 2007. Management took
action to replace these positions, however, the 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.
 The
ineffectiveness of internal controls as of December 31, 2007 stemmed in large
part from several significant changes within the Company.  The
organization structure was changing as we hired additional management, and were
restructuring the company obtaining new financing, adopting new accounting
procedures and discontinuing operations.  This placed additional
stress on the organization and our internal reporting and controls as financial
personnel adjusted to the many changes instituted within the
company.  Although we believe the time to adapt in the fourth quarter
has better positioned us to provide improved internal control functions
into the future, during the transition, these changes caused control
deficiencies, which in the aggregate resulted in a material
weakness.
 These
control deficiencies could result in a misstatement of account balances that
would result in a reasonable possibility that a material misstatement to our
financial statements may not be prevented or detected on a timely basis.
Accordingly, we have determined that these control deficiencies as described
above together constitute a material weakness.
 In light
of this material weakness, we performed additional analyses and procedures in
order to conclude that our consolidated financial statements for the year ended
December 31, 2007 included in this Annual Report on Form 10-K were
fairly stated in accordance with US GAAP. Accordingly, management believes
that despite our material weaknesses, our financial statements for the year
ended December 31, 2007 are fairly stated, in all material respects, in
accordance with US GAAP.
 We may in
the future identify further material weaknesses or significant deficiencies in
our internal control over financial reporting that we have not discovered to
date. We plan to refine our internal control over financial reporting to meet
the internal control reporting requirements included in Section 404 of the
Sarbanes-Oxley Act (SOX 404) to have effective internal controls by December 31,
2008. The effectiveness of the measures we implement in this regard will be
subject to ongoing management review supported by confirmation and testing by
management, as well as audit committee oversight. As a result, we expect
that additional changes could be made to our internal control over financial
reporting and disclosure controls and procedures.
 25
 This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this Annual
Report on Form 10-K.
 Item 9B. OTHER
INFORMATION
 None.
 PART
III
 Item 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 The
information required by Item 10 will be set forth in the Form 10K-A to be
filed with the Securities and Exchange Commission on or prior to April 30,
2008 under the captions “Election of Directors”, “Executive Officers of the
Registrant”, “The Audit Committee” and “Section 16(a) Beneficial Ownership
Reporting Compliance” and is incorporated herein by
reference.
 The
Company has adopted a Code of Business Conduct and Ethics in compliance with the
applicable rules of the Securities and Exchange Commission that applies to all
employees, including all officers, and our non-employee directors, and a Code of
Ethics for our Chief Executive Officer, Division General Managers and all senior
financial officers, including the Chief Financial Officer and principal
accounting officer. The Company has filed a copy of these policies as exhibits
to the Form 10-K for the year ended December 31, 2003. In the event we
amend or waive any of the provisions of the Code of Ethics, we intend to
disclose the same on the Company’s website at http://www.jmar.com under the
caption “Corporate Governance – Code of Ethics.”
 Item 11.
EXECUTIVE COMPENSATION
 The
information required by Item 11 will be set forth in the Form
10K-A to be filed with the Securities and Exchange Commission on or prior
to April 30, 2008 under the caption “Executive Compensation” and is
incorporated herein by this reference.
 Item 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 The
information required by Item 12 will be set forth in the Form
10K-A to be filed with the Securities and Exchange Commission on or prior
to April 30, 2008 under the captions “Information about JMAR Stock
Ownership” and “Equity Compensation Plan Information” and is incorporated herein
by this reference.
 Item 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
 The
information required by Item 13 will be set forth in the Form
10K-A to be filed with the Securities and Exchange Commission on or prior
to April 30, 2008 under the caption “Certain Transactions with Management
and Others” and is incorporated herein by this reference.
 Item 14.
PRINCIPAL AUDITOR FEES AND SERVICES
 The
information required by Item 14 will be set forth in the Form
10K-A to be filed with the Securities and Exchange Commission on or prior
to April 30, 2008 under the captions “Report of the Audit Committee”,
“Audit Fees”, “Audit-Related Fees”, “Tax Fees”, “All Other Fees” and “Audit
Committee Pre-Approval Policies and Procedures” and is incorporated herein by
this reference.
  
  PART IV
 
 Item 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
 (a) The
following documents are filed as a part of this Report:
 1.
              
              Financial
      Statements. Index to Consolidated Financial Statements:Report
      of Independent Registered Public Accounting FirmConsolidated
      Balance Sheets as of December 31, 2007 and 2006Consolidated
      Statements of Operations for the Years Ended December 31, 2007 and
      2006Consolidated
      Statements of Stockholders’ Equity for the Years Ended December 31,
      2007 and 2006Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2007 and
      2006Notes
      to Consolidated Financial Statements
 
 2.
              
              Financial
      Statement Schedules:Schedule II
      – Valuation and Qualifying AccountsAll
      other financial statement schedules are not required under the related
      instructions or are inapplicable and therefore have been
      omitted.3.
              
              Exhibits.
      The Exhibits listed in the accompanying Exhibit Index on pages
      52 to 57 are filed as part of this Form
  10-K.
 
 26
  
 Report of Independent Registered Public
Accounting Firm
  To the Board of Directors and
Stockholders
 JMAR Technologies, Inc.
 San Diego,California
   We have audited the consolidated balance
sheets of JMAR Technologies, Inc. as ofDecember 31, 2007and 2006, and the related consolidated
statements of operations, comprehensive operations, stockholders’ equity and
cash flows for each of the two years in the period endedDecember 31, 2007.  Our audit also included the
financial statement schedules of JMAR Technologies, Inc. listed in Item
15(a).  These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.
  We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board
(United States).  Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe that
our audits provide a reasonable basis for our opinion.
  In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of JMAR Technologies, Inc. as of December 31, 2007 and
2006, and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 2007, in conformity with U.S.
generally accepted accounting principles.  Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
  We were not engaged to examine
management's assertion about the effectiveness of JMAR Technologies’ internal
control over financial reporting as of December 31, 2007 included in the
accompanying Management’s Evaluation of Internal Control over Financial
Reporting and, accordingly, we do not express an opinion
thereon.
  The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1 to the financial statements, the Company has suffered
recurring losses from operations and its total liabilities exceed its total
assets. This raises substantial doubt about the Company’s ability to continue as
a going concern. Management’s plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
  As discussed in Note 2 to the
consolidated financial statements, the Company has adopted the provisions of
Statement of Financial Accounting Standards Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109”
onJanuary 1,
2007.
  As discussed in Note 2 to the
consolidated financial statements, the Company has adopted the provisions of
Statement of Financial Accounting Standards No. 123 (R), “Share-Based Payment”
onJanuary 1, 2006.
  /s/ SINGER LEWAK GREENBAUM &
GOLDSTEIN LLP
 Irvine,California
 April 1,
2008
 
 27
  JMAR TECHNOLOGIES,
INC.
 CONSOLIDATED BALANCE SHEETS
 As
of December 31, 2007 and 2006
  ASSETS
                
                2007
                
                
                2006Current
      Assets:Cash
      and cash equivalents
                
                $
                174,879
                
                
                $
                686,832Accounts
      receivable, net
                
                
                44,544
                
                
                
                157,469Unbilled
      receivables
                
                
                21,180
                
                
                
                249,099Inventories,
      net
                
                
                308,029
                
                
                
                235,158Net
      current assets of discontinued operations
                
                
                479,342
                
                
                
                1,272,353Prepaid
      expenses and other
                
                
                160,610
                
                
                
                213,289Total
      current assets
                
                
                1,188,584
                
                
                
                2,814,200Property
      and equipment, net
                
                
                683,249
                
                
                
                965,685Intangible
      assets, net
                
                
                1,641,913
                
                
                
                1,747,849Restricted
      cash
                
                
                4,251,252
                
                
                
                —Other
      assets
                
                
                217,302
                
                
                
                443,082TOTAL
      ASSETS
                
                
                7,982,300
                
                
                
                5,970,816LIABILITIES AND
      STOCKHOLDERS' EQUITY (DEFICIT)Current
      Liabilities:Accounts
      payable
                
                $
                534,586
                
                
                $
                576,358Accrued
      liabilities
                
                
                427,600
                
                
                
                540,804Accrued
      payroll and related costs
                
                
                218,562
                
                
                
                381,054Working
      capital line of credit, net
                
                
                508,725
                
                
                
                1,059,355Current
      portion of notes payable and other liabilities, net
                
                
                103,375
                
                
                
                207,710Net
      current liabilities of discontinued operations
                
                
                708,716
                
                
                
                2,584,056Deferred
      rent
                
                
                49,429
                
                
                
                49,429Derivative
      liabilities
                
                
                5,022,378
                
                
                
                —Total
      current liabilities
                
                
                7,573,371
                
                
                
                5,398,766Term
      notes, net of debt discounts
                
                
                1,505,208
                
                
                
                —Notes
      payable and other long-term liabilities, net of current
      portion
                
                
                250,887
                
                
                
                413,694Notes
      payable and other long-term liabilities of discontinuedoperations
      net of current portion
                
                
                89,209
                
                
                
                89,209Total
      liabilities
                
                
                9,418,675
                
                
                
                5,901,669Redeemable
      convertible preferred stock: 738,329 sharesissued
      and outstanding as of December 31, 2007 and785,000
      December 31, 2006, net of unamortized discount of$1,709,606
      and $2,440,473, respectively
                
                
                5,974,644
                
                
                
                5,409,527Commitments
      and contingenciesStockholders'
      equity deficit:Preferred
      stock: $.01 par value; 5,000,000 shares authorized;738,329
      shares issued and outstanding as of December 31, 2007and
      785,000 at December 31, 2006 included in redeemableconvertible
      preferred stock above
                
                
                —
                
                
                
                —Common
      stock: $.01 par value; 80,000,000 shares authorized;53,839,559
      shares issued and outstanding as of December 31,2007,
      and 39,535,615 shares issued and outstanding asof
      December 31, 2006
                
                
                538,395
                
                
                
                395,356Additional
      paid-in-capital
                
                
                85,191,382
                
                
                
                84,077,547Accumulated
      deficit
                
                
                (93,140,796
                )
                
                
                (89,813,283
                )Total
      stockholders' deficit
                
                
                (7,411,019
                )
                
                
                (5,340,380
                )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                
                $
                7,982,300
                
                
                $
                5,970,816
     28
  JMAR TECHNOLOGIES,
INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For
the Years Ended December 31, 2007 and 2006
  2007
                
                
                2006Revenues
                
                $
                869,662
                
                
                $
                1,998,183Costs
      of revenues
                
                
                634,740
                
                
                
                1,526,816Gross
      profit
                
                
                234,922
                
                
                
                471,367Operating
      expenses:Selling,
      general, and administrative
                
                
                3,169,747
                
                
                
                4,998,694Research
      and development
                
                
                956,065
                
                
                
                2,612,289Impairment
      of long lived assets
                
                
                221,328
                
                
                
                87,845Total
      operating expenses
                
                
                4,347,140
                
                
                
                7,698,828Operating
      loss from continuing operations
                
                
                (4,112,218
                )
                
                
                (7,227,461
                )Interest
      and other income
                
                
                225,187
                
                
                
                53,093Interest
      and other expense
                
                
                (9,045,438
                )
                
                
                (408,804
                )Change
      in fair value of derivative liability
                
                
                10,307,573
                
                
                
                —Other
      income
                
                
                461,665
                
                
                
                —Loss
      from continuing operations
                
                
                (2,163,231
                )
                
                
                (7,583,172
                )Income
      (loss) from discontinued operations, net of tax
                
                
                539,325
                
                
                
                (5,523,509
                )Net
      loss
                
                
                (1,623,906
                )
                
                
                (13,106,681
                )Deemed
      preferred stock dividends
                
                
                (1,703,607
                )
                
                
                (1,283,668
                )Loss
      applicable to common stock
                
                
                (3,327,513
                )
                
                
                (14,390,349
                )Loss
      per share from continuing operations
                
                $
                (0.08
                )
                
                $
                (0.23
                )Gain
      (loss) per share from discontinued operations
                
                
                0.01
                
                
                
                (0.14
                )Basic
      and diluted loss per share applicable tocommon
      stock
                
                $
                (0.07
                )
                
                $
                (0.37
                )Shares
      used in computation of basic anddiluted
      loss per share
                
                
                47,142,496
                
                
                
                39,417,421
  
 29
 JMAR TECHNOLOGIES, INC.
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 For
the Years Ended December 31, 2007 and 2006
  Common
      Stock
                
                
                
                Additional
                
                
                Accumulated
                
                
                TotalShares
                
                
                Amount
                
                
                
                Paid-in
                
                
                Deficit
                
                
                Equity
      (Deficit)Balance
      December 31, 2005
                
                
                38,823,158
                
                
                $
                388,231
                
                
                
                $
                79,589,931
                
                
                $
                (75,422,934
                )
                
                $
                4,555,228Balance
      of stock, options and warrants for services
                
                
                228,418
                
                
                
                2,284
                
                
                
                
                476,087
                
                
                
                
                
                
                
                478,371Modification
      to preferred stock terms
                
                
                
                
                
                
                
                
                
                
                
                2,210,031
                
                
                
                
                
                
                
                2,210,031Issuance
      of warrant in connection with working capital line
                
                
                
                
                
                
                
                
                
                
                
                471,926
                
                
                
                
                
                
                
                471,926Issuance
      of common stock and warrants for cash, net of costs of approximately
      $96,000
                
                
                479,167
                
                
                
                4,792
                
                
                
                
                1,329,621
                
                
                
                
                
                
                
                1,334,413Stock
      issued upon exercise of options
                
                
                4,872
                
                
                
                49
                
                
                
                
                (49
                )
                
                
                
                
                
                
                —Preferred
      stock dividends
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,283,668
                )
                
                
                (1,283,668
                )Net
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (13,106,681
                )
                
                
                (13,106,681
                )Balance,
      December 31, 2006
                
                
                39,535,615
                
                
                
                395,356
                
                
                
                
                84,077,547
                
                
                
                (89,813,283
                )
                
                
                (5,340,380
                )Balance
      of stock, options and warrants for services
                
                
                2,252,340
                
                
                
                22,523
                
                
                
                
                490,350
                
                
                
                
                
                
                
                512,873Exchange
      of preferred stock to common stock
                
                
                7,600,000
                
                
                
                76,000
                
                
                
                
                864,688
                
                
                
                
                
                
                
                940,688Issuance
      of common stock for dividends to Laurus
                
                
                
                
                
                
                —
                
                
                
                
                
                
                
                
                
                
                
                
                —Issuance
      of common stock and warrants for cash, net of costs of approximately
      $230,000
                
                
                2,254,470
                
                
                
                22,545
                
                
                
                
                364,138
                
                
                
                
                
                
                
                386,683Derivative
      liability for outstanding warrants
                
                
                
                
                
                
                —
                
                
                
                
                (318,870
                )
                
                
                
                
                
                
                (318,870
                )Exchange
      of warrants for common stock
                
                
                2,197,134
                
                
                
                21,971
                
                
                
                
                (21,971
                )
                
                
                
                
                
                
                —Fees
      paid to Laurus for $7.5M transaction
                
                
                
                
                
                
                —
                
                
                
                
                (264,500
                )
                
                
                
                
                
                
                (264,500
                )Preferred
      stock dividends
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,703,607
                )
                
                
                (1,703,607
                )Net
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,623,906
                )
                
                
                (1,623,906
                )Balance,
      December 31, 2007
                
                
                53,839,559
                
                
                $
                538,395
                
                
                
                $
                85,191,382
                
                
                $
                (93,140,796
                )
                
                $
                (7,411,019
                )
  
 30
 JMAR TECHNOLOGIES,
INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For
the Years Ended December 31, 2007 and 2006
  2007
                
                
                2006Cash
      flows from operating activities:Loss
      from continuing operations
                
                $
                (1,623,906
                )
                
                
                (13,106,681
                )Adjustments
      to reconcile loss from continuing operations to net cash used in
      operating activities:Depreciation
      and amortization
                
                
                290,502
                
                
                
                209,792Change
      in fair value of derivative liability
                
                
                (10,307,573
                )
                
                
                —Amortization
      of debt discount and beneficial conversion feature
                
                
                8,314,577
                
                
                
                256,168Stock
      based compensation expense
                
                
                166,034
                
                
                
                367,695Services
      received in exchange for common stock/ warrants
                
                
                363,780
                
                
                
                86,990Impairment
      of long lived assets
                
                
                221,328
                
                
                
                87,845(Increase)
      decrease in:Accounts
      receivable and unbilled receivables
                
                
                339,847
                
                
                
                (112,948
                )Inventories
                
                
                (71,874
                )
                
                
                (120,866
                )Prepaid
      expenses and other
                
                
                18,223
                
                
                
                (34,701
                )Accounts
      payable
                
                
                (41,772
                )
                
                
                1,353Accrued
      liabilities
                
                
                30,015
                
                
                
                (393,809
                )Unearned
      revenue
                
                
                (156,030
                )
                
                
                156,030Deferred
      compensation
                
                
                (94,165
                )
                
                
                220,149Deferred
      rent
                
                
                (49,428
                )
                
                
                (57,667
                )Net
      cash used from continuing operations
                
                
                (2,600,442
                )
                
                
                (12,440,650
                )Changes
      in net assets and liabilities of discontinued operations
                
                
                (1,082,329
                )
                
                
                6,420,704Net
      cash used in operating activities
                
                
                (3,682,771
                )
                
                
                (6,019,946
                )Cash
      flows from investing activities:Capital
      expenditures of continuing operations
                
                
                (3,237
                )
                
                
                33,287Additions
      of intangible assets from continuing operations
                
                
                4,895
                
                
                
                (142,344
                )Capital
      expenditures of discontinued operations
                
                
                —
                
                
                
                4,056Net
      borrowings on notes receivable
                
                
                11,570
                
                
                
                70,000Net
      cash provided by (used in) investing activities
                
                
                13,228
                
                
                
                (35,001
                )Cash
      flows from financing activities:Net
      (repayments)/borrowings on term notes and line of credit
                
                
                6,964,581
                
                
                
                461,099Net
      proceeds from the issuance of common stock
                
                
                382,122
                
                
                
                1,358,092Increase
      in restricted cash
                
                
                (4,251,252
                )
                
                —Cash
      payment of preferred stock dividends
                
                
                (581,455
                )
                
                
                (577,686
                )Issuance
      of preferred stock
                
                
                643,594
                
                
                
                471,926Net
      cash provided by financing activities
                
                
                3,157,590
                
                
                
                1,713,431Net (decrease) in
      cash and cash equivalents
                
                
                (511,953
                )
                
                
                (4,341,516
                )Cash
      and cash equivalents, beginning of period
                
                
                686,832
                
                
                
                5,028,348Cash
      and cash equivalents, end of period
                
                $
                174,879
                
                
                
                686,832Cash
      paid for interest
                
                $
                568,520
                
                
                
                141,998Cash
      paid for income taxes
                
                $
                —
                
                
                
                —Supplemental
      Disclosure of Non Cash Activity:For
      the year ended December 31, 2007:Prepayment
      of deferred compensation proceeds from cash surrender value of life
      insurance
                
                $
                123,459Conversion
      by Company of previously existing Series G & I Preferred Stock into
      7,600,000 shares of common stock in the last and current quarter. (See
      Note 12)
                
                $
                739,663In
      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 Note
      12)
                
                $
                476,337Deemed
      preferred stock dividends
                
                $
                645,811Establishment
      of derivative liability in conjunction with the issuance of Series J
      Preferred Stock (see Note 11)
                
                $
                8,250,000For
      the year ended December 31, 2006:Fair
      value of warrants issued in connection with the 2006 working capital line
      of credit (see Note 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 Note 12)
                
                $
                2,210,031
 See Accompanying Notes to
Consolidated Financial Statements.
 31
  JMAR TECHNOLOGIES,
INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,
2007 and 2006
 
 1. Description of the Company 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 is
an innovator in the development of laser-based chemical and biological detection
technologies and for nano-scale imaging, analysis and fabrication. The Company
is leveraging more than a decade of laser and photonics research to develop a
portfolio of products with commercial applications in rapidly growing
industries, while continuing to carry out research and development for the U.S.
Government.
 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 $1,623,906 and $13,106,681 for
the years ended December 31, 2007 and 2006, respectively, and losses are
expected for the foreseeable future. In addition, excluding discontinued
operations, our revenues declined to $869,662 from $1,998,183 for the years
ended December 31, 2007 and 2006, respectively. We had negative operating
cash flow for the years ended December 31, 2007 and 2006 of $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) to complete or accelerate the development of some of its emerging
new products; 3) corporate costs, primarily related to the cost of being a
public company; 4) preferred stock dividends and 5) other working capital needs.
If the Company’s new products do not result in significant commercial sales, we
will need to raise additional funds in order to continue our product development
and sales and marketing activities and for other working capital needs. Assuming
the availability of draw-downs under the loan facility entered into with Laurus
Master Fund, Ltd. (“Laurus”) in September 2007 (the “$7.5
million  Note”) (See Note 8 –Notes Payable and Other
Long-term Obligations ) management believes that the Company has adequate
resources to fund its operations through September 30, 2008. In addition, the
Company is actively discussing arrangements with substantially larger companies
to market distribute and service its BioSentry products. See further discussion
in Note 1 in “Risk Factors” in Item 1A above.
 In
March 2006, General Dynamics Advanced Information Systems
(GDAIS) informed the Company that Defense Microelectronics Activity
(DMEA) desired to avoid the additional funding required to support the
costs imposed by JMAR working under GDAIS as a subcontractor on the DMEA
Contract and that the funding would only be sufficient for the prime contractor.
Accordingly, JMAR would not receive additional subcontract funding from GDAIS.
Since the viability of the Microelectronics Division was dependent on continued
funding from GDAIS/DMEA, which was not assured, the Company closed the operation
as of September 30, 2006.
 The
Vermont Operations carried out contract research and development under contracts
for DARPA and Naval Air Systems Command (NAVAIR). A major source of funding to
the Vermont Operations was a contract issued by NAVAIR which supported continued
x-ray lithography technology and infrastructure development. Under this
contract, JMAR procured sub-100 nm feature size x-ray masks used in the
development of high performance computer memory chips. A total of approximately
$15.5 million was received under this contract, including approximately
$3.1 million funded in August 2006. Incremental funding under the
contract was sought on an annual basis. However, losses in the Vermont
Operations continued despite government contract funding. Pursuant to the
$7,500,000 Securities Purchase Agreement entered into with Laurus in September
2007, the Company agreed that by mid-October 2007 it would discontinue all
business operations and sell the assets associated with the Vermont Operations.
The Vermont Operations were discontinued as of September 30, 2007. In November,
2007, the Company executed an asset purchase agreement with Applied Research
Associates, Inc. (ARA) of Randolph, Vermont and consummated the sale on January
30, 2008. Accordingly, the Company has reflected the Vermont Operations and
Microelectronics Division as discontinued operations for all periods included in
this Form 10-K.
 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 projected revenue growth will occur or that the Company will
successfully implement its plans. Management believes that with the financing
provided by the $7.5 million Term Note (see Note 8 –Line of Credit and Notes
Payable) 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 $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.
 32
 2. Summary of Significant Accounting
Policies
 a. Cash and Cash
Equivalents
 The
Company defines cash and cash equivalents to include cash on hand and cash
invested in short-term securities that have original maturities of less than
90 days. Restricted cash is not included in cash and cash equivalents, as
it is made available to the Company only upon review by Laurus after specific
requests by the Company.
 b. Restricted cash
 Restricted
cash consists of cash held for approved cash flow purposes.  Once
authorized, the cash is released from restriction.
 c. Fair Value of Financial
Instruments
 The
carrying value of certain of the Company’s financial instruments, including
accounts receivable, accounts payable and accrued expenses, approximates fair
value due to their short maturities.
 d. Pervasiveness of
Estimates
 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.
 e. 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. Quarterly, any known excess and/or obsolete inventory, based on
changes in the business or other factors, are evaluated and the reserve
increased accordingly, or inventory is written down to reflect its new cost
basis. Once written down, the carrying value of inventory is not
increased.
 f. Income Taxes
 The
company adopted Financial Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement 109,
(FIN 48) on January 1, 2007. FIN 48 clarifies the accounting for income tax
uncertainties. The company has developed and implemented a process based on the
guidelines of FIN 48 to ensure that uncertain tax positions are identified,
analyzed and properly reported in the company’s financial statements in
accordance with Statement of Financial Accounting Standards (SFAS) 109.
Based on all known facts and circumstances and current tax law, the company
believes that the total amount of unrecognized tax benefits as of
January 1, and December 31, 2007, is not material to its results of
operations, financial condition or cash flows. The company also believes that
the total amount of unrecognized tax benefits as of January 1, and
December 31, 2007, if recognized, would not have a material effect on its
effective tax rate. The company further believes that there are no tax positions
for which it is reasonably possible that the unrecognized tax benefits will
significantly increase or decrease over the next 12 months producing,
individually or in the aggregate, a material effect on the company’s results of
operations, financial condition or cash flows.
 The Company recognizes interest and
penalties as a component of income tax expense. The interest and penalties as ofDecember 31,
2007and for the years
ended December 31, 2007 and 2006 were zero. The Company’sUnited Statesfederal income tax returns for tax
years since 2005 are subject to examination by the Internal Revenue Service and
its state income tax returns since 2004 are subject to examination by the state
tax authorities
 Net
operating losses from years from which the statute of limitations have expired
(2005 and prior for federal and 2004 and prior for state) could be adjusted in
the event that the taxing jurisdictions challenge the amounts of net operating
loss carryforwards from such years.
 g. Property and
Equipment
 Property
and equipment are recorded at cost. Depreciation and amortization are provided
over the asset’s estimated useful life of three to ten years, using the
straight-line method. Maintenance and repairs are expensed as incurred. Costs
capitalized for self-constructed assets include direct material, labor and
applicable overhead. Leasehold improvements are amortized over the shorter of
the asset’s estimated useful life or the life of the related lease.
 h. Goodwill and Other Intangible
Assets
 In
accordance with FASB Statement No. 142, “Goodwill and Other Intangible
Assets,” the Company established reporting units and applied a two-step fair
value approach to evaluating goodwill impairment, using at least an annual
assessment. The Company compared the fair value of the business unit with the
carrying amount of the assets associated with the business unit. The fair value
of each business unit was determined using a risk adjusted discount rate to
compute a net present value of estimated future cash flows and a consideration
of market capitalization of the Company. The second step measured the amount of
the impairment, if any.
 Management
performed an evaluation of goodwill as of December 31, 2006 in accordance
with FASB Statement No. 142 (see Critical Accounting Policies and
Estimates). Until September 30, 2006, the business units identified were
Vermont Operations/Research Division, Microelectronics Division and Sensor
Products Group. At December 31, 2006, with the discontinuance of the
Microelectronics Division, the Company had two business units. All of the
Company’s goodwill arose from the acquisition of SAL, Inc. (the predecessor to
the Vermont Operations) and was allocated to the Vermont Operations/Research
Division business unit. The Research Division and Vermont Operations were viewed
as one business unit due to the interrelations of their businesses (i.e., X-ray
source related development and commercialization, with the source and technology
development coming from the Research Division and the product design,
manufacturing engineering, integration, testing and assembly performed by the
Vermont Operations, as well as the zone plate optics development and
manufacturing for the future laser based products to be performed by the Vermont
Operations). Additionally, the Vermont Operations used its core capabilities to
perform manufacturing for other products of the Company.
 33
 The
discounted cash flow analysis was based on a 7-year projection of revenue,
operating expenses, capital expenditures, and working capital requirements and a
continuity value of 5 times the 7th year cash flow. The discount rate used was
30% that took into account the riskiness of the new products. Sensitivity
analysis was also performed to determine the appropriateness of the assumptions
used in the discounted cash flow analysis. As a majority of the Company’s
expected revenues in the future were based on products that were currently under
development, the Company estimated the expected revenues in the future based on
its then-current knowledge of the market and the expectations of successfully
penetrating those markets.
 The
market capitalization test was used as a complementary test to the discounted
cash flow analysis. The Company estimated its market capitalization based on the
average stock price over the preceding year and estimated the two business
units’ relative contribution to the market value of the Company based on
shareholder inquiries, emphasis by the Company in discussions with shareholders
and others, and emphasis in formal shareholder communications (i.e., press
releases).
 Based on
the Company’s analysis as of December 31, 2006, the entire amount of
goodwill of $4,415,932 was written off in 2006.
 i. Intangible
Assets
 Capitalized
patent costs are amortized over ten years, and other intangible assets are
amortized over not more than five years. Accumulated amortization of intangible
assets of $81,143 and $135,312 at December 31, 2007 and 2006, respectively
(see Note 15-Intangible Assets).
Capitalized patent costs are reviewed quarterly for utilization and
recoverability.
 j. Long-Lived
Assets
 The
Company periodically evaluates the carrying value of its long-lived assets and
applies the provisions of SFAS No. 14, “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.
 The net
assets and liabilities of a disposal group classified as held for sale is
presented separately in the asset and liability sections of the consolidated
balance sheet. In accordance with SFAS No. 144, the Company classifies
assets held for sale when management commits to a plan of disposal, the disposal
group is available for immediate sale and an active plan to locate a buyer has
been initiated.
 k. Revenues
 For the
years ended December 31, 2007 and 2006, approximately 36% and 65%,
respectively, of the Company’s revenues were contract revenues, with the
remainder BriteLight sales, product and spare parts 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.
 l. 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 interest yield
method.
 m. 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.
 n. Derivative
Liabilities
 The
Company accounts for certain derivative instruments at their fair value. 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.
 34
 o. 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 years ended December 31,
2007 and 2006, 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. As December 31, 2007 and 2006 the Company had shares
issuable under outstanding warrants, stock options and convertible preferred
stock of 153,754,887 and 15,880,367, respectively, all of which are
antidilutive and were excluded from the computation of diluted loss per share
due to the Company’s losses.
 p. Stock-Based Compensation
Plans
 The
Company has six stock 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 are the only
shareholder-approved stock option plans from which additional options may be
granted. The 2006 Plan authorizes the grant of up to 2,000,000 shares and
options. On February 22, 2008, the authorized shares under the 2006 Plan were
increased by the board of directors to 20,000,000 shares (See Note 18 Subsequent
Events.) 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
non-plan option agreements with several individuals.
 Effective
January 1, 2006, the Company adopted SFAS No. 123(R), using the
modified prospective transition method (see Note 13).
 q. Reclassifications and
Revisions
 Certain
reclassifications have been made to the prior year financial statements to
conform to the 2007 presentation.
 r. Recent Accounting
Pronouncements
 In
February 2006 the FASB issued SFAS No. 155 “Accounting for Certain
Hybrid Financial Instruments”. SFAS No. 155 amends SFAS No. 133 to
narrow the scope exception for interest-only and principal-only strips on debt
instruments to include only such strips representing rights to receive a
specified portion of the contractual interest or principal cash flows. SFAS
No. 155 also amends SFAS No. 140 to allow qualifying special-purpose
entities to hold a passive derivative financial instrument pertaining to
beneficial interests that itself is a derivative financial instrument.
Generally, SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities”, requires that a derivative embedded in a host contract that does
not meet the definition of a derivative be accounted for separately (referred to
as bifurcation) under certain conditions. That general rule notwithstanding,
SFAS No. 133 (prior to amendments made to it by SFAS No. 155) provides
a broad exception for interest-only and principal-only strips initially
resulting from the separation of rights to receive contractual cash flows of a
financial instrument that itself does not contain an embedded derivative that
would have been accounted for separately. SFAS No. 155 amends SFAS
No. 133 to restrict the scope exception to strips that represent rights to
receive only a portion of the contractual interest cash flows or of the
contractual principal cash flows of a specific debt instrument. Prior to
amendments made by SFAS No. 155, SFAS No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”,
permitted a qualifying special-purpose entity (SPE) to hold only passive
derivative financial instruments pertaining to beneficial interests (other than
another derivative financial instrument) issued or sold to parties other than
the transferor. SFAS No. 155 amends SFAS No. 140 to allow a qualifying
SPE to hold a derivative instrument pertaining to beneficial interests that
itself is a derivative financial instrument. This statement is effective for all
financial instruments acquired, or subject to a remeasurement event occurring
after the beginning of an entity’s first fiscal year end that begins after
September 15, 2006. The adoption of SFAS No. 155 did not have a
material impact on the Company’s financial statements.
 In
March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of
Financial Assets”, which provides an approach to simplify efforts to obtain
hedge-like (offset) accounting. This Statement amends SFAS No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities”, with respect to the accounting for separately recognized
servicing assets and servicing liabilities. The Statement (1) requires an
entity to recognize a servicing asset or servicing liability each time it
undertakes an obligation to service a financial asset by entering into a
servicing contract in certain situations; (2) requires that a separately
recognized servicing asset or servicing liability be initially measured at fair
value, if practicable; (3) permits an entity to choose either the amortization
method or the fair value method for subsequent measurement for each class of
separately recognized servicing assets or servicing liabilities; (4) permits at
initial adoption a one-time reclassification of available-for-sale securities to
trading securities by an entity with recognized servicing rights, provided the
securities reclassified offset the entity’s exposure to changes in the fair
value of the servicing assets or liabilities; and (5) requires separate
presentation of servicing assets and servicing liabilities subsequently measured
at fair value in the balance sheet and additional disclosures for all separately
recognized servicing assets and servicing liabilities. SFAS No. 156 is
effective for all separately recognized servicing assets and liabilities as of
the beginning of an entity’s fiscal year that begins after September 15,
2006, with earlier adoption permitted in certain circumstances. The Statement
also describes the manner in which it should be initially applied. The adoption
of SFAS No. 156 did not have a material impact on its financial position,
results of operations or cash flows of the Company.
 35
 In
July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (FIN 48). FIN 48 clarifies the accounting for
income taxes by prescribing a minimum probability threshold that a tax position
must meet before a financial statement benefit is recognized. The minimum
threshold is defined in FIN 48 as a tax position, that based solely on its
technical merits is more likely than not to be sustained upon examination by the
applicable taxing authority. The tax benefit to be recognized is measured as the
largest amount of benefit that is greater than fifty percent likely of being
realized upon ultimate settlement. FIN 48 must be applied to all existing tax
positions upon initial adoption. The cumulative effect of applying FIN 48 at
adoption, if any, is to be reported as an adjustment to opening retained
earnings for the year of adoption. FIN 48 is effective for fiscal years
beginning after December 15, 2006, although early adoption is permitted.
The adoption of FIN 48 did not have a material impact on the Company’s financial
statements.
 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
September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans (SFAS No. 158). SFAS
No. 158 requires an employer to recognize the overfunded or underfunded
status of a defined benefit pension plan and other postretirement plans as an
asset or liability on its balance sheet and recognize changes in its funded
status in the year in which the change occurs through accumulated other nonowner
changes in equity. We do not expect the adoption of SFAS 158 to have an
impact on our results of operations or financial condition.
 In
September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 108 to address diversity in practice in
quantifying financial statement misstatements. SAB 108 requires that registrants
quantify the impact on the current year’s financial statements of correcting all
misstatements, including the carryover and reversing effects of prior years’
misstatements, as well as the effects of errors arising in the current year, SAB
108 is effective as of the first fiscal year ending after November 15,
2006, allowing a one-time transitional cumulative effect adjustment to retained
earnings as of January 1, 2006, for errors that were not previously deemed
material, but are material under the guidance in SAB No. 108. There was no
impact on our consolidated financial statements with respect to the adoption of
SAB NO. 108.
 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.
 3. Impairment of Long-Lived
Assets
 In 2006,
goodwill in the amount of $4,415,932 was written off. The goodwill related to
the Research Division/Vermont Operations reporting unit (at that time). The
write-off was based on an analysis performed as of December 31, 2006 in
accordance with FASB Statement No. 142 (See Note 2). Impacting the analysis
was the Company’s low market capitalization due to its reduced stock price. In
addition, the discounted cash flow analysis was impacted by the agreement
reached with a leading microscopy company whereby the Company sold its XRM
technology in exchange for an up front cash payment, future royalties and the
exclusive laser supplier rights for the XRM. In addition, based on the status of
the Company’s BioSentry partner search initiated in June 2006, for purposes
of the goodwill analysis, the assumption was that BioSentry manufacturing would
be outsourced at some time in the future. In addition, due to its financial
situation at the time, JMAR’s ability to finance the development,
commercialization and sale of its products was impacted, thereby delaying the
development and commercialization of the Company’s products.
 4. Accounts
Receivable
 At
December 31, 2007 and 2006, accounts receivable consisted of the
following:
  2007
              
              
              2006Billed
              
              $
              44,544
              
              
              $
              157,469Unbilled
              
              
              21,180
              
              
              
              249,09965,724
              
              
              
              406,568Less–allowance
      for doubtful accounts
              
              
              —
              
              
              
              —$
              65,724
              
              
              $
              406,568
  All
unbilled receivables at December 31, 2007 are expected to be billed and
collected within one year. Payments to the Company for performance on certain
U.S. Government contracts are subject to progress payment audits by the Defense
Contract Audit Agency (DCAA) and are recorded at the amounts expected to be
realized. The unbilled receivables at December 31, 2007 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.
 36
 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 December 31, 2007 and 2006, inventories consisted of the
following:
 2007
              
              
              2006Raw
      materials, components and sub-assemblies
              
              $
              55,494
              
              
              $
              26,512Work-in-process
              
              
              85,486
              
              
              
              —Finished
      goods
              
              
              177,110
              
              
              
              218,914318,090
              
              
              
              245,426Less–reserve
      for excess and obsolete inventory
              
              
              (10,061
              )
              
              
              (10,268
              )$
              308,029
              
              
              $
              235,158
  6. Property and
Equipment
 At
December 31, 2007 and 2006, property and equipment consisted of the
following:
  2007
              
              
              2006Equipment
      and machinery
              
              $
              588,748
              
              
              $
              2,693,203Software
              
              
              329,291
              
              
              
              434,096Furniture
      and fixtures
              
              
              198,372
              
              
              
              222,493Leasehold
      improvements
              
              
              607,767
              
              
              
              607,7671,724,178
              
              
              
              3,957,559Less-accumulated
      depreciation
              
              
              (1,040,929
              )
              
              
              (2,991,874
              )$
              683,249
              
              
              $
              965,685
  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 $238,904, $189,475 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. Commitments and
Contingencies
 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 December 31, 2007, are as follows:
 Year
      Ending December 31,20       2008
                
                $
                348,25820       2009
                
                
                360,5722         2010
                
                
                374,790201     2011
                
                
                389,57620       2012
                
                
                335,678Th    Thereafter
                
                
                —$
                1,808,873
 Related
rent expense was $290,500 and $316,039 for the years ended December 31,
2007 and 2006, respectively.
 b. Deferred
Compensation
 Pursuant
to an Employment Agreement dated September, 2001 with Dr. Martinez, the
Company’s former Chairman and Chief Executive Officer, if the Company delivered
notice of its intention not to renew or discontinued his status of Chairman or
CEO, or both, other than for cause, then Dr. Martinez’s employment was to
continue for three years at the highest total compensation rate (including
bonuses, director fees and similar payments) he had received in any previous
12 month period. This amount was approximately $375,000 per annum. In such
event, the Company also agreed to maintain comparable medical insurance benefits
for such three year period.
 In May,
2002, Dr. Martinez informed the Board of Directors of his desire to retire.
The Board and Dr. Martinez engaged in discussions regarding
Dr. Martinez’s future role with the Company. In order to set a definite
date for the transition to a new CEO, in July, 2002, the Board of Directors
exercised the Company’s rights under the Employment Agreement to discontinue
Dr. Martinez’s status as CEO effective August 16, 2002. Following
negotiations between Dr. Martinez and the Board, an agreement was reached
to restructure this payment obligation to spread the payments over six years to
reduce the impact of the original agreement on the Company’s cash flow. In
consideration for this modification, the Company agreed to provide comparable
medical insurance benefits for six years, and modified 942,242 of the
outstanding options and warrants held by Dr. Martinez to (1) vest all
unvested options and warrants (141,269 options), (2) provide that, for
those options that have an expiration date within the next six years, the early
termination provision that would otherwise have resulted in the termination of
the options and warrants 60 days after termination of his employment was
waived, and (3) provide that all remaining options and warrants will expire
on the later of August 15, 2008 or 60 days after Dr. Martinez
ceases to be a director. Dr. Martinez ceased to be a director effective
April 22, 2005. The Company recorded a charge in 2002 in the amount of
$1,074,324 resulting from this event. The charge includes $561,517 for the
discounted deferred compensation payments over six years, using a discount rate
of 30 percent, and $512,807 for the intrinsic value of Dr. Martinez’s
options and warrants resulting from the modification of those options and
warrants. The amount of the discounted liability for this employee is included
in notes payable and other long-term liabilities on the accompanying Balance
Sheet at December 31, 2007 is $164,786.
 37
 Included
in “Selling, general and administrative” in the accompanying Statement of
Operations is $59,955 and $138,999 in 2007 and 2006, respectively, for the
amortization of the discounts recorded against the deferred compensation
obligations. Total deferred compensation obligations for 2008 through 2009 are
$130,000 and $70,000, respectively. The Company has accounted for this
individual deferred compensation arrangements in accordance with Accounting
Principles Board Nos. 12 and 21.
 8. Notes Payable and Other Long-term
Obligations
 Notes
payable and other long-term obligations as of December 31, 2007 and 2006,
were as follows (all funded debt obligations are with Laurus):
  2007
                
                
                2006$7.5
      million term note - bears interest at 10.25%
                
                $
                7,500,000
                
                
                $
                —$750,000
      term note - bears interest at the prime rate (7.25%at
      December 31, 2007) plus
      2%.
                
                
                750,000
                
                
                
                —$3,000,000
      working capital line - interest at the prime rate(7.25%
      at December 31, 2007) plus 2%. The working capitalamount  is
      less discount of $141,186.
                
                
                508,725
                
                
                
                1,059,355Interest
      on debt is payable monthly. Advances are secured by allassets
      of the Company.Lease
      incentives received from
      landlords
                
                
                238,905
                
                
                
                288,333Deferred
      compensation, less discount of $35,214 and $134,755 atDecember 31,
      2007 and 2006, respectively (see Note 13)
                
                
                164,786
                
                
                
                382,5009,162,416
                
                
                
                1,730,188Less:
      Current
      portion
                
                
                152,804
                
                
                
                1,316,494$
                9,009,612
                
                
                $
                413,694
 
 Working Capital Line In
March 2003, the Company entered into a Revolving Fixed Price Convertible
Note (Working Capital Line) with Laurus Master Fund (Laurus). The term of the
Working Capital line expired on March 21, 2006 and was replaced by a new
line of credit facility (2006 Working Capital Line). On March 28, 2006, the
Company and Laurus replaced the 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. Upon
approval of Laurus, the 2006 Working Capital Line provided for advances in
excess of the availability (Overadvance). The 2006 Working Capital Line is
non-convertible and has no financial ratio covenants. The interest rate
(9.25 percent at December 31, 2007) on the 2006 Working Capital Line
is equal to the prime rate plus 2 percent. The 2006 Working Capital Line
terminates in August 2009. As of December 31, 2007, there was $649,911
outstanding under the 2006 Working Capital Line, including a $500,000
Overadvance.
 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, up to 240,000 vest 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 is
based on JMAR’s historical stock prices for the past ten years, consistent with
the expected life of the warrants.
 At
December 31, 2007, the unamortized discount and fees of $141,186 was offset
against borrowings on the Working Capital Line in the accompanying Consolidated
Balance Sheet. The discount is amortized over the remaining life of the Working
Capital Line, resulting in $221,887 and $256,169 of interest expense for the
years ending December 31, 2007 and 2006, respectively. Also included in the
discount are other fees paid to Laurus, including annual renewal
fees.
 Term
NotesOn
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 (See Note 11 — Derivative Liability –
Warrants Attached to Debt). 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 is due on August 31, 2009, 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. For derivative liability
arising out of warrants attached to the $750,000 Note, see Note 11 - Derivative
Liability, warrants attached to debt.
 38
 On
September 12, 2007, the Company entered into a Securities Purchase Agreement
(the “September 2007 SPA"), dated for identification purposes as of August 31,
2007, with Laurus and related agreements. Pursuant to the “September 2007
SPA,  Laurus completed a loan to the Company of $7,500,000 evidenced
by a Secured Term Note ("the $7,500,000 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 $7,500,000 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 $7,500,000
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 $7,500,000 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 $7,500,000 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 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. The Company’s authorized
number of shares at December 31, 2007 is 80,000,000 shares. Pursuant to the
September 2007 SPA, the Company agreed that on or before March 5, 2008 it would
seek and have obtained shareholder approval and would 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 constitute an event
of default under the $7.5 million Term Note.
 On
February 22, 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.
 The
weighted average interest rate on the Laurus working capital loan and term notes
was 10.6% and 10.2% for 2007 and 2006, respectively. The maximum amount
outstanding was $8,899,911 and $2,998,910 for 2007 and 2006, respectively and
the average amount outstanding was approximately $3,178,000 and $1,300,000
during 2007 and 2006, respectively. The effective interest rate, including the
amortization of the beneficial conversion feature and fair value of warrants was
10.6% and 12.2% in 2007 and 2006, respectively.
 Interest
paid for the years ended December 31, 2007 and 2006 was $568,520 and
$141,998, respectively.
 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.
 9. Discontinued
Operations
 The
income/(loss) from operations of discontinued operations of $539,325 and
$(5,523,509) for the years ended December 31, 2007 and 2006, respectively,
is related to the closures of the Microelectronics Division and the Vermont
Operations as of September 30, 2006 and September 30, 2007, respectively. In
2006 it includes an expense of $4,543,843, including a goodwill write-off of
$4,415,932 related to the Vermont Operations, $127,911 for assets to be disposed
and $262,246 related to leases of the Microelectronics Division, primarily the
facility lease, based on an appropriate discount rate.
 Until
mid-2006, a major source of funding was the subcontract between JMAR’s
Microelectronics Division (operated by JSI Microelectronics, Inc., a subsidiary
of JMAR) and General Dynamics Advanced Information Systems (GDAIS) to
enhance and maintain the semiconductor wafer fabrication processes installed at
the McClellan Air Force Base in Sacramento for the DMEA. This work, which
started in 1998, resulted in a new subcontract each year out of funds available
in the DMEA’s budget as an element of the Department of Defense’s Advanced
Technology Support Program. The Company received $3.5 million in contracts
in 2004 and $2.3 million in letter contracts in 2005. In February, 2006,
the last of this funding was received and since the viability of the
Microelectronics Division was questionable the operation was closed as of
September 30, 2006.
 39
 The
Vermont Operations carried out contract research and development involving
advanced materials, nanolithography, semiconductor memory chip designs and
served as JMAR’s manufacturing arm for the BioSentryTM
product.  Contract research and development was completed under
contracts for DARPA and Naval Air Systems Command (NAVAIR). A major source of
funding to the Vermont Operations was a contract issued by NAVAIR which
supported continued x-ray lithography technology and infrastructure development.
Under this contract, JMAR procured sub-100 nm feature size x-ray masks used in
the development of high performance computer memory chips. A total of
approximately $15.5 million was received under this contract, including
approximately $3.1 million funded in August 2006. Incremental funding
under the contract was sought on an annual basis. However, losses in the
Vermont Operations continued despite government contract funding. Pursuant to
the $7,500,000 Securities Purchase Agreement entered into with Laurus in
September 2007, 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. The Vermont Operations were closed on October 16,
2007 and on November 7, 2007 the Company executed an Asset Purchase Agreement
(the "Agreement") with Applied Research Associates, Inc. (ARA) of Randolph,
Vermont. Under the Agreement the Company agreed 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 is 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.
 Accordingly,
the Company has reflected the Vermont Operations and Microelectronics Division
as discontinued operations for all periods included in this Form
10-K.
 At
December 31, 2007 and December 31, 2006, net assets and liabilities of
the discontinued operations consisted of the following:
 December
      31,2007
              
              
              2006Current
      Assets:Cash
              
              $
              178
              
              
              $
              11,611Accounts
      receivable
              
              
              479,164
              
              
              
              861,483Inventories/demo
      units
              
              
              —
              
              
              
              284,242Prepaid
      expenses
              
              
              —
              
              
              
              41,857Property
      equipment and patents
              
              
              —
              
              
              
              73,160$
              479,342
              
              
              $
              1,272,353Current
      Liabilities:Accounts
      payable
              
              
              465,672
              
              
              
              750,845Accrued
      payroll and related costs
              
              
              —
              
              
              
              70,858Accrued
      liabilities
              
              
              243,044
              
              
              
              343,981Billings
      in excess of costs incurred
              
              
              —
              
              
              
              1,418,372$
              708,716
              
              
              $
              2,584,056Non-Current
      Liabilities:Lease
      accrual/deferred rent
              
              $
              89,209
              
              
              $
              89,209
 The gain
(loss) from operations of discontinued operations for the years ended
December 31, 2007 and 2006 consisted of the following:
 2007
              
              
              2006Revenues
              
              $
              2,286,540
              
              
              $
              5,826,928Costs
      of revenues
              
              
              1,547,772
              
              
              
              5,300,575Gross
      profit
              
              
              738,768
              
              
              
              526,353Selling,
      general and administrative
              
              
              218,507
              
              
              
              1,000,974Research
      and development
              
              
              9,442
              
              
              
              213,371Asset
      writedowns
              
              
              —
              
              
              
              4,543,843Lease
      reserves
              
              
              —
              
              
              
              262,246Interest
      and other expense
              
              
              21,590
              
              
              
              29,428Gain/
      (loss) from sale of assets
              
              
              (50,096
              )
              
              
              —Gain
      (loss) from operations of discontinued operations
              
              $
              539,325
              
              
              $
              (
      5,523,509
              )
 10. Income Taxes
 The
provision (benefit) for income taxes based on income (losses) from continuing
operations consists of the following at December 31:
 Year
      ended
                
                
                Year
      ended12/31/07
                
                
                12/31/06Current:Federal
                
                $
                —
                
                
                
                —State
                
                
                —
                
                
                
                ——
                
                
                
                —Deferred:Federal
      and state
                
                
                (2,197,000
                )
                
                
                3,925,000(2,197,000
                )
                
                
                3,925,000Valuation
      Allowance
                
                
                2,197,000
                
                
                
                (3,925,000
                )Income
      Tax Expense(Benefit)
                
                
                —
                
                
                
                —
  40
     2007
              
              
              2006Deferred
      tax assets:Net
      operating loss carryforwards
              
              $
              21,934,000
              
              
              $
              22,498,000Capital
      loss carryforward
              
              
              6,843,000
              
              
              
              6,843,000Goodwill
              
              
              —
              
              
              
              1,766,000Other
              
              
              1,607,000
              
              
              
              1,473,000Total
      gross deferred tax assets
              
              
              30,384,000
              
              
              
              32,580,000Less
      valuation reserve
              
              
              (30,384,000
              )
              
              
              (32,580,000
              )Net
      deferred tax asset
              
              $
              —
              
              
              $
              —


The
valuation reserve as of December 31, 2007 and 2006 represents deferred tax
assets which management believes, based on the Company’s history of operating
losses, may not be realized in future periods. The valuation allowance was
increased/(decreased) by $1,080,000 and $3,925,000 in 2007 and 2006,
respectively. The capital loss carryforward relates to the sale of JPSI, can
only be applied against capital gains and expires in 2008.
 The
effective income tax rate for the years ended December 31, 2007 and 2006
varied from the statutory federal income tax rate as follows:


2007
            
            2006Statutory
      federal income tax rate
            
            
            34
            %
            
            
            (34
            )%State
      income tax
            
            
            (7
            )
            
            
            (6
            )Permanent
      Items
            
            
            (74.5
            )
            
            
            —Increase
      in valuation allowance
            
            
            47.5
            
            
            
            40—
            %
            
            
            —
            %


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 discussed below. Also, the Company has
approximately $24.6 million of state net operating loss carryforwards that
expire from 2011 to 2017.


Realization
of future tax benefits from utilization of the net operating loss carryforwards
for income tax purposes is limited by the change in ownership (as defined for
Federal Income Tax Reporting Purposes) as a result of the Company’s initial
public offering in May 1990. As a result of additional financings in 1992
and 1993, additional ownership changes have occurred which restrict the
Company’s ability to utilize its net operating loss carryforwards and any “built
in losses.” In addition, the net operating losses of acquired companies are also
subject to separate change of ownership limitations. Of the above net operating
loss carryforwards, annual limitations of approximately $658,000 apply to
approximately $2,512,000 of Company and acquired company loss carryforwards.
Approximately $57.7 million of the net operating loss carryforwards are not
subject to annual limitations.


11.
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
December 31, 2007, 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 $7,500,000 Term Note payable to Laurus, respectively,
(see Note 8 – Notes Payable and Other Long term Obligations) 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 $8,800,000 respectively. In accordance
with SFAS No. 133, the Company revalued the warrants on December 31,
2007 and as a result of the revaluation, the Company recorded a change in fair
value of derivative liability of $(6,233,240) 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 4.04% 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 98%.
The volatility is based on JMAR’s historical stock prices for the past
10 years, consistent with the expected life of the warrants.


41


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 (see
Note  12 for details of the agreement). 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 December 31, 2007; as a
result of the revaluation, there was no change in the fair value of the
derivative liability.


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 December 31, 2007 and as a result of this revaluation, there was a
change of $264,873 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 4.0% 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 98%.
The volatility is based on JMAR’s historical stock prices for the
past  9.25 years, consistent with the expected remaining life of
the warrants.


12. Equity
Transactions


a. Laurus Preferred Stock and
Warrants


On
February 1, 2005, the Company entered into agreements with Laurus to amend
the Company’s Series E, F, G and H Convertible Preferred Stock (2005
Amendment). As discussed below, the Series E was fully redeemed at the end
of 2005 and the Series F-H were further amended in 2006. The 2005
Amendments provided for, among other things, 1) the deferral of approximately
$3.8 million in monthly redemption payments, as follows: a) payments of the
remaining 12 months of redemption payments ($83,333 per month plus a 2%
fee) for the Series E Preferred Stock were deferred and due in full in
July, 2006, and b) the next 18 months of redemption payments due under the
Series F, G and H Convertible Preferred Stock ($150,000 per month plus a 2%
fee) were deferred until February, 2007; and 2) the reduction in the conversion
prices of the Series E-H Preferred Stock (originally ranging from $2.85 to
$3.47) to $2.00 per share. Pursuant to the 2005 Amendments, the $150,000 in
monthly redemption payments under the Series F-H Preferred Stock was
scheduled to recommence in August, 2006 and continue until January, 2007, with
the balance of approximately $4.25 million in the stated amount of the
Series F-H Preferred Stock due in February, 2007. These redemption payments
will be reduced to the extent that there are conversions of the Preferred Stock
into common stock.


As a
result of the 2005 Amendment, the Company recorded an additional discount of
approximately $1.1 million, representing the difference between the fair
value of the Preferred Stock immediately prior to and after the 2005 Amendment,
valued based on the Black Scholes pricing model using the following assumptions:
risk-free interest rate of 3.23 percent based on estimated yields of 2-year
U.S. Treasury Securities; expected dividend yield of 0 percent; remaining
contractual life of 2 years; and expected volatility of 108 percent.
The volatility is based on JMAR’s historical stock prices for the past two
years, consistent with the remaining contractual life of the preferred stock.
This amount was recorded during the first quarter of fiscal year 2005 as a
reduction of preferred stock and is amortized to preferred stock dividends over
the earlier of the redemption payment period or the conversion
dates.


On
December 22, 2005, the Company entered into a Securities Purchase Agreement
with Laurus whereby in exchange for and in complete cancellation (redemption) of
all of the remaining $1,000,000 of Series E Preferred Stock, the Company
issued 1,041,667 shares of the Company’s common stock, valued at a discount to
the closing stock price of the Company on December 19, 2005. In addition,
the Company issued a warrant for the purchase of 375,000 shares of common stock,
with an exercise price of $1.50, based on 125% of the closing price of the
Company’s common stock on December 19, 2005. The warrant is not exercisable
for the first six months and has a term of five years. Prior to the Redemption,
the Series E Preferred Stock was redeemable in full in the amount of
$1,000,000 in July 2006, if not previously converted to common
stock.


As a
result of the redemption in the quarter ended December 31, 2005, the
Company recorded the excess of the fair value of the consideration issued to
Laurus ($1,337,500) over the carrying amount of the Series E Preferred
Stock ($957,003) as preferred stock dividends and an increase in
paid-in-capital. The stock issued to Laurus was valued based on a
10 percent discount to market price of JMAR’s stock and the warrants were
valued based on the Black Scholes model using the following assumptions:
risk-free interest rate of 4.18 percent based on estimated yields of 5-year
U.S. Treasury Securities; expected dividend yield of 0 percent; expected
life of 5 years; and expected volatility of 63 percent. The volatility
is based on JMAR’s historical stock prices for the past five years, consistent
with the expected life of the warrants.


42


On
March 28, 2006, the Company issued a new Series I Convertible
Preferred Stock to replace $6,393,980 of the Series F-H Convertible
Preferred Stock, leaving $1,456,020 of the Series G Preferred Stock
outstanding. The parties also amended the remaining redemption schedule of the
Series G Preferred Stock (the issuance of the Series I and the
amendments to the Series G are referred to below as the 2006 Amendments).
The 2006 Amendments had the effect of deferring the $7,850,000 in redemption
payments, as follows: a) 6 monthly redemption payments originally
commencing August 2006 ($150,000 per month plus a 2% fee) were deferred one
year and reduced to $122,178 per month; b) $6,588,314 of the redemption payment
originally due February 2007 is deferred until August 2008; and c) the
remaining $528,618 is payable at $27,822 per month starting February 2007
through August 2008. The conversion price for the $6,393,980 of the
Series F-H Preferred Stock was originally $2.00 while the new $6,393,980 of
Series I Preferred Stock has a conversion price of $1.16 per share. In
addition, the exercise price (originally ranging from $3.42 to $3.82) of the
warrants exercisable into 200,000 shares originally issued in connection with
the Series F-H Preferred Stock was reduced to $1.16. The redemption
payments will be reduced to the extent that there are conversions of the
Preferred Stock into common stock. The rights and privileges of the
Series I Preferred Stock are the same as the Series F-H Preferred
Stock, other than the conversion price and redemption payments.


As a
result of the 2006 Amendments, the Company recorded an additional discount of
approximately $2.2 million, representing the difference between the fair
value of the Preferred Stock and warrants immediately prior to and after the
2006 Amendments, valued based on the Black Scholes pricing model using the
following assumptions: risk-free interest rate of 4.7 percent for the value
prior to the 2006 Amendments, 4.8 percent for the value after the 2006
Amendments and 4.8 percent for the value of the warrants based on estimated
yields of 1-year, 2-year and 5-year Treasury Securities, respectively; expected
dividend yield of 0 percent; remaining contractual life of 10 months
for the value prior to the 2006 Amendments, 28 months for the value after
the 2006 Amendments and 59 months for the value of the warrants; and
expected volatility of 51 percent for the value before the 2006 Amendments,
76 percent for the value after the 2006 Amendments and 81 percent for the
value of the warrants. The volatility is based on JMAR’s historical stock prices
for the past 10 months, 28 months and 59 months, respectively,
consistent with the remaining contractual life of the preferred stock before and
after the 2006 Amendments and warrants, respectively.


On
April 23, 2007, the Company and Laurus entered into a Securities Exchange
Agreement that provided for the issuance by the Company to Laurus of a total of
1,500,000 shares of Common Stock (the “Shares”) in exchange for and in
cancellation of i) $194,754 of stated value of Series G Preferred Stock
held by Laurus, and ii) $18,996 of stated value of Series I Preferred
Stock. Following this exchange, Laurus owned a total of $1,261,266 of stated
value of Series G Preferred Stock and $6,374,984 of stated value of
Series I Preferred Stock. As a result of the payment of the Shares, a total
of $213,750 was applied to pay monthly redemption payments owing under the
Preferred Stock in chronological order as follows: (i) the entire monthly
redemption amounts ($27,822 per month) owing under the Series G Preferred
Stock for the months of February through August, 2007 (for a total of $194,754),
and (ii) $18,996 of the redemption amount owing under the Series I
Preferred Stock for the month of August 2007.


As a
result of the redemption on April 23, 2007, the Company recorded in the
quarter ended June 30, 2007 the excess of the fair value of the
consideration issued to Laurus ($300,000) over the carrying amount of the
Series G and I Preferred Stock ($209,457) as preferred stock dividends and
an increase in paid-in-capital.


In June,
2007, the Company committed to a transaction with Laurus by executing a term
sheet providing for the sale from time to time of up to $3.5 million of a
new Series J preferred stock. Such sales are intended to be done following
the conversion or exchange by Laurus of an equivalent amount of its existing
preferred stock. On June 28, 2007, the Company entered into a Securities
Exchange Agreement with Laurus which provided for the issuance to Laurus of two
million (2,000,000) shares of Common Stock in exchange for and cancellation of
$204,400 stated value of Series G and Series I Preferred Stock held by
Laurus. On July 5, 2007, the Company entered into a second Securities
Exchange Agreement with Laurus which provided for the issuance to Laurus of
another two million (2,000,000) shares of Common Stock in exchange for and
cancellation of another $204,400 stated value of Series G and I Preferred
Stock. As a result of these two transactions, a total of $408,800 of
Series G and Series I Preferred Stock have been redeemed and this dollar
amount will be applied to pay the monthly redemption payments due under the
outstanding Series G and I Preferred Stock such that the remaining monthly
redemption payment owing in August, the entire September and October monthly
redemption payments and a portion of the November monthly redemption payment are
canceled.


43


As a
result of the redemption on June 28, 2007, the Company recorded in the
quarter ended June 30, 2007 the excess of the fair value of the consideration
issued to Laurus ($280,000) over the carrying amount of the Series G and I
Preferred Stock ($164,435) as preferred stock dividends and an increase in
paid-in-capital.


In
conjunction with the June 28, 2007 transaction and the commitment to issue
408,800 of the Series J Preferred, as of June 30, 2007 the Company
created a derivative liability. See Footnote (11) — Derivative
Liability.


In June,
2007, the Company committed to a transaction with Laurus by executing a term
sheet providing for the sale from time to time of up to $3.5 million of a
new Series J preferred stock. The definitive terms of this agreement are
contained in a Securities Purchase Agreement, dated July 5, 2007, between the
Company and Laurus (the “Series J SPA”).  Such sales are intended to
be done following the conversion or exchange by Laurus of an equivalent amount
of its existing preferred stock. On June 28, 2007, the Company entered into
a Securities Exchange Agreement with Laurus which provided for the issuance to
Laurus of two million (2,000,000) shares of Common Stock in exchange for and
cancellation of $204,400 stated value of Series G and Series I
Preferred Stock held by Laurus. On July 5, 2007, the Company entered into a
second Securities Exchange Agreement with Laurus which provided for the issuance
to Laurus of another two million (2,000,000) shares of Common Stock in exchange
for and cancellation of another $204,400 stated value of Series G and I
Preferred Stock. As a result of these two transactions, a total of $408,800 of
Series G and Series I Preferred Stock were redeemed and this dollar amount
was applied to pay the monthly redemption payments due under the outstanding
Series G and I Preferred Stock such that the remaining monthly redemption
payment owing in August, the entire September and October monthly redemption
payments and a portion of the November monthly redemption payment were
canceled.


As a
result of the redemption of the Series G and Series I Preferred Stock, in the
quarter ended June 30, 2007 the Company recorded the excess of the fair value of
the consideration issued to Laurus ($280,000) over the carrying amount of the
Series G and I Preferred Stock ($164,435) as preferred stock dividends and
an increase in paid-in-capital.


In
conjunction with the June 28, 2007 transaction and the commitment to issue
408,800 of the Series J Preferred, as of June 30, 2007 the Company
created a derivative liability. See Note 11 — Derivative Liability.


On
July 5, 2007, the Company and Laurus entered into a Securities Purchase
Agreement (the “Series J SPA”) The Series J SPA provides for the issuance from
time to time of up to $3.5 million shares of Series J Cumulative
Convertible Preferred Stock (“Series J Preferred Stock”). Pursuant to the
Series J SPA, the Company’s Board of Directors created a new Series J
Cumulative Convertible Preferred Stock, with a stated value of $1,000 per share,
and authorized sale and issuance from time to time of up to 3,500 of such
shares. Pursuant to the Series J SPA, purchases by Laurus of shares of
Series J Preferred Stock will be made from time to time in such amounts and
at such times as Laurus may determine in its sole discretion. The Series J
Preferred Stock accrues dividends at the rate of 9.5% per annum and is
convertible into shares of the Company’s Common Stock at a conversion price
equal to lesser of (i) $0.15 or (ii) the equivalent price at which Laurus
has most recently exchanged shares of Common Stock for shares of Series G
and I. In the event that any shares of Series J Preferred Stock remain
outstanding on the second anniversary of the issuance of such shares, such
shares must be redeemed in cash by the Company. The Series J Preferred
Stock also provides that the Company can force the conversion of the
Series J Preferred Stock at $0.50 per share if the bid price of the
Company’s Common Stock for ten consecutive trading days equals or exceeds $0.50
per share and the trading volume during such ten day period exceeds 100,000
shares per day. The provisions of the Series J Preferred Stock restrict
Laurus from converting into shares of Common Stock if Laurus would have
beneficial ownership of more than 9.99% of the Company.


The
Series J SPA also provided that 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.


The Company agreed that it would file a
Form S-1 Registration Statement with the SEC to register the resale of the
shares of Common Stock issuable on conversion of the Series J Preferred
Stock within 60 days after an aggregate of $1 million of Series J
Preferred Stock has been sold. The Company agreed to use its best efforts to
obtain effectiveness of the registration statement within 120 days after
filing with the SEC and to pay a penalty equal to one percent (1%) per month for
a maximum of eight months if the registration statement is not filed or declared
effective within the required deadlines.   As of December 31,
2007, an aggregate of $1 million or more of Series J Preferred Stock has not
been sold and the Company is not yet obligated to file such a registration
statement.


On July 5, 2007, Laurus purchased
408.8 shares of Series J Preferred Stock (with a stated value per share of
$1,000) for gross proceeds of $408,800. The shares of Series J Preferred
Stock issued in this transaction have a conversion price of $0.1022 per share
(the price at which Laurus had most recently received shares of Common Stock in
exchange for its Series G and Series I Preferred Stock). In connection
with the sale of the Series J Preferred Stock, the Company paid Midtown
Partners & Co., LLC (“Midtown Partners”) a fee equal to eight percent (8%)
of the gross proceeds from the sale of the Series J Preferred Stock and a
warrant to purchase 320,000 shares of Common Stock, with a term of
5-1/2 years, an exercise price of $0.1022 per share and a provision
enabling the holder to effect a cashless exercise of the Warrant. As a result of
this issuance of Series J Preferred Stock, pursuant to the SPA the
conversion price for a total of $817,600 of stated value of Series I
Preferred Stock was reduced to $0.15 per share. As a result of the June 28,
2007 exchange of preferred for common stock transaction and the issuance of the
new Series J Preferred Stock a derivative liability was created. See Note
11 — Derivative Liability.


On
July 20, 2007 the Company and Laurus entered into an Agreement which
provides that certain of the convertible securities owned by Laurus may not be
converted into common stock unless and until the Company’s shareholders have
approved an amendment to the Company’s Certificate of Incorporation to increase
the authorized capital stock from 80,000,000 shares of Common Stock to
300,000,000 shares of Common Stock. The shares which will not be convertible
consist of 1) those shares of Series I Preferred Stock with a stated value
of $817,600 that were amended on July 5, 2007 to reduce their conversion
price as noted above, 2) the shares of Series J Preferred Stock with a
stated value of $408,800 with a conversion price of $0.1022 that were issued on
July 5, 2007, and 3) up to another $817,600 of Series J Preferred
Stock and up to another $1,635,200 of Series G and Series I Preferred
Stock to be adjusted in connection with the sale of such Series J Preferred
Stock. As of December 31, 2007, only $300,000 of the $817,600 of additional
shares of Series J Preferred Stock has been sold and the conversion price of
$600,000 of Series G and I Preferred Stock has been reduced as provided.
Pursuant to this Agreement, the Company agreed to file a proxy statement and
solicit approval by its shareholders of the increase in authorized
shares.


44


On
August 8, 2007, Laurus purchased 2,100,000 shares of Common Stock in
exchange for and cancellation of $252,000 stated value of Series G and
Series I Preferred Stock held by Laurus. As a result of this transaction,
$252,000 of Series G and Series I Preferred Stock has been redeemed
and this dollar amount has been applied to pay the monthly redemption payments
due under the outstanding Series G and I Preferred Stock such that the
remaining monthly redemption payment owing under the Series G for November,
2007 has been satisfied, the entire monthly redemption payment under the
Series I for November has been satisfied and $107,618 of the $122,178
December redemption payment under the Series I has been satisfied. As a
result of the August 8, 2007 exchange of preferred for common stock transaction
and the issuance of Series J Preferred Stock a derivative liability was
created. See Note 11 — Derivative Liability.  On August 9, 2007,
Laurus purchased $300,000 of shares of Series J Cumulative Convertible
Preferred Stock (“Series J Preferred Stock”) with a stated value of $1,000
per share. These shares of Series J Preferred Stock have a conversion price
of $0.12 per share. The Series J Preferred Stock accrues dividends at the
rate of 9.5% per annum.





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


Gross
      AmountOutstanding
      at
              
              
              Scheduled
      RedemptionsDescription
              
              December
      31, 2007
              
              
              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, 2007 all of the preferred stock
and warrants held by Laurus are convertible or exercisable into approximately
147.1 million shares.


The
following table summarizes the preferred stock activity for 2007:


NetBalance
      at
            
            
            
            
            
            
            
            
            
            
            
            
            
            Net
      Balance atDecember
      31,
            
            
            
            
            
            Discount
            
            
            
            
            
            
            December
      31,Series
            
            2006
            
            
            Issuance
            
            
            Amortization
            
            
            Redemptions
            
            
            2007G
            
            $
            1,374,197
            
            
            $
            —
            
            
            $
            49,092
            
            
            $
            278,220
            
            
            $
            1,145,069I
            
            
            4,035,330
            
            
            
            —
            
            
            
            681,775
            
            
            
            596,330
            
            
            
            4,120,775J
            
            
            —
            
            
            
            708,800
            
            
            
            —
            
            
            
            —
            
            
            
            708,800$
            5,409,527
            
            
            $
            708,800
            
            
            $
            730,867
            
            
            $
            874,550
            
            
            $
            5,974,644





The
following table summarizes the preferred stock activity for 2006:





NetBalance
      at
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Net
      Balance atDecember
      31,
            
            
            Discount
            
            
            Exchange
      for
            
            
            Amendment
            
            
            December
      31,Series
            
            2005
            
            
            Amortization
            
            
            Series
      I
            
            
            Fair
      Value
            
            
            2006F
            
            $
            1,747,948
            
            
            $
            49,515
            
            
            $
            (1,797,463
            )
            
            $
            —
            
            
            $
            —G
            
            
            1,754,615
            
            
            
            84,792
            
            
            
            (465,210
            )
            
            
            —
            
            
            
            1,374,197H
            
            
            3,466,778
            
            
            
            105,744
            
            
            
            (3,572,522
            )
            
            
            —
            
            
            
            —I
            
            
            —
            
            
            
            410,166
            
            
            
            5,835,195
            
            
            
            2,210,031
            
            
            
            4,035,330$
            6,969,341
            
            
            $
            650,217
            
            
            $
            —
            
            
            $
            2,210,031
            
            
            $
            5,409,527





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 years ended December 31, 2007 and 2006 are
preferred stock dividends of $1,703,607, and $1,283,668, respectively. The
amount for the years ended December 31, 2007 and 2006 represents $631,290,
and $633,451, respectively, of preferred stock dividends paid or payable in cash
and $1,072,317, and $650,217, 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.


45


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


On
December 28, 2005 and January 4, 2006, the Company entered into
Securities Purchase Agreements and completed the sale of $3.63 million of
the Company’s common stock and warrants to nine institutional investors and four
accredited individual investors (December Investors). Pursuant to the Securities
Purchase Agreements, the Company issued a total of 3,025,001 shares of common
stock and warrants to purchase 2,117,501 shares of common stock to the December
Investors. The warrants have an exercise price of $1.44 per share and a term of
five and one-half years. After expenses of the transaction and advisor’s fee,
the Company received net proceeds of approximately $3.4 million, of which
approximately $1.4 million was received after December 31, 2005 and,
accordingly, was not included in the Company’s cash and cash equivalents of
$5,279,691 at December 31, 2005.


In the
first quarter of 2007, JMAR entered into Securities Purchase Agreements and
completed the sale of $386,682 of the Company’s common stock to Laurus. Pursuant
to the Securities Purchase Agreements, the Company issued a total of 2,254,467
shares of common stock. The company also issued two warrants for 97,024 and
83,333 shares of common stock to Midtown Partners for brokering financing
arrangements. In addition, the Company committed to issue 461,539 shares of
common stock to Midtown Partners & Co. LLC in payment of a $60,000 fee for
brokering a second promissory note.


On July 5, 2007, the Company
entered into a second Securities Exchange Agreement with Laurus which provided
for the issuance to Laurus of another two million (2,000,000) shares of Common
Stock in exchange for and cancellation of another $204,400 stated value of
Series G and I Preferred Stock.


On August 8, 2007, Laurus
purchased 2,100,000 of Common Stock in exchange for and cancellation of $252,000
stated value of Series G and Series I Preferred Stock held by Laurus
(see Note 12 – Equity Transactions- Laurus Preferred Stock and
Warrants).


On August
31, 2007, Laurus completed a cashless exercise, in accordance with its warrant
agreement, of 2,388,189 warrants with an exercise price of $0.01, resulting in
the purchase of 2,197,134 shares of common stock.


On
September 11, 2007 the Company entered into a Securities Purchase Agreement
providing for the issuance of the $7,500,000 Term Note and issued warrants
to purchase 119,000,000 shares of common stock to Laurus. As a result, a
derivative liability and debt discount was created.  See Note 11 —
Derivative Liability.


c. Issuance of
Warrants


A summary
of the status of the total number of warrants as of December 31, 2007 and
2006 and changes during the years then ended is presented in the tables
below:




2007
            
            
            2006Wtd
      Avg
            
            
            
            
            
            Wtd AvgShares
            
            
            Price
            
            
            Shares
            
            
            PriceOutstanding
      at beginning of year
            
            
            7,311,251
            
            
            $
            1.51
            
            
            
            6,651,278
            
            
            $
            1.65Granted
            
            
            127,416,107
            
            
            
            0.01
            
            
            
            843,598
            
            
            
            0.86Exercised
            
            
            (2,388,189
            )
            
            
            0.12
            
            
            
            
            
            
            
            —Forfeited
            
            
            (32,465
            )
            
            
            —
            
            
            
            (183,625
            )
            
            
            2.56Outstanding
      at end of year
            
            
            132,306,705
            
            
            
            0.16
            
            
            
            7,311,251
            
            
            
            1.51Exercisable
      at end of year
            
            
            126,559,989
            
            
            
            
            
            
            
            4,385,907Weighted
      average fair value of warrants granted
            
            
            
            
            
            
            0.12
            
            
            
            
            
            
            
            1.06





A
summary of outstanding warrants as of December 31, 2007, the range of
exercise prices, the weighted-average exercise price, the weighted-average
remaining contractual life, the amount of warrants currently exercisable and the
weighted-average exercise price of warrants currently exercisable is as
follows:





Warrants
      Outstanding
            
            
            Warrants
      ExercisableNumber
            
            
            Weighted-Average
            
            Weighted-
            
            
            Number
            
            
            Weighted-Range
      of
            
            Outstanding
            
            
            Remaining
            
            Average
            
            
            Exercisable
            
            
            AverageExercise
      Prices
            
            at
      12/31/07
            
            
            Contractual
      Life
            
            Exercise
      Price
            
            
            at
      12/31/07
            
            
            Exercise
      Price$0.01
      to $0.67
            
            
            125,997,105
            
            
            9.3
            Years
            
            $
            0.01
            
            
            
            122,935,733
            
            
            $
            0.011.00
      to   1.80
            
            
            5,450,225
            
            
            
            3.0
            
            
            
            1.23
            
            
            
            2,764,881
            
            
            
            3.772.05
      to   2.64
            
            
            404,000
            
            
            
            2.7
            
            
            
            2.36
            
            
            
            404,000
            
            
            
            2.363.13
      to   3.88
            
            
            275,375
            
            
            
            3.0
            
            
            
            2.02
            
            
            
            275,375
            
            
            
            2.395.00
      to   5.15
            
            
            180,000
            
            
            
            4.0
            
            
            
            5.00
            
            
            
            180,000
            
            
            
            5.00$0.01
      to $5.15
            
            
            132,306,705
            
            
            
            
            
            
            
            
            
            
            
            126,559,989





46


d. Issuances of Common Stock and
Warrants for Services


During
the years ended December 31, 2007 and 2006, the Company issued 2,252,340
and 228,418 shares of common stock, respectively, for services. These issuances
were valued based upon the fair market value of the Company’s common stock at
the date of issue.


In the
first quarter of 2007, the Company issued 240,000 shares of common stock to a
consultant  for investor relations services. An additional 108,083
shares of common stock were issued for other services in the first quarter..
These issuances were valued based upon the fair market value of the Company’s
common stock at the date of issue.


In the
second quarter of 2007, the Company agreed to issue 461,539 shares of common
stock to Midtown Partners in payment of a $60,000 fee related to the issuance of
the $750,000 Note (See Note 8 — Notes Payable and
Other Long-term Obligations ).


In the
second quarter of 2007, the Company issued 604,807 shares of common stock for
services. These issuances were valued based upon the fair market value of the
Company’s common stock at the date of issue


In connection with the sale of the
Series J Preferred Stock to Laurus in the third quarter, the Company paid
Midtown Partners a fee equal to eight percent (8%) of the gross proceeds from
the sale of the Series J Preferred Stock and a warrant to purchase 320,000
shares of Common Stock, with a term of 5-1/2 years, an exercise price of
$0.1022 per share and a provision enabling the holder to effect a cashless
exercise of the Warrant. In connection with another sale of the
Series J Preferred Stock in third quarter, the Company issued to Midtown
Partners a warrant to purchase 168,000 shares of Common Stock, with a term of
5-1/2 years, an exercise price of $0.12 per share and a provision enabling
the holder to effect a cashless exercise of the Warrant.


In the
fourth quarter of 2007, the Company issued 946,976 shares of common stock for
services. These issuances were valued based upon the fair market value of the
Company’s common stock at the date of issue.


13. 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 are shareholder-approved and are
the only plans of the six stock plans from which additional options may be
granted. The 2006 Plan authorizes the grant of up to 2,000,000 shares and
options, which was increased to 20,000,000 shares on February 22, 2008 (See Note
18 – Subsequent Events) and 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.


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 years
ended December 31, 2007 and 2006 are compensation charges as
follows:


2007
            
            
            2006Compensation
            
            $
            135,201
            
            
            $
            310,816Selling,
      general, & administrative
            
            
            125,449
            
            
            
            248,581Research
      and development
            
            
            9,752
            
            
            
            62,235





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 years ended
December 31, 2007 and 2006 was $211,021 and $558,454, respectively. The stock
based compensation unrecognized expense for future periods as of
December 31, 2007 is approximately $111,178 with a weighted average
remaining vesting period of 1.24 years.
 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 in 2007: risk-free interest rate of approximately
4.73 percent in 2007 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 2007,
the expected volatility used was 86 to 100 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 2007 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.




47


The total
intrinsic value of options exercised during the year ended December 31,
2006 was $5,749. There was no cash received from options exercised for the year
ended December 31, 2006 as options exercised were done on a “cashless”
basis with the Company receiving shares of Company stock as payment of the
exercise price. The stock based compensation unrecognized expense for future
periods as of December 31, 2006 was approximately $384,431 with a weighted
average remaining vesting period of 1.1 years.


There
were no stock options exercised during the year ended December 31, 2007.


A summary
of option activity under all of the above plans as of December 31, 2007 and
2006, and changes during the years then ended is presented in the table
below:





2007
            
            2006Wtd.
      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
            
            
            
            2,329,054
            
            
            
            
            
            $
            2.71
            
            
            
            6.5
            
            
            $
            —
            
            
            
            
            3,162,610
            
            
            $
            2.11
            
            
            
            —
            
            
            $
            —Granted
            
            
            
            50,000
            
            
            
            
            
            $
            0.22
            
            
            
            —
            
            
            
            —
            
            
            
            
            394,095
            
            
            
            0.74
            
            
            
            —
            
            
            
            —Exercised
            
            
            
            —
            
            
            
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            (65,700
            )
            
            
            1.09
            
            
            
            —
            
            
            
            —Forfeited
            
            
            
            (
      996,340
            )
            
            
            
            
            
            $
            1.99
            
            
            
            —
            
            
            
            —
            
            
            
            
            (1,161,951
            )
            
            
            1.29
            
            
            —
            
            
            
            —Outstanding
      at end of period
            
            
            
            1,382,714
            
            
            
            
            
            
            $
            2.25
            
            
            
            3.8
            
            
            
            —
            
            
            
            
            2,329,054
            
            
            
            2.71
            
            
            5.1
            
            
            
            —Vested
      and Expected to Vest
            
            
            
            1,377,714
            
            
            
            
            
            
            $
            2.25
            
            
            2.9
            
            
            
            —
            
            
            
            
            2,314,054
            
            
            
            2.77
            
            
            5.0
            
            
            
            —Exercisable
      at end of period
            
            
            
            1,135,546
            
            
            
            
            
            
            $
            2.54
            
            
            2.9
            
            
            $
            —
            
            
            
            
            1,705,295
            
            
            $
            2.47
            
            
            3.2
            
            
            $
            —




A summary
of the options outstanding as of December 31, 2007, 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-
            
            
            
            
            
            
            
            
            Weighted-Number
            
            
            Average
            
            
            Weighted-
            
            
            Number
            
            
            AverageRange
      of
            
            
            Outstanding
            
            
            Remaining
            
            
            Average
            
            
            Exercisable
            
            
            ExerciseExercise
      Prices
            
            
            at
      12/31/07
            
            
            Contractual
      Life
            
            
            Exercise
      Price
            
            
            at
      12/31/07
            
            
            Price$
            0.50
      to $0.87
            
            
            
            345,334
            
            
            8.1
      Years
            
            $
            0.73
            
            
            
            125,333
            
            
            $
            0.72$
            1.21
      to $1.75
            
            
            
            305,000
            
            
            5.5
      Years
            
            
            1.65
            
            
            
            288,333
            
            
            
            1.48$
            1.94
      to $2.91
            
            
            
            174,960
            
            
            1.3
      Years
            
            
            2.43
            
            
            
            174,960
            
            
            
            2.43$
            3.25
      to $3.83
            
            
            
            477,420
            
            
            0.6
      Years
            
            
            3.17
            
            
            
            466,920
            
            
            
            3.24$
            4.56
      to $6.50
            
            
            
            80,000
            
            
            1.0
      Years
            
            
            5.29
            
            
            
            80,000
            
            
            
            5.291,382,714
            
            
            
            
            
            
            
            
            
            
            
            1,135,546




A summary
of the status of the Company’s non vested options at December 31, 2007, and
changes during the year ended December 31, 2007, is presented
below:


Grant-dateShares
            
            fair
      valueNonvested
      at December 31, 2006
            
            
            623,762
            
            
            $
            1.02Granted
            
            
            50,000
            
            
            $
            0.22Vested
            
            
            (198,664
            )
            
            $
            0.87Forfeited
            
            
            (238,419
            )
            
            $
            0.90Non-vested
      at December 31, 2007
            
            
            236,679
            
            
            $
            1.10








48




14. Segment
Information





Segment
information for the year ended December 31, 2007 (excluding discontinued
operations) is as follows:


Research
              Division
            
            
            Sensor
              Products
              Group
            
            
            Corporate
            
            
            TotalRevenues
            
            $
            542,766
            
            
            $
            326,896
            
            
            $
            —
            
            
            $
            869,662Asset  writedowns
            
            
            (86,416
            )
            
            
            (134,912
            )
            
            
            —
            
            
            
            (221,328
            )Operating
      loss
            
            
            (1,325,514
            )
            
            
            (1,645,273
            )
            
            
            (1,141,431
            )
            
            
            (4,112,218
            )Total
      assets
            
            
            731,335
            
            
            
            1,654,107
            
            
            
            5,596,858
            
            
            
            7,982,300Capital
      expend
            
            
            —
            
            
            
            —
            
            
            
            7,328
            
            
            
            7,328Depreciation
      & amortization
            
            
            73,243
            
            
            
            26,300
            
            
            
            190,956
            
            
            
            290,499





Segment
information for the year ended December 31, 2006 (excluding discontinued
operations) is as follows:




Revenues
            
            $
            1,898,497
            
            
            $
            99,686
            
            
            $
            —
            
            
            $
            1,998,183Asset
      writedowns
            
            
            (82,395
            )
            
            
            (5,450
            )
            
            
            —
            
            
            
            (87,845
            )Operating
      loss
            
            
            (1,470,887
            )
            
            
            (3,820,103
            )
            
            
            (1,936,471
            )
            
            
            (7,227,461
            )Total
      assets
            
            
            1,205,312
            
            
            
            1,737,118
            
            
            
            3,028,386
            
            
            
            5,970,816Goodwill
      writeoff
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Capital
      expend
            
            
            —
            
            
            
            12,360
            
            
            
            17,237
            
            
            
            29,597Depreciation
      & amortization
            
            
            96,451
            
            
            
            30,588
            
            
            
            451,647
            
            
            
            578,686





Significant
Customers


Sales to
the United States Government and Lawrence Livermore National Laboratory in 2007
aggregated $313,266 and $229,500 or 36.0% and 26.4%, respectively. Sales to the
United States Government in 2006 aggregated $1,668,185 or 83.5%.


Export Sales


For the
year ended December 31, 2007, 85.1% of the Company’s revenues were
generated from the United States, 8.0%  from Mexico and 4.5% from the
Netherlands. For the year ended December 31, 2006, all of the
Company’s revenues were generated from the United States.
 15.
Intangible Assets
 The
Company adopted SFAS No. 142 “Goodwill and Other Intangible Assets” (SFAS
142) effective January 1, 2002. In accordance with SFAS 142, the Company
does not amortize goodwill. The Company’s entire amount of goodwill of
$4,415,932 was written off in 2006 (see Note 2). As of December 31, 2007
and 2006, the Company had the following amounts related to other intangible
assets:


December
      31, 2007
            
            
            December
      31, 2006Gross
            
            
            
            
            
            
            Net
            
            
            Gross
            
            
            
            
            
            
            NetCarrying
            
            
            Accumulated
            
            
            Intangible
            
            
            Carrying
            
            
            Accumulated
            
            
            IntangibleAmount
            
            
            Amortization
            
            
            Assets
            
            
            Amount
            
            
            Amortization
            
            
            AssetsPatents
            
            $
            485,160
            
            
            $
            78,343
            
            
            $
            406,817
            
            
            $
            645,264
            
            
            $
            134,512
            
            
            $
            510,752Licenses
            
            
            1,237,896
            
            
            
            2,800
            
            
            
            1,235,096
            
            
            
            1,237,896
            
            
            
            800
            
            
            
            1,237,096$
            1,641,913
            
            
            
            
            
            
            
            
            
            
            $
            1,747,848





During
2007, the Company capitalized $69,083 related to patent costs. The Research
Division accounted for $39,489 of the patent costs and the Sensor Products
Group accounted for $29,594.  In 2006, the Company capitalized $141,726
related to patent costs.  The Research Division accounted for $108,869
and the Service Products Group accounted for $32,857 of the patents
costs.




49


In
January 2005, the Company and PointSource Technologies, LLC (PointSource)
entered into a License Agreement granting JMAR an exclusive license covering all
PointSource patents and other intellectual property related to the manufacture
and sale of scattered-radiation based products used to detect or classify
microorganisms in water and other media. As consideration for the License
Agreement, the Company issued 520,000 shares of common stock and warrants to
purchase 333,333 shares of common stock with an exercise price of $1.38 per
share, and a term of 5 years. The stock and warrants were valued at
$1,247,897. The stock issued to PointSource was valued based on the market price
of JMAR’s stock at the time the agreement was consummated and the warrants were
valued based on the Black Scholes model using the following assumptions:
risk-free interest rate of 3.63 percent based on estimated yields of 5-year
U.S. Treasury Securities; expected dividend yield of 0 percent; expected
life of 5 years; and expected volatility of 87 percent. The volatility
is based on JMAR’s historical stock prices for the past five years, consistent
with the expected life of the warrants. Amortization of the asset began upon
first product shipment revenues and is based on the units-of-production method
over the expected life of the technology, not to exceed the life of the
license.


Absent an
increase in the revenues from the BioSentry business area, or completion of
strategic or financial partnering to support the continued commercialization of
the BioSentry products in the next several months, the Company will need to
curtail its financial commitment to this business area until such time as one or
more of these events has occurred. If the Company is required to curtail these
operations, this would have a material adverse impact on the Company, including
the lay-off of key personnel in this business area and the write-off of certain
BioSentry related assets.


Aggregate
amortization expense of the intangible assets with determinable lives was $4,829
and $8,273 for the years ended December 31, 2007 and 2006, respectively.
The unamortized balance of intangible assets is estimated to be amortized as
follows:




For
      the Year Ending
            
            Estimated
      AmortizationDecember
      31,
            
            Expense2008
            
            $
            167,0492009
            
            
            518,2022010
            
            
            671,8912011
            
            
            40,6822012
            
            
            40,682Thereafter
            
            
            203,408$
            1,641,914




16. Concentration of Customers
Risk


The
Company’s top customer (U.S. Government) accounted for approximately 36% and 83%
of revenues for the years ended December 31, 2007 and 2006, respectively,
and accounted for 32% and 99% of accounts receivable as of
December 31, 2007 and 2006, respectively.


17. Research and Development
Costs


The
Company’s research and development (R&D) consists of two types:
customer-funded R&D (U.S. government and other companies) and Company-funded
R&D. Both types of R&D 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 $312,454 and $1,296,529 for
      the fiscal years ended December 31, 2007 and 2006, respectively. The
      decrease for the year ended December 31, 2007 compared to the year
      ended December 31, 2006 was primarily attributable to a decrease of
      $647,024 related to the DARPA Contract and a decrease of $416,158 related
      to the NAVAIR contract. The decrease in the NAVAIR contract revenues is
      due to the completion of that program in 2007.•
            
            Company-funded
      RD&E costs associated with product development are shown in “Operating
      Expenses” and totaled $956,065 and $2,612,289 for the fiscal years
      ended December 31, 2007 and 2006,
  respectively.


•
            
            Customer-funded
      RD&E costs incurred, primarily related to the SBIR Contract are
      included in “Costs of Revenues” and totaled $312,454 and $1,296,529 for
      the fiscal years ended December 31, 2007 and 2006, respectively. The
      decrease for the year ended December 31, 2007 compared to the year
      ended December 31, 2006 was primarily attributable to a decrease of
      $647,024 related to the DARPA Contract and a decrease of $416,158 related
      to the NAVAIR contract. The decrease in the NAVAIR contract revenues is
      due to the completion of that program in 2007.•
            
            Company-funded
      RD&E costs associated with product development are shown in “Operating
      Expenses” and totaled  $956,065 and $2,612,289 for the fiscal
      years ended December 31, 2007 and 2006,
  respectively.•
            
            Total
      RD&E expenditures for 2007 and 2006 were $1,268,519 and $3,908,818,
      respectively.•
            
            Total
      RD&E expenditures as a percentage of revenues were 146% and 196% for
      the years ended December 31, 2007 and 2006, 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.


18. Subsequent
Events


In
January, 2008, JMAR completed the asset sale of the Vermont Operations,
including reimbursement of certain building lease payments and operating costs
for  total proceeds of $218,607.


In
February, 2008, JMAR entered into a product engineering, development and
manufacturing agreement with D-K Engineering, Inc. to manufacture the BioSentry
System for JMAR.


In a
Special Meeting of Shareholders held on February 20, 2008, the Company’s
shareholders approved an amendment to the Amended Articles of Incorporation to
increase the authorized shares of the Company’s common stock from 80,000,000 to
380,000,000 shares. In addition, the share authorization under 2006 Equity
Incentive Plan was increased by the board of directors to 20,000,000
shares.





50





SIGNATURES


Pursuant
to the requirement of Section 13 or 15 (d) 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.Date:
      April
      1, 2008
            
            By:
            
            /s/
      C. Neil BeerChief
      Executive OfficerBy:
            
            /s/
      Edward C. HallChief
      Financial Officer


Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.




Signature
            
            Title
            
            Date/s/
      C. Neil Beer
            
            Chief
      Executive Officer and Director
            
            April
      1, 2008C.
      Neil Beer/s/
      Edward C. Hall
            
            Chief
      Financial Officer
            
            April
      1, 2008Edward
      C. Hall/s/
      Charles A. Dickinson
            
            Director
            
            April
      1, 2008Charles
      A. Dickinson/s/
      J. Paul Gilman
            
            Director
            
            April
      1, 2008J.
      Paul Gilman/s/ James B. McCarthy
            
            Director
            
            April
      1, 2008James
      B. McCarthy/s/
      Richard J. Naughton
            
            Director
            
            April
      1, 2008Richard
      J. Naughton








51




Index
to Exhibits
 
 Exhibit
                No.
              
              Description3.1
              
              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).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.)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).3.4
              
              Certificate
      to set forth Designations, Voting Powers, Preferences, Limitations,
      Restrictions and Relative Rights of Series G Convertible Preferred Stock,
      $0.01 Par Value Per Share (Incorporated by reference to Exhibit 4.15 filed
      with the Company’s Form S-3 filed February 9, 2004).3.5
              
              Amendments
      to Certificates of Designations of Series E, F, G and H Convertible
      Preferred Stock, each dated February 1, 2005, between the Company and
      Laurus (Incorporated by reference to Exhibit 10.4 filed with the Company’s
      Form 8-K filed February 7, 2005).3.6
              
              Certificates
      of Amendment of Certificates to set forth Designations of Series E, F, G
      and H Convertible Preferred Stock, each dated October 20, 2005, between
      Laurus and JMAR Technologies, Inc. (Incorporated by reference to Exhibit
      10.5 filed with the Company’s Form 10-Q for the quarter ended September
      30, 2005).3.7
              
              Certificate
      to set forth Designations, Voting Powers, Preferences, Limitations,
      Restrictions and Relative Rights of Series I Convertible Preferred Stock,
      $0.01 Par Value Per Share (Incorporated by reference to Exhibit 10.6 filed
      with the Company’s Form 10-Q for the quarter ended March 31,
      2006).3.8
              
              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)4.1
              
              Form
      of Common Stock Certificate (Incorporated by reference to the exhibit
      filed with the Company’s Registration Statement on Form S-1 (No. 33-47390)
      filed on April 22, 1992 and amended November 23, 1992, January 11, 1993,
      January 27, 1993, February 9, 1993, February 11, 1993, February 12, 1993
      and declared effective on February 16, 1993).4.2
              
              Rights
      Agreement, dated as of February 12, 1999 between the Company and American
      Securities Trust & Transfer, Inc., including the Certificate of
      Designations, the form of Rights Certificate and the Summary of Rights
      attached thereto as Exhibits A, B and C, respectively (Incorporated by
      reference to the exhibit filed with the Company’s Form 8-A filed March 8,
      1999).4.3(+)
              
              Form
      of Stock Option Agreement between the Company and the employees listed on
      attached schedule (Incorporated by reference to Exhibit 4.3 filed with the
      Company’s Form 10-K for the year ended December 31,
  2002).
  52
 4.4
              
              Common
      Stock Purchase Warrant for 300,000 shares dated March 14, 2003 issued to
      Laurus Master Fund, Ltd (“Laurus”) in connection with the issuance of
      Series A Preferred Stock and Series B Preferred Stock (Incorporated by
      reference to Exhibit 4.1 filed with the Company’s Form 8-K filed March 17,
      2003).4.5
              
              Common
      Stock Purchase Warrant for 400,000 shares dated March 21, 2003 issued to
      Laurus in connection with $3 million receivables financing facility
      (Incorporated by reference to Exhibit 4.8 filed with the Company’s Form
      10-K for the year ended December 31, 2002).4.6
              
              Common
      Stock Purchase Warrant for 150,000 shares dated September 30, 2003 issued
      to Laurus in connection with the issuance of Series C Preferred Stock
      (Incorporated by reference to Exhibit 4.11 filed with the Company’s Form
      S-3 filed November 5, 2003).4.7
              
              Common
      Stock Purchase Warrant for 200,000 shares dated December 17, 2003 issued
      to Laurus in connection with the issuance of Series D Preferred Stock
      (Incorporated by reference to Exhibit 4.12 filed with the Company’s Form
      S-3 filed January 16, 2004).4.8
              
              Common
      Stock Purchase Warrant for 90,000 shares dated January 7, 2004 issued to
      Laurus in connection with the issuance of Series E Preferred Stock
      (Incorporated by reference to Exhibit 4.13 filed with the Company’s Form
      S-3 filed January 16, 2004).4.9
              
              Common
      Stock Purchase Warrant for 100,000 shares dated January 7, 2004 issued to
      Laurus in connection with the amendment of the Convertible Notes
      (Incorporated by reference to Exhibit 4.14 filed with the Company’s Form
      S-3 filed January 16, 2004).4.10
              
              Common
      Stock Purchase Warrant for 50,000 shares dated February 5, 2004 issued to
      Laurus in connection with the issuance of Series F Preferred Stock
      (Incorporated by reference to Exhibit 4.17 filed with the Company’s Form
      S-3 filed February 9, 2004).4.11
              
              Common
      Stock Purchase Warrant for 50,000 shares dated February 5, 2004 issued to
      Laurus in connection with the issuance of Series G Preferred Stock
      (Incorporated by reference to Exhibit 4.18 filed with the Company’s Form
      S-3 filed February 9, 2004).
 4.12
              
              Common
      Stock Purchase Warrant for 100,000 shares dated February 5, 2004 issued to
      Laurus in connection with the issuance of Series H Preferred Stock
      (Incorporated by reference to Exhibit 4.19 filed with the Company’s Form
      S-3 filed February 9, 2004).4.13
              
              Form
      of Warrant, dated as of January 25, 2005, issued to the assignees of
      PointSource Technologies, LLC (Incorporated by reference to Exhibit 4.3
      filed with the Company’s Form S-3 filed February 9,
  2005).4.14
              
              Form
      of Warrant, dated February 1, 2005, issued to Portside Growth &
      Opportunity Fund, Smithfield Fiduciary LLC, Bluegrass Growth Fund, LP,
      Bluegrass Growth Fund, Ltd., and Laurus Master Fund, Ltd (Incorporated by
      reference to Exhibit 10.3 filed with the Company’s Form 8-K filed February
      7, 2005).4.15
              
              Form
      of Warrant issued to affiliates of Source Capital Group, Inc.
      (Incorporated by reference to Exhibit 4.6 filed with the Company’s Form
      S-3 filed February 9, 2005).4.16
              
              Common
      Stock Purchase Warrant for 50,000 shares dated July 1, 2005 issued to Dian
      Griesel, President of The Investor Relations Group, as compensation for
      investor and public relations services (Incorporated by reference to
      Exhibit 4.1 filed with the Company’s Form 10-Q for the quarter ended
      September 30, 2005).4.17
              
              Common
      Stock Purchase Warrant for 375,000 shares dated December 22, 2005 issued
      to Laurus in connection with the cancellation of Series E Convertible
      Preferred Stock. (Incorporated by reference to Exhibit 4.22 filed with the
      Company’s Form 10-K for the year ended December 31,
  2005)
  53
 4.18
              
              Form
      of Warrant dated December 28, 2005 and January 4, 2006 issued to Nite
      Capital LP, Cranshire Capital, L.P., Whalehaven Capital Fund Limited,
      Iroquois Master Fund, Ltd., Hudson Bay Fund, L.P., Jeffrey Benton, Capital
      Ventures International, Double U Master Fund LP, Monarch Capital Fund Ltd,
      Ronald A. Durando, Gustave T. Dotoli, CGA Resources, LLC, Smithfield
      Fiduciary, LLC and Portside Growth & Opportunity Fund (Incorporated by
      reference to Exhibit 10.3 filed with the Company’s Form 8-K filed January
      4, 2006).4.19
              
              Common
      Stock Purchase Warrant for 218,181 shares issued March 28, 2006 issued to
      Laurus in connection with working capital facility (Incorporated by
      reference to Exhibit 10.3 filed with the Company’s Form 10-Q for the
      quarter ended March 31, 2006).4.20
              
              Common
      Stock Purchase Warrant for up to 240,000 shares issued March 28, 2006
      issued to Laurus in connection with working capital facility (Incorporated
      by reference to Exhibit 10.4 filed with the Company’s Form 10-Q for the
      quarter ended March 31, 2006).4.21
              
              Common
      Stock Purchase Warrant, dated April 11, 2007, for the purchase of
      7,597,750 shares issued to Laurus Master Fund, Ltd. (“Laurus”)
      (Incorporated by reference to Exhibit 4.1 filed with the Company’s Form
      10-Q for the quarter ended June 30, 2007)4.22
              
              Common
      Stock Purchase Warrant, dated as of August 31, 2007, for the purchase of
      80,000,000 shares issued to Laurus Master Fund, Ltd.
      (“Laurus”)  (Incorporated by reference to Exhibit 4.1 filed with
      the Company’s Form 10-Q for the quarter ended September 30,
      2007)4.23
              
              Common
      Stock Purchase Warrant, dated as of August 31, 2007, for the purchase of
      39,000,000 shares issued to Laurus Master Fund, Ltd. (“Laurus”) ”)
      (Incorporated by reference to Exhibit 4.2 filed with the Company’s Form
      10-Q for the quarter ended September 30, 2007)10.1(+)
              
              The
      Company’s 1991 Stock Option Plan, as amended (Incorporated by reference to
      the exhibit filed with the Company’s Proxy Statement for the 1996 Annual
      Meeting of Shareholders).10.2(+)
              
              The
      Company’s Amended and Restated 1999 Stock Option Plan (Incorporated by
      reference to the exhibit filed with the Company’s Proxy Statement for the
      2002 Annual Meeting of Shareholders).10.3(+)
              
              Agreement
      dated September 16, 2002 between the Company and John S. Martinez
      (Incorporated by reference to Exhibit 10.1 filed with the Company’s Form
      10-Q for the quarter ended September 30, 2002).10.4(+)
              
              Form
      of Indemnification Agreement entered into between the Company and each of
      the members of its Board of Directors (Incorporated by reference to
      Exhibit 10.9 filed with the Company’s Form 10-K for the year ended
      December 31, 2004).10.5(+)
              
              Form
      of Indemnification Agreement entered into between the Company and each of
      its executive officers (Incorporated by reference to Exhibit 10.10 filed
      with the Company’s Form 10-K for the year ended December 31,
      2004).10.6
              
              Patent
      and Technology License Agreement, dated January 25, 2005, between
      PointSource Technologies, LLC and the Company (Incorporated by reference
      to Exhibit 10.12 filed with the Company’s Form 10-K for the year ended
      December 31, 2004).
   54
  10.7
              
              Technology
      Transfer and License Agreement, dated February 21, 2005, between JMAR
      Technologies, Inc. and Gregory Quist and David Drake doing business as The
      LXT Group (Incorporated by reference to Exhibit 10.1 filed with the
      Company’s Form 8-K filed February 25, 2005).10.8
              
              Agreement,
      dated March 18, 2003, between the Company and FemtoTrace, Inc.
      (Incorporated by reference to Exhibit 10.20 filed with the Company’s Form
      10-K for the year ended December 31, 2004).10.9
              
              Amendment
      to Solicitation/Modification of Contract, effective February 11, 2005,
      issued by U.S. Army RDECOM Acquisition Center (Incorporated by reference
      to Exhibit 10.23 filed with the Company’s Form 10-K for the year ended
      December 31, 2004).10.10
              
              Technology
      Test and Contingent Purchase Agreement for BioSentry, dated April 13,
      2005, between JMAR Technologies, Inc. and Kimpen, S.A. de C.V.
      (Incorporated by reference to Exhibit 10.1 filed with the Company Form
      10-Q for the quarter ended March 31, 2005)10.11
              
              Amendment
      of Solicitation/Modification of contract, dated June 28, 2005, between
      Naval Air Warfare Center AD and JMAR Technologies, Inc. Systems Division
      (Incorporated by reference to Exhibit 10.1 filed with the Company’s Form
      10-Q for the quarter ended June 30, 2005).10.12
              
              Purchase
      Orders, dated June 28, 2005 and July 27, 2005, between FemtoTrace, Inc.
      and JMAR Technologies, Inc. (Incorporated by reference to Exhibit 10.2
      filed with the Company’s Form 10-Q for the quarter ended June 30,
      2005).10.13
              
              Standard
      Industrial Net Lease, dated July 1, 2005, between Collins-Tech R.B. and
      JMAR Technologies, Inc. (Incorporated by reference to Exhibit 10.1 filed
      with the Company’s Form 10-Q for the quarter ended September 30,
      2005).10.14
              
              Phase
      I SBIR Grant, dated November 8, 2005, between the U.S. Army and JMAR
      Technologies, Inc. (Incorporated by reference to Exhibit 10.32 filed with
      the Company’s Form 10-K for the year ended December 31,
    2005)10.15
              
              Purchase
      Order, dated November 16, 2005, between Kimpen, S.A. de C.V. and JMAR
      Technologies, Inc. (Incorporated by reference to Exhibit 10.33 filed with
      the Company’s Form 10-K for the year ended December 31,
    2005)10.16
              
              Contract,
      dated November 29, 2005, between U.S. city and JMAR Technologies, Inc.
      (Incorporated by reference to Exhibit 10.34 filed with the Company’s Form
      10-K for the year ended December 31, 2005)10.17
              
              Securities
      Purchase Agreements, dated December 28, 2005 and January 4, 2006, among
      the Company and Nite Capital LP, Cranshire Capital, L.P., Whalehaven
      Capital Fund Limited, Iroquois Master Fund, Ltd., Hudson Bay Fund, L.P.,
      Jeffrey Benton, Capital Ventures International, Double U Master Fund LP,
      Monarch Capital Fund Ltd, Ronald A. Durando, Gustave T. Dotoli, CGA
      Resources, LLC, Smithfield Fiduciary, LLC and Portside Growth &
      Opportunity Fund (Incorporated by reference to Exhibit 10.1 filed with the
      Company’s Form 8-K/A filed January 10, 2006).10.18
              
              Registration
      Rights Agreements, dated December 28, 2005 and January 4, 2006, among the
      Company and Nite Capital LP, Cranshire Capital, L.P., Whalehaven Capital
      Fund Limited, Iroquois Master Fund, Ltd., Hudson Bay Fund, L.P., Jeffrey
      Benton, Capital Ventures International, Double U Master Fund LP, Monarch
      Capital Fund Ltd, Ronald A. Durando, Gustave T. Dotoli, CGA Resources,
      LLC, Smithfield Fiduciary, LLC and Portside Growth & Opportunity Fund
      (Incorporated by reference to Exhibit 10.2 filed with the Company’s Form
      8-K filed January 4, 2006).10.19
              
              Secured
      Non-Convertible Revolving Note, dated March 28, 2006, executed by the
      Company in favor of Laurus (Incorporated by reference to Exhibit 10.2
      filed with the Company’s Form 10-Q for the quarter ended March 31,
      2006).10.20
              
              Securities
      Exchange Agreement, dated March 28, 2006, between the Company and Laurus
      (Incorporated by reference to Exhibit 10.5 filed with the Company’s Form
      10-Q for the quarter ended March 31,
2006).
  55
 10.21(+)
              
              JMAR
      Technologies, Inc. 2006 Equity Incentive Plan. (Incorporated by reference
      to Exhibit 10.1 filed with the Company’s Form 10-Q for the quarter ended
      June 30, 2006).10.22
              
              Award
      dated August 4, 2006 between the Company’s Systems Division and the Naval
      Air Systems Command (Incorporated by reference to Exhibit 10.1 filed with
      the Company’s Form 10-Q for the quarter ended September 30,
      2006).10.23
              
              Phase
      II SBIR Contract dated September 8, 2006, between the Company’s Research
      Division and the U.S. Army Small Business Innovation Research
      (Incorporated by reference to Exhibit 10.2 filed with the Company’s Form
      10-Q for the quarter ended September 30, 2006).10.24(+)
              
              Employment
      Agreement, dated September 21, 2006, between the Company and Dr. C. Neil
      Beer (Incorporated by reference to Exhibit 10.3 filed with the Company’s
      Form 10-Q for the quarter ended September 30, 2006).10.25
              
              Securities
      Purchase Agreement dated February 8, 2007 between JMAR Technologies, Inc.
      and Laurus Master Fund, Ltd. (Incorporated by reference to Exhibit 10.35
      filed with the Company’s Form 10-Q for the quarter ended March 31,
      2007).10.26
              
              Securities
      Purchase Agreement dated March 6, 2007 between JMAR Technologies, Inc. and
      Laurus Master Fund, Ltd. (Incorporated by reference to Exhibit 10.36 filed
      with the Company’s Form 10-Q for the quarter ended March 31,
      2007).10.27
              
              Asset
      Purchase Agreement dated March 16, 2007 between JMAR Technologies, Inc.
      and Gatan, Inc. (Incorporated by reference to Exhibit 10.37 filed with the
      Company’s Form 10-Q for the quarter ended March 31,
  2007)10.28
              
              Securities
      Purchase Agreement, dated April 11, 2007, between the Company and Laurus.
      ($750,000 loan) ”) (Incorporated by reference to Exhibit 10.1 filed with
      the Company’s Form 10-Q for the quarter ended June 30,
    2007)10.29
              
              Term
      Note, dated April 11, 2007, executed by the Company in favor of Laurus.
      (Incorporated by reference to Exhibit 10.2 filed with the Company’s Form
      10-Q for the quarter ended June 30, 2007)10.30
              
              Registration
      Right Agreement, dated April 11, 2007, between the Company and Laurus.
      (Incorporated by reference to Exhibit 10.3 filed with the Company’s Form
      10-Q for the quarter ended June 30, 2007)10.31
              
              Securities
      Exchange Agreement, dated April 23, 2007, between the Company and Laurus.
      (Incorporated by reference to Exhibit 10.4 filed with the Company’s Form
      10-Q for the quarter ended June 30, 2007)10.32
              
              Consulting
      Agreement, dated May 8, 2007, between the Company and Market Broker
      Relations. (Incorporated by reference to Exhibit 10.5 filed with the
      Company’s Form 10-Q for the quarter ended June 30,
2007)10.33
              
              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).10.34
              
              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).
  56
 10.35
              
              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).10.36
              
              Securities
      Purchase Agreement (Offering No.1), dated as of July 5, 2007, between the
      Company and Laurus. (Incorporated by reference to Exhibit 10.4 filed with
      the Company’s Form 10-Q for the quarter ended September 30,
      2007)10.37
              
              Agreement,
      dated as of July 20, 2007, between the Company and Laurus. (Incorporated
      by reference to Exhibit 10.5 filed with the Company’s Form 10-Q for the
      quarter ended September 30, 2007)10.38
              
              Securities
      Exchange Agreement, dated as of August 8, 2007, between the Company and
      Laurus. (Incorporated by reference to Exhibit 10.6 filed with the
      Company’s Form 10-Q for the quarter ended September 30,
    2007)10.39
              
              Securities
      Purchase Agreement (Offering No. 2), dated as of August  8,
      2007, between the Company and Laurus. (Incorporated by reference to
      Exhibit 10.7 filed with the Company’s Form 10-Q for the quarter ended
      September 30, 2007)10.40
              
              Securities
      Purchase Agreement, dated as of August 31, 2007, between the Company and
      Laurus. (Incorporated by reference to Exhibit 10.8 filed with the
      Company’s Form 10-Q for the quarter ended September 30,
    2007)10.41
              
              Secured
      Term Note, dated as of August 31, executed by the Company in favor of
      Laurus. (Incorporated by reference to Exhibit 10.9 filed with the
      Company’s Form 10-Q for the quarter ended September 30,
    2007)10.42
              
              Omnibus
      Amendment, dated as of August 31, between the Company and Laurus.
      (Incorporated by reference to Exhibit 10.10 filed with the Company’s Form
      10-Q for the quarter ended September 30, 2007)10.43(+)
              
              Employment
      Letter  between Edward C. Hall and the Company, dated as of
      September 14, 2007 (Incorporated by reference to Exhibit 10.11 filed with
      the Company’s Form 10-Q for the quarter ended September 30,
      2007)10.44(+)
              
              Executive
      Services Agreement  between Tatum, LLC and the Company, dated as
      of September 14, 2007 (Incorporated by reference to Exhibit 10.12 filed
      with the Company’s Form 10-Q for the quarter ended September 30,
      2007)10.45
              
              Summary
      of the Principal Terms of the contract dated October 12, 2007, between the
      Company and D&K Engineering, Inc.  for the Development and
      Prototype of a Man Portable Laser
 
 57




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


Schedule II


JMAR
TECHNOLOGIES, INC.


VALUATION
AND QUALIFYING ACCOUNTS


FOR THE
YEARS ENDED DECEMBER 31, 2007 AND 2006


AdditionsBalance
      at
            
            
            Charged
      toBeginning
      of
            
            
            Costs
      and
            
            
            
            
            
            
            
            
            
            
            Balance
      atDescription
            
            Year
            
            
            Expenses
            
            
            Other
            
            
            Deductions
            
            
            End
      of YearFor
      the year ended December 31, 2007:Warranty
      reserve
            
            $
            13,449
            
            
            $
            18,544
            
            
            $
            —
            
            
            $
            —
            
            
            $
            31,993Reserve
      for inventory excess and obsolescence
            
            
            10,268
            
            
            
            —
            
            
            
            —
            
            
            
            207
            
            
            
            10,061Allowance
      for doubtful accounts
            
            
            428,067
            
            
            
            —
            
            
            
            —
            
            
            
            428,067
            
            
            
            —Loss
      reserve -contract
            
            
            34,148
            
            
            
            —
            
            
            
            —
            
            
            
            34,148
            
            
            
            —Fo
              For
      the year ended December 31, 2006:Warranty
      reserve
            
            $
            —
            
            
            $
            13,449
            
            
            $
            —
            
            
            $
            —
            
            
            $
            13,449Reserve
      for inventory excess and obsolescence
            
            
            —
            
            
            
            46,916
            
            
            
            —
            
            
            
            36,648
            
            
            
            10,268Allowance
      for doubtful accounts
            
            
            —
            
            
            
            428,067
            
            
            
            —
            
            
            
            —
            
            
            
            428,067Loss
      reserve –contract
            
            26,302
            
            
            19,757
            
            
            
            
            
            11,911
            
            
            34,148