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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, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED]
 Commission file number 1-10515
 JMAR Technologies, Inc.
  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)
  (Former name, former address and former fiscal year, if changed since last report)
 Securities registered pursuant to Section 12(b) of the Act:Title of each class
    
    Name of each exchange on which registered
 
 o þ
 o þ
 þ o
 þ
  o o þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS
 PART I
    
    
    3Item 1. BUSINESS
    
    
    3Item 1A. RISK FACTORS
    
    
    12Item 1B. UNRESOLVED STAFF COMMENTS
    
    
    17Item 2. PROPERTIES
    
    
    17Item 3. LEGAL PROCEEDINGS
    
    
    17Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    17PART II
    
    
    17Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    17Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
    
    
    19Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    
    
    20Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    33Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    33Item 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    33Item 9A. CONTROLS AND PROCEDURES
    
    
    33Item 9B. OTHER INFORMATION
    
    
    34PART III
    
    
    34Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    34Item 11. EXECUTIVE COMPENSATION
    
    
    34Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
    
    
    34Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    34Item 14. PRINCIPAL AUDITOR FEES AND SERVICES
    
    
    34PART IV
    
    
    35Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
    
    
    35SIGNATURES
    
    
    63Index to Exhibits
    
    
    64EXHIBIT 23.1EXHIBIT 23.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
 2




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##### Table of Contents



PART I
 
 Item 1. BUSINESS
 General
    TM
  Business Segments
  Research Division/Vermont Operations
    3




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Sensor Products Group
  Products and Services
  BriteLight Lasers
      Compact X-ray Microscope
   4




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Compact X-ray Nano Probe
   Collimated Plasma Lithography (CPL)
   BioSentry
   
    
    In April 2005, we entered into a contract with Kimpen S.A. de C.V. (Kimpen),
Mexicos largest bottler and a subsidiary of one of Mexicos leading beverage
development and manufacturing companies (Bepensa) to install a Beta model of the
BioSentry at Kimpens laboratory. After successful completion of Beta testing, Kimpen
purchased two BioSentry production systems for installation in beverage production
facilities. Kimpen had originally indicated that after successful testing of these
two units they would purchase 15 more units, however, they suspended this 15
 5




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unit order due to financial constraints at Bepensa. Kimpen and JMAR have formally
agreed to cooperate to reinstate the 15 unit order by joint selling efforts to each of
15 Bepensa beverage plants. The two purchased units were shipped in 2006 and were undergoing
installation and start-up testing at the end of March, 2007.
    
    In May 2005, a leading North American cruise ship operator requested installation
of the BioSentry on a cruise ship. During the quarter ended June 30, 2006, we
received an order for a BioSentry for this cruise line.
    
    In November 2005, we entered into an agreement with the City of Anaheim to install
in a central public facility and test the BioSentry for homeland security application
for deliberate, harmful biological contamination of drinking water. The testing was
successfully completed during the quarter ended June 30, 2006.
    
    In December 2005, the City of Wichita purchased two BioSentry systems to help
protect the citys drinking water against the possible introduction of
Cryptosporidium or other harmful microorganisms. These units were shipped in 2006
and were undergoing installation and start-up testing at the end of March 2007.
    
    In late December 2006, we received a purchase order from the University of Arizona
Water Quality Center for a BioSentry to be used in extensive ongoing research for
real-time detection, tracking and remediation of bioterror and accidental
contamination events within water distribution systems. We understand that the City
of Tucson is also interested in the planned research to further determine the
expected value of installing BioSentry systems in their water treatment and
distribution systems.
    
    In late December 2006, we received a purchase order from Yorkshire Water Services
Ltd. to install and test the BioSentry in a major utility facility in the U.K.
Yorkshire Water has agreed to lease the BioSentry for an evaluation period of six
months. Upon successful completion of the test period, they will have the option to
purchase the unit for permanent installation.
    
    In March, 2007, the Company received an order for one BioSentry from a leading
government organization. The BioSentry will be used to monitor source water in a
major facility to detect the presence of a variety of pathogens.
    6




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Nanoparticle Coating System
  READ Sensor Systems
  Markets
 BriteLight Lasers
   Compact X-ray Microscope
   7




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Compact X-ray Nano Probe
  Collimated Plasma Lithography (CPL)
   BioSentry
     Competition
 BriteLight Laser
  8




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Soft X-ray Source
  Compact X-ray Microscope
  X-ray Nano Probe
  BioSentry
  Customers and End Users
  BriteLight Laser
  BioSentry
  9




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Advanced Semiconductor Lithography
   Manufacturing
     Sales and Marketing
  10




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Research and Development
    Intellectual Property Rights
    Employees
  11




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INFORMATION REGARDING INDUSTRY SEGMENTS, SIGNIFICANT CUSTOMERS AND EXPORT SALES
  
 Item 1A. RISK FACTORS
  Our continuing decline in revenues and our net and operating losses are significant and could have
an 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.
   You will experience additional dilution if the Company is not successful in selling its new
products.
  Our outstanding preferred stock has a liquidation preference of $7,850,000, which is in excess of
our total stockholders equity.
  12




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Our working capital line of credit, 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.
  Weaknesses in our internal control over financial reporting could result in material misstatements
in our financial statements.
    If our product development programs are not successful, it will harm our business.
    If our BioSentry business is unsuccessful, it will cause a significant adverse effect on our
financial condition and significant accounting write-offs.
  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.
  13




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The success of our business is dependent on our ability to compete effectively, particularly
against larger, more established companies with greater resources.
   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.
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Our BioSentry product may be subject to various governmental approvals that may limit our ability
to market and sell our product.
  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.
  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.
  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.
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If our outstanding options and warrants are exercised and if our preferred stock is converted it
will result in substantial dilution.
    If product liability claims are brought which exceed our liability insurance limits our business
would be harmed.
  We do not presently intend to pay cash dividends to our shareholders.
  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.
  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.
  16




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Item 1B. UNRESOLVED STAFF COMMENTS
  
 Item 2. PROPERTIES
     
 Item 3. LEGAL PROCEEDINGS
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
  17




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Common Stock Price
 High
    
    Low2006First Quarter
    
    
    1.25
    
    
    
    0.86Second Quarter
    
    
    0.94
    
    
    
    0.41Third Quarter
    
    
    0.68
    
    
    
    0.32Fourth Quarter
    
    
    0.45
    
    
    
    0.152005First Quarter
    
    
    1.77
    
    
    
    1.29Second Quarter
    
    
    1.48
    
    
    
    1.10Third Quarter
    
    
    1.59
    
    
    
    1.17Fourth Quarter
    
    
    1.48
    
    
    
    1.00
   18




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Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
  Consolidated Statements of Operations Data  For the Years Ended December 31,
 2006
    
    2005
    
    2004
    
    2003
    
    2002Revenues
    
    $
    4,857,092
    
    
    $
    5,764,252
    
    
    $
    6,361,562
    
    
    $
    12,767,495
    
    
    $
    14,553,450Gross profit
    
    
    422,366
    
    
    
    1,625,712
    
    
    
    1,283,617
    
    
    
    3,014,036
    
    
    
    2,708,044Operating expenses
    
    
    12,905,779
    
    
    
    9,376,737
    
    
    
    6,269,942
    
    
    
    5,041,302
    
    
    
    6,318,510Loss from operations
    
    
    (12,483,413
    )
    
    
    (7,751,025
    )
    
    
    (4,986,325
    )
    
    
    (2,027,266
    )
    
    
    (3,610,466
    )Realized gain on sale of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,349,721Interest and other income
    
    
    53,093
    
    
    
    171,521
    
    
    
    115,484
    
    
    
    60,214
    
    
    
    67,404Interest and other expense
    
    
    (423,565
    )
    
    
    (257,527
    )
    
    
    (821,586
    )
    
    
    (731,315
    )
    
    
    (236,015
    )Loss from continuing operations before income
taxes
    
    
    (12,853,885
    )
    
    
    (7,837,031
    )
    
    
    (5,692,427
    )
    
    
    (2,698,367
    )
    
    
    (2,429,356
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (484,423
    )Loss from continuing operations
    
    
    (12,853,885
    )
    
    
    (7,837,031
    )
    
    
    (5,692,427
    )
    
    
    (2,698,367
    )
    
    
    (2,913,779
    )Gain (loss) from operations of discontinued
operations
    
    
    (252,796
    )
    
    
    (195,772
    )
    
    
    60,287
    
    
    
    (785,096
    )
    
    
    (5,386,914
    )Gain (loss) on disposal of discontinued
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    205,000
    
    
    
    (3,200,000
    )Net loss
    
    
    (13,106,681
    )
    
    
    (8,032,803
    )
    
    
    (5,632,140
    )
    
    
    (3,278,463
    )
    
    
    (11,500,693
    )Deemed preferred stock dividends
    
    
    (1,283,668
    )
    
    
    (2,091,232
    )
    
    
    (2,247,876
    )
    
    
    (942,903
    )
    
    
    Loss applicable to common stockholders
    
    
    (14,390,349
    )
    
    
    (10,124,035
    )
    
    
    (7,880,016
    )
    
    
    (4,221,366
    )
    
    
    (11,500,693
    )Basic loss per share:Loss per share from continuing operations
    
    $
    (0.36
    )
    
    $
    (0.28
    )
    
    $
    (0.26
    )
    
    $
    (0.14
    )
    
    $
    (0.12
    )Loss per share from discontinued operations
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.02
    )
    
    
    (0.37
    )Loss per share applicable to common stock
    
    $
    (0.37
    )
    
    $
    (0.29
    )
    
    $
    (0.26
    )
    
    $
    (0.16
    )
    
    $
    (0.49
    )Basic and
diluted weighted average shares
    
    
    39,417,421
    
    
    
    34,924,561
    
    
    
    30,758,689
    
    
    
    25,618,296
    
    
    
    23,618,169
 Consolidated Balance Sheet Data  December 31,
 2006
    
    2005
    
    2004
    
    2003
    
    2002Working capital (deficit)
    
    $
    (2,657,725
    )
    
    $
    4,036,601
    
    
    $
    7,180,382
    
    
    $
    2,427,166
    
    
    $
    (780,117
    )Total assets
    
    
    5,970,816
    
    
    
    16,317,944
    
    
    
    17,426,098
    
    
    
    13,493,183
    
    
    
    15,121,660Short-term debt
    
    
    1,267,065
    
    
    
    162,351
    
    
    
    145,019
    
    
    
    2,395,445
    
    
    
    1,556,405Long-term liabilities
    
    
    413,694
    
    
    
    638,659
    
    
    
    465,492
    
    
    
    449,873
    
    
    
    1,708,804Redeemable preferred stock
    
    
    5,409,527
    
    
    
    6,969,341
    
    
    
    8,087,274
    
    
    
    2,217,150
    
    
    
    Stockholders equity (deficit)
    
    
    (5,340,380
    )
    
    
    4,555,228
    
    
    
    5,101,925
    
    
    
    5,277,800
    
    
    
    3,677,994
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Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
     Sources of Revenue
 Contract Research and Development, Technical Support, and Production Programs
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Standard Products
   New Products Under Development
   Results of Operations
 Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
 Revenues.
 2006
    
    
    2005Research Division
    
    $
    1,898,497
    
    
    $
    1,901,246Vermont Operations
    
    
    2,858,909
    
    
    
    3,861,407Sensor Products Group
    
    
    99,686
    
    
    
    1,599$
    4,857,092
    
    
    $
    5,764,252
  21




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Losses.
 Gross Margins
 Selling, General and Administrative (SG&A).
 Research, Development and Engineering Program (RD&E)
 
    
    Customer-funded RD&E costs incurred, primarily related to the DARPA Contract and the
NAVAIR Contract, are included in Costs of Revenues and totaled $3,572,484 and $2,877,012
for the fiscal years ended December 31, 2006 and 2005, respectively. The increase in
customer-funded RD&E expenditures for 2006 consists of an increase of $981,858 related to
the NAVAIR Contract offset in part by a decrease of $286,386 related to the DARPA Contract.
    
    Company-funded RD&E costs associated with product development are shown in Operating
Expenses and totaled $2,703,257 and $3,049,439 for the fiscal years ended December 31, 2006
and 2005, respectively.
  Goodwill Write-off.
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Discontinued Operations
  Interest and Other Expense
 Preferred Stock Dividends
 Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 Revenues.
 2005
    
    
    2004Research Division
    
    $
    1,901,246
    
    
    $
    3,575,633Vermont Operations
    
    
    3,861,407
    
    
    
    2,785,929Sensor Products Group
    
    
    1,599
    
    
    
    $
    5,764,252
    
    
    $
    6,361,562
  23




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Losses.
 Gross Margins
 Selling, General and Administrative (SG&A).
 Research, Development and Engineering Program (RD&E)
 
    
    Customer-funded RD&E costs incurred, primarily related to the DARPA Contract and the
NAVAIR Contract, are included in Costs of Revenues and totaled $2,877,012 and $3,993,862
for the fiscal years ended December 31, 2005 and 2004, respectively. The decrease in
customer-funded RD&E expenditures for 2005 consists of a decrease of $1,688,653 related to
the DARPA Contract and decreases in two contracts completed in 2004 at the Vermont
Operations of $680,957. These decreases were offset in part by an increase in 2005 of
$1,252,760 related to the NAVAIR contract.
    
    Company-funded RD&E costs associated with product development are shown in Operating
Expenses and totaled $3,049,439 and $1,642,781 for the fiscal years ended December 31, 2005
and 2004, respectively. The increase in 2005 is primarily due to product development for our
XRM, XNP and BioSentry new products.
  Discontinued Operations
 Interest and Other Expense
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Preferred Stock Dividends
 Liquidity and Financial Condition
 General.
   Sales of Common Stock.
    25




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Issuances of Preferred Stock
      Working Capital Line
 26




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Sale of XRM Assets.
 Letter of Credit.
 Cash Used in Operations
 27




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Cash Used in Investing Activities
 Cash Provided by Financing Activities
 Commitments
  2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter
    
    
    TotalLeases
    
    $
    715,412
    
    
    $
    530,495
    
    
    $
    373,797
    
    
    $
    371,233
    
    
    $
    384,494
    
    
    $
    331,020
    
    
    $
    2,706,451Deferred compensation
    
    
    275,297
    
    
    
    185,955
    
    
    
    56,003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    517,255$
    990,709
    
    
    $
    716,450
    
    
    $
    429,800
    
    
    $
    371,233
    
    
    $
    384,494
    
    
    $
    331,020
    
    
    $
    3,223,706
  Preferred Stock Redemption Obligations
  Gross AmountOutstanding at
    
    
    Scheduled RedemptionsDescription
    
    December 31, 2006
    
    
    2007
    
    
    2008
    
    
    TotalSeries G Preferred
    
    $
    1,456,020
    
    
    $
    306,042
    
    
    $
    1,149,978
    
    
    $
    1,456,020Series I Preferred
    
    $
    6,393,980
    
    
    
    610,890
    
    
    
    5,783,090
    
    
    
    6,393,980$
    916,932
    
    
    $
    6,933,068
    
    
    $
    7,850,000
 Line of Credit
  License Agreements
  28




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Net Operating Loss Carryforward
  Critical Accounting Policies and Estimates
   29




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Revenues
  Goodwill and Intangible Assets
       Beneficial Conversion Feature and Warrant Valuation
  30




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Allowances for Doubtful Accounts
  Deferred Taxes
  Stock-Based Compensation Expense
   Recent Accounting Pronouncements
    31




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Fair Value Measurements
 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
 The Fair Value Option for Financial Assets and
Financial Assets and Liabilities  Including an Amendment of FASB Statement No. 115 Accounting for Certain Investments in Debt and Equity Securities,
 
 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 Item 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 Item 9A. CONTROLS AND PROCEDURES
   33




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Item 9B. OTHER INFORMATION
  
 PART III
 
 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
   
 Item 11. EXECUTIVE COMPENSATION
  
 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  
 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 Item 14. PRINCIPAL AUDITOR FEES AND SERVICES
  34




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PART IV
 
 Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
  1.
    
    Financial Statements. Index to Consolidated Financial Statements:
 Reports of Independent Registered Public Accounting FirmsConsolidated Balance Sheets as of December 31, 2006 and 2005Consolidated Statements of Operations for the Years Ended December 31, 2006, 2005 and 2004Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2006, 2005 and 2004Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004Notes 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 64 to 68
are filed as part of this Form 10-K.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 36




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
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JMAR TECHNOLOGIES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 As of December 31, 2006 and 2005
 2006
    
    
    2005ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    696,546
    
    
    $
    5,279,691Accounts receivable
    
    
    1,223,985
    
    
    
    1,156,161Inventories
    
    
    519,400
    
    
    
    434,750Net current assets of discontinued operations
    
    
    45,963
    
    
    
    858,549Prepaid expenses and other
    
    
    255,147
    
    
    
    327,603Total current assets
    
    
    2,741,041
    
    
    
    8,056,754Property and equipment, net
    
    
    1,027,239
    
    
    
    1,296,491Intangible assets, net
    
    
    1,759,454
    
    
    
    1,708,038Other assets
    
    
    443,082
    
    
    
    380,768Net non-current assets of discontinued operations
    
    
    
    
    
    
    459,961Goodwill
    
    
    
    
    
    
    4,415,932TOTAL ASSETS
    
    $
    5,970,816
    
    
    $
    16,317,944LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current Liabilities:Accounts payable
    
    $
    1,054,558
    
    
    $
    1,092,511Accrued liabilities
    
    
    618,794
    
    
    
    542,998Accrued payroll and related costs
    
    
    451,912
    
    
    
    702,137Billings in
excess of costs incurred
    
    
    1,418,372
    
    
    
    622,465Deferred rent
    
    
    49,429
    
    
    
    140,358Working capital line of credit, net
    
    
    1,059,355
    
    
    
    Current portion of notes payable and other liabilities, net
    
    
    207,710
    
    
    
    162,351Net current liabilities of discontinued operations
    
    
    538,636
    
    
    
    757,333Total current liabilities
    
    
    5,398,766
    
    
    
    4,020,153Notes payable and other long-term liabilities, net of current portion
    
    
    413,694
    
    
    
    638,659Notes payable and other long-term liabilities of
discontinued operations, net of current portion
    
    
    89,209
    
    
    
    134,563Redeemable convertible preferred stock, 785,000 shares issued and
outstanding as of December 31, 2006 and December 31, 2005, net of
unamortized discount of $2,440,473 and $880,659, respectively
    
    
    5,409,527
    
    
    
    6,969,341Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity (deficit):Preferred stock, $.01 par value; 5,000,000 shares authorized;
785,000 issued and outstanding as of December 31, 2006 and
December 31, 2005 included in redeemable convertible preferred
stock above
    
    
    
    
    
    
    Common stock, $.01 par value; 80,000,000 shares authorized;
39,535,615 shares issued and outstanding as of December 31, 2006
and 38,823,158 shares issued and outstanding as of December 31,
2005
    
    
    395,356
    
    
    
    388,231Additional paid-in capital, net of stock subscription receivable
of $855,001 at December 31, 2005
    
    
    84,077,547
    
    
    
    79,589,931Accumulated deficit
    
    
    (89,813,283
    )
    
    
    (75,422,934
    )Total
stockholders (deficit) equity
    
    
    (5,340,380
    )
    
    
    4,555,228TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
    
    $
    5,970,816
    
    
    $
    16,317,944
  38




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##### Table of Contents



JMAR TECHNOLOGIES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Years Ended December 31, 2006, 2005 and 2004
 2006
    
    
    2005
    
    
    2004Revenues
    
    $
    4,857,092
    
    
    $
    5,764,252
    
    
    $
    6,361,562Costs of revenues
    
    
    4,434,726
    
    
    
    4,138,540
    
    
    
    5,077,945Gross profit
    
    
    422,366
    
    
    
    1,625,712
    
    
    
    1,283,617Operating expenses:Selling, general and administrative
    
    
    5,698,745
    
    
    
    6,166,124
    
    
    
    4,435,586Research and development
    
    
    2,703,257
    
    
    
    3,049,439
    
    
    
    1,642,781Goodwill write off
    
    
    4,415,932
    
    
    
    
    
    
    
    Asset writedowns
    
    
    87,845
    
    
    
    161,174
    
    
    
    191,575Total operating expenses
    
    
    12,905,779
    
    
    
    9,376,737
    
    
    
    6,269,942Loss from operations
    
    
    (12,483,413
    )
    
    
    (7,751,025
    )
    
    
    (4,986,325
    )Interest and other income
    
    
    53,093
    
    
    
    171,521
    
    
    
    115,484Interest and other expense
    
    
    (423,565
    )
    
    
    (257,527
    )
    
    
    (821,586
    )Loss from continuing operations
    
    
    (12,853,885
    )
    
    
    (7,837,031
    )
    
    
    (5,692,427
    )Gain (loss) from operations of discontinued operations
    
    
    (252,796
    )
    
    
    (195,772
    )
    
    
    60,287Net loss
    
    
    (13,106,681
    )
    
    
    (8,032,803
    )
    
    
    (5,632,140
    )Deemed preferred stock dividends
    
    
    (1,283,668
    )
    
    
    (2,091,232
    )
    
    
    (2,247,876
    )Loss applicable to common stock
    
    $
    (14,390,349
    )
    
    $
    (10,124,035
    )
    
    $
    (7,880,016
    )Basic and diluted loss per share:Loss per share from continuing operations
    
    $
    (0.36
    )
    
    $
    (0.28
    )
    
    $
    (0.26
    )Gain (loss) per share from discontinued operations
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    Basic and diluted loss per share applicable to common stock
    
    $
    (0.37
    )
    
    $
    (0.29
    )
    
    $
    (0.26
    )Shares used in computation of basic and diluted loss per share
    
    
    39,417,421
    
    
    
    34,924,561
    
    
    
    30,758,689
  39




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##### Table of Contents



JMAR TECHNOLOGIES, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 For the Years Ended December 31, 2006, 2005 and 2004
 Common Stock
    
    
    Preferred Stock
    
    
    Additional
    
    
    Accumulated
    
    
    TotalShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Paid-in
    
    
    Deficit
    
    

Equity
(Deficit)Balance, December 31, 2003
    
    
    27,654,845
    
    
    $
    276,548
    
    
    
    
    
    
    $
    
    
    
    $
    62,420,135
    
    
    $
    (57,418,883
    )
    
    $
    5,277,800Issuance of stock and
warrants for services
    
    
    11,604
    
    
    
    117
    
    
    
    
    
    
    
    
    
    
    
    141,966
    
    
    
    
    
    
    
    142,083Issuance of common stock from
preferred stock conversions
(net of costs of $96,467)
    
    
    2,003,205
    
    
    
    20,032
    
    
    
    
    
    
    
    
    
    
    
    3,383,501
    
    
    
    
    
    
    
    3,403,533Issuance of common stock from
working capital line
conversions
    
    
    1,048,913
    
    
    
    10,489
    
    
    
    
    
    
    
    
    
    
    
    1,244,011
    
    
    
    
    
    
    
    1,254,500Beneficial conversion feature
of preferred stock and
working capital line, and
fair value of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,772,225
    
    
    
    
    
    
    
    1,772,225Issuance of common stock
related to SAL earn-out
    
    
    593,787
    
    
    
    5,938
    
    
    
    
    
    
    
    
    
    
    
    986,335
    
    
    
    
    
    
    
    992,273Repurchase of stock
    
    
    (7,552
    )
    
    
    (76
    )
    
    
    
    
    
    
    
    
    
    
    (17,671
    )
    
    
    
    
    
    
    (17,747
    )Stock issued upon exercise of
options
    
    
    71,933
    
    
    
    719
    
    
    
    
    
    
    
    
    
    
    
    156,555
    
    
    
    
    
    
    
    157,274Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,247,876
    )
    
    
    (2,247,876
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,632,140
    )
    
    
    (5,632,140
    )Balance, December 31, 2004
    
    
    31,376,735
    
    
    
    313,767
    
    
    
    
    
    
    
    
    
    
    
    70,087,057
    
    
    
    (65,298,899
    )
    
    
    5,101,925Issuance of stock and
warrants for services
    
    
    40,538
    
    
    
    405
    
    
    
    
    
    
    
    
    
    
    
    111,080
    
    
    
    
    
    
    
    111,485Modification to preferred
stock terms
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,066,803
    
    
    
    
    
    
    
    1,066,803Issuance of common stock and
warrants for cash, net of
stock subscription receivable
of $855,001 and costs of
approximately $115,000
    
    
    5,825,189
    
    
    
    58,252
    
    
    
    
    
    
    
    
    
    
    
    5,755,401
    
    
    
    
    
    
    
    5,813,653Redemption of Series E
Preferred Stock
    
    
    1,041,667
    
    
    
    10,417
    
    
    
    
    
    
    
    
    
    
    
    1,327,083
    
    
    
    
    
    
    
    1,337,500Stock issued upon exercise of
options
    
    
    19,029
    
    
    
    190
    
    
    
    
    
    
    
    
    
    
    
    (190
    )
    
    
    
    
    
    
    Issuance of common stock and
warrant related to
PointSource license
    
    
    520,000
    
    
    
    5,200
    
    
    
    
    
    
    
    
    
    
    
    1,242,697
    
    
    
    
    
    
    
    1,247,897Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,091,232
    )
    
    
    (2,091,232
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,032,803
    )
    
    
    (8,032,803
    )Balance, December 31, 2005
    
    
    38,823,158
    
    
    
    388,231
    
    
    
    
    
    
    
    
    
    
    
    79,589,931
    
    
    
    (75,422,934
    )
    
    
    4,555,228Issuance 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
    )
  40




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##### Table of Contents



JMAR TECHNOLOGIES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended December 31, 2006, 2005 and 2004
 2006
    
    
    2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (13,106,681
    )
    
    $
    (8,032,803
    )
    
    $
    (5,632,140
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation, amortization and debt discount
    
    
    606,620
    
    
    
    479,860
    
    
    
    963,234Stock based compensation expense
    
    
    367,691
    
    
    
    
    
    
    
    Services received in exchange for common stock or warrants
    
    
    110,680
    
    
    
    121,445
    
    
    
    142,083Asset
writedowns
    
    
    4,503,777
    
    
    
    161,174
    
    
    
    191,575Accounts
receivable reserve
    
    
    428,067
    
    
    
    
    
    
    
    Change in assets and liabilities:Accounts receivable
    
    
    (495,891
    )
    
    
    1,084,680
    
    
    
    (553,281
    )Inventories
    
    
    (84,650
    )
    
    
    (100,569
    )
    
    
    21,920Prepaid expenses and other
    
    
    (318,312
    )
    
    
    588,107
    
    
    
    (236,119
    )Billings in excess of costs incurred
    
    
    795,907
    
    
    
    (86,708
    )
    
    
    791,587Lease incentives received from landlords
    
    
    (57,667
    )
    
    
    346,000
    
    
    
    Accounts payable and accrued liabilities
    
    
    (287,123
    )
    
    
    535,879
    
    
    
    629,494Changes in net assets and liabilities of discontinued operations
    
    
    942,171
    
    
    
    96,559
    
    
    
    (749,585
    )Net cash used in operating activities
    
    
    (6,595,411
    )
    
    
    (4,806,376
    )
    
    
    (4,431,232
    )Cash flows from investing activities:Capital expenditures of continuing operations
    
    
    (33,287
    )
    
    
    (923,807
    )
    
    
    (247,193
    )Capital expenditures of discontinued operations
    
    
    (4,056
    )
    
    
    (301,927
    )
    
    
    (160,845
    )Additions of intangible assets, other assets and goodwill of continuing
operations
    
    
    (143,781
    )
    
    
    (137,264
    )
    
    
    (359,347
    )Payments of note payable of discontinued operations
    
    
    
    
    
    
    (37,444
    )
    
    
    (83,711
    )Payments received on notes receivable
    
    
    70,000
    
    
    
    19,856
    
    
    
    62,500Net cash used in investing activities
    
    
    (111,124
    )
    
    
    (1,380,586
    )
    
    
    (788,596
    )Cash flows from financing activities:Net proceeds from the issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    9,070,870Gross proceeds from the issuance of common stock
    
    
    1,334,413
    
    
    
    5,843,653
    
    
    
    Cash payments of preferred stock dividends
    
    
    (633,451
    )
    
    
    (669,359
    )
    
    
    (249,760
    )Preferred stock redemptions
    
    
    
    
    
    
    (233,333
    )
    
    
    (416,667
    )Repurchases of stock
    
    
    
    
    
    
    
    
    
    
    (17,747
    )Net proceeds from the exercise of options and warrants
    
    
    
    
    
    
    
    
    
    
    157,274Net borrowings (payments) under line of credit
    
    
    1,422,428
    
    
    
    
    
    
    
    (868,642
    )Net cash provided by financing activities
    
    
    2,123,390
    
    
    
    4,910,961
    
    
    
    7,675,328Net increase (decrease) in cash and cash equivalents
    
    
    (4,583,145
    )
    
    
    (1,276,001
    )
    
    
    2,455,500Cash and cash equivalents, beginning of period
    
    
    5,279,691
    
    
    
    6,555,692
    
    
    
    4,100,192Cash and cash equivalents, end of period
    
    $
    696,546
    
    
    $
    5,279,691
    
    
    $
    6,555,692
   41




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##### Table of Contents



JMAR TECNOLOGIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2006 and 2005
 1. Description of the Company and Financial Condition
        42




---



##### Table of Contents



2. Summary of Significant Accounting Policies
 a. Cash and Cash Equivalents
  b. Fair Value of Financial Instruments
  c. Pervasiveness of Estimates
  d. Inventories
  e. Income Taxes
    f. Property and Equipment
  g. Goodwill and Other Intangible Assets
  43




---



##### Table of Contents



h. Intangible Assets
  i. Long-Lived Assets
   j. Revenues
  44




---



##### Table of Contents



k. Beneficial Conversion Feature and Warrant Valuation
   l. Allowances for Doubtful Accounts
  m. Earnings Per Share
  n. Stock-Based Compensation Plans
  2005
    
    
    2004Loss applicable to common stockholders:
    
    As Reported
    
    $
    (10,124,035
    )
    
    $
    (7,880,016
    )Stock based compensation expense
    
    
    
    
    (541,881
    )
    
    
    (816,710
    )Pro Forma
    
    $
    (10,665,916
    )
    
    $
    (8,696,726
    )Basic and diluted loss per share:
    
    As Reported
    
    $
    (0.29
    )
    
    $
    (0.26
    )Stock based compensation expense
    
    
    
    
    (0.02
    )
    
    
    (0.02
    )Pro Forma
    
    $
    (0.31
    )
    
    $
    (0.28
    )
 45




---



##### Table of Contents



o. Reclassifications and Revisions
  p. Recent Accounting Pronouncements
  ,
    46




---



##### Table of Contents



Fair Value Measurements
 Employers'
Accounting for Defined Benefit Pension and Other Postretirement
Plans
 The Fair Value Option for Financial Assets and
Financial Assets and Liabilities  Including an Amendment of FASB Statement No. 115 Accounting for Certain Investments in Debt and Equity Securities,
 3.
Impairment of Long-Lived Assets
 47




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##### Table of Contents



4. Accounts Receivable
  2006
    
    
    2005Billed
    
    $
    1,402,953
    
    
    $
    847,191Unbilled
    
    
    249,099
    
    
    
    308,9701,652,052
    
    
    
    1,156,161Lessallowance for doubtful accounts
    
    
    (428,067
    )
    
    
    $
    1,223,985
    
    
    $
    1,156,161
  48




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##### Table of Contents



5. Inventories
  2006
    
    
    2005Raw materials, components and sub-assemblies
    
    $
    136,811
    
    
    $
    194,539Work-in-process
    
    
    174
    
    
    
    77,692Finished goods
    
    
    392,683
    
    
    
    162,519529,668
    
    
    
    434,750Lessreserve for excess and obsolete inventory
    
    
    (10,268
    )
    
    
    $
    519,400
    
    
    $
    434,750
 6. Property and Equipment
  2006
    
    
    2005Equipment and machinery
    
    $
    2,641,660
    
    
    $
    2,627,176Software
    
    
    599,752
    
    
    
    590,446Furniture and fixtures
    
    
    280,229
    
    
    
    241,090Leasehold improvements
    
    
    652,401
    
    
    
    643,0484,174,042
    
    
    
    4,101,760Less-accumulated depreciation
    
    
    (3,146,803
    )
    
    
    (2,805,269
    )$
    1,027,239
    
    
    $
    1,296,491
  7. Commitments and Contingencies
 a. Leases
  Year Ending December 31,2007
    
    $
    715,4122008
    
    
    530,4952009
    
    
    373,7972010
    
    
    371,2332011
    
    
    384,494Thereafter
    
    
    331,020$
    2,706,451
  49




---



##### Table of Contents



b. Deferred Compensation
    8. Notes Payable and Other Long-term Obligations
  2006
    
    
    2005Working capital line with Laurus in
the amount of $3,000,000. Advances bear
interest at the prime rate (8.25% at
December 31, 2006) plus 2%. Interest on
the line is payable monthly. Advances are
secured by all assets of the Company. The
amount is less discount of $363,073.
    
    $
    1,059,355
    
    
    $
    Lease incentives received from landlords
    
    
    288,333
    
    
    
    436,929Deferred compensation, less discount of
$134,755 and $280,000 at December 31,
2006 and 2005, respectively (see Note 7)
    
    
    382,500
    
    
    
    504,4391,730,188
    
    
    
    941,368Less: Current portion
    
    
    (1,316,494
    )
    
    
    (302,709
    )$
    413,694
    
    
    $
    638,659
  50




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##### Table of Contents



9. Discontinued Operations
   51




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##### Table of Contents



December 31,2006
    
    
    2005Current Assets:Cash
    
    $
    1,897
    
    
    $
    211,098Accounts receivable
    
    
    44,066
    
    
    
    484,208Inventories
    
    
    
    
    
    
    1,155Prepaid expenses and other
    
    
    
    
    
    
    162,088$
    45,963
    
    
    $
    858,549Non-Current AssetsProperty and equipment, net
    
    $
    
    
    
    $
    459,961Current Liabilities:Lease accrual/deferred rent
    
    $
    233,190
    
    
    $
    60,650Accounts payable
    
    
    272,645
    
    
    
    300,761Accrued payroll and related costs
    
    
    
    
    
    
    212,058Accrued liabilities
    
    
    32,801
    
    
    
    31,654Billings in excess of costs incurred
    
    
    
    
    
    
    152,210$
    538,636
    
    
    $
    757,333Non-Current LiabilitiesLease accrual/deferred rent
    
    $
    89,209
    
    
    $
    134,563
  52




---



##### Table of Contents



2006
    
    
    2005
    
    
    2004Revenues
    
    $
    2,968,019
    
    
    $
    3,399,268
    
    
    $
    3,698,277Costs of revenues
    
    
    2,392,665
    
    
    
    2,646,419
    
    
    
    2,983,154Gross profit
    
    
    575,354
    
    
    
    752,849
    
    
    
    715,123Selling, general and administrative
    
    
    300,923
    
    
    
    541,695
    
    
    
    617,948Research and development
    
    
    122,403
    
    
    
    346,244
    
    
    
    79,548Asset writedowns
    
    
    127,911
    
    
    
    57,058
    
    
    
    Lease reserves
    
    
    262,246
    
    
    
    
    
    
    
    Interest and other expense (income)
    
    
    14,667
    
    
    
    3,624
    
    
    
    (42,660
    )Gain (loss) from operations of discontinued operations
    
    $
    (252,796
    )
    
    $
    (195,772
    )
    
    $
    60,287
 10. Income Taxes
  2006
    
    
    2005Deferred tax assets:Net operating loss carryforwards
    
    $
    22,498,000
    
    
    $
    20,753,000Capital loss carryforward
    
    
    6,843,000
    
    
    
    6,843,000Goodwill
    
    
    1,766,000
    
    
    
    Other
    
    
    1,473,000
    
    
    
    1,059,000Total gross deferred tax assets
    
    
    32,580,000
    
    
    
    28,655,000Less valuation reserve
    
    
    (32,580,000
    )
    
    
    (28,655,000
    )Net deferred tax asset
    
    $
    
    
    
    $
    
   2006
    
    2005
    
    2004Statutory federal income tax rate
    
    
    (34
    )%
    
    
    (34
    )%
    
    
    (34
    )%State income tax
    
    
    (6
    )
    
    
    (6
    )
    
    
    (6
    )Increase in valuation allowance
    
    
    40
    
    
    
    40
    
    
    
    40
    %
    
    
    
    %
    
    
    
    %
   53




---



##### Table of Contents



11. Equity Transactions
 a. Laurus Preferred Stock and Warrants
      54




---



##### Table of Contents



GrossAmountOutstandingat December
    
    
    Scheduled RedemptionsDescription
    
    31, 2006
    
    
    2007
    
    
    2008
    
    
    TotalSeries G Preferred
    
    $
    1,456,020
    
    

 $
    306,042
    
    

 $
    1,149,978
    
    

 $
    1,456,020Series I Preferred
    
    $
    6,393,980
    
    
    
    610,890
    
    
    
    5,783,090
    
    
    
    6,393,980$
    916,932
    
    
    $
    6,933,068
    
    
    $
    7,850,000
   NetBalance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Balance atDecember
    
    
    Discount
    
    
    Exchange for
    
    
    Amendment
    
    
    December 31,Series
    
    31, 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
  NetBalance at
    
    
    Amendment
    
    
    
    
    
    
    
    
    
    
    Net Balance atDecember
    
    
    Fair
    
    
    Discount
    
    
    
    
    
    
    December 31,Series
    
    31, 2004
    
    
    Value
    
    
    Amortization
    
    
    Redemptions
    
    
    2005E
    
    $
    752,306
    
    
    $
    79,390
    
    
    $
    367,420
    
    
    $
    1,040,336
    
    
    $
    F
    
    
    1,812,092
    
    
    
    215,717
    
    
    
    189,073
    
    
    
    37,500
    
    
    
    1,747,948G
    
    
    1,844,699
    
    
    
    234,696
    
    
    
    182,112
    
    
    
    37,500
    
    
    
    1,754,615H
    
    
    3,678,177
    
    
    
    537,000
    
    
    
    400,601
    
    
    
    75,000
    
    
    
    3,466,778$
    8,087,274
    
    
    $
    1,066,803
    
    
    $
    1,139,206
    
    
    $
    1,190,336
    
    
    $
    6,969,341
  55




---



##### Table of Contents



b. Sales of Common Stock and Warrants
    c. Issuance of Warrants
  2006
    
    
    2005
    
    
    2004Wtd Avg
    
    
    
    
    
    
    Wtd Avg
    
    
    
    
    
    
    Wtd AvgShares
    
    
    Ex Price
    
    
    Shares
    
    
    Ex Price
    
    
    Shares
    
    
    Ex PriceOutstanding at beg. of year
    
    
    6,651,278
    
    
    $
    1.65
    
    
    
    2,268,970
    
    
    $
    1.94
    
    
    
    1,830,720
    
    
    $
    1.42Granted
    
    
    843,598
    
    
    
    0.86
    
    
    
    4,407,308
    
    
    
    1.53
    
    
    
    440,000
    
    
    
    4.09Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,750
    )
    
    
    1.00Forfeited
    
    
    (183,625
    )
    
    
    2.56
    
    
    
    (25,000
    )
    
    
    5.00
    
    
    
    Outstanding at end of year
    
    
    7,311,251
    
    
    
    1.51
    
    
    
    6,651,278
    
    
    
    1.65
    
    
    
    2,268,970
    
    
    
    1.94Exercisable at end of year
    
    
    4,385,907
    
    
    
    
    
    
    
    3,937,309
    
    
    
    
    
    
    
    2,240,345Weighted average fair value of warrants granted
    
    
    1.06
    
    
    
    
    
    
    
    0.88
    
    
    
    
    
    
    
    2.94
  56




---



##### Table of Contents



Warrants Outstanding
    
    
    Warrants ExercisableNumber
    
    
    Weighted-Average
    
    Weighted-
    
    
    Number
    
    
    Weighted-Range of
    
    Outstanding
    
    
    Remaining
    
    Average
    
    
    Exercisable
    
    
    AverageExercise Prices
    
    at 12/31/06
    
    
    Contractual Life
    
    Exercise Price
    
    
    at 12/31/06
    
    
    Exercise Price$0.01 to $0.67
    
    
    1,021,651
    
    
    5.8
    Years
    
    $
    0.22
    
    
    
    781,651
    
    
    $
    0.291.00 to   1.80
    
    
    5,450,225
    
    
    
    4.1
    
    
    
    1.47
    
    
    
    2,764,881
    
    
    
    1.492.05 to   2.64
    
    
    424,000
    
    
    
    3.5
    
    
    
    2.36
    
    
    
    424,000
    
    
    
    2.363.13 to   3.88
    
    
    225,375
    
    
    
    4.0
    
    
    
    3.62
    
    
    
    225,375
    
    
    
    3.625.00 to   5.15
    
    
    190,000
    
    
    
    5.0
    
    
    
    5.08
    
    
    
    190,000
    
    
    
    5.08$0.01 to $5.15
    
    
    7,311,251
    
    
    
    
    
    
    
    
    
    
    
    4,385,907
 d. Issuances of Common Stock and Warrants for Services
  12. Stock-Based Compensation Plans
    Wtd Avg
    
    AggregateWtd Avg
    
    Remaining
    
    IntrinsicShares
    
    Exercise Price
    
    Contractual Life
    
    ValuesOutstanding at January 1, 2006
    
    
    3,162,610
    
    
    $
    2.11Granted
    
    
    394,095
    
    
    $
    0.74Exercised
    
    
    (65,700
    )
    
    $
    1.09Forfeited
    
    
    (1,161,951
    )
    
    $
    1.29Outstanding at December 31, 2006
    
    
    2,329,054
    
    
    $
    2.71
    
    
    5.1 years
    
    $
    Vested and expected to vest
    
    
    2,314,054
    
    
    $
    2.77
    
    
    5.0 years
    
    $
    Exercisable at December 31, 2006
    
    
    1,705,295
    
    
    $
    2.47
    
    
    3.2 years
    
    $
    
 57




---



##### Table of Contents



2005
    
    2004Wtd Avg
    
    
    
    
    
    Wtd AvgShares
    
    Ex Price
    
    Shares
    
    Ex PriceOutstanding at beg. of year
    
    
    2,927,838
    
    
    $
    2.27
    
    
    
    3,028,247
    
    
    $
    2.43Granted
    
    
    569,628
    
    
    
    1.37
    
    
    
    263,500
    
    
    
    1.68Exercised
    
    
    (33,856
    )
    
    
    0.60
    
    
    
    (66,183
    )
    
    
    2.25Forfeited
    
    
    (301,000
    )
    
    
    1.91
    
    
    
    (297,726
    )
    
    
    3.34Outstanding at end of year
    
    
    3,162,610
    
    
    
    2.11
    
    
    
    2,927,838
    
    
    
    2.27Exercisable at end of year
    
    
    2,354,384
    
    
    
    
    
    
    
    2,073,462Weighted average fair value of options granted
    
    
    1.13
    
    
    
    
    
    
    
    1.69
  Options Outstanding
    
    
    Options ExercisableNumber
    
    
    Weighted-Average
    
    
    Weighted-
    
    
    Number
    
    
    Weighted-Range of
    
    
    Outstanding
    
    
    Remaining
    
    
    Average
    
    
    Exercisable
    
    
    AverageExercise Prices
    
    
    at 12/31/06
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    at 12/31/06
    
    
    Exercise Price$
    0.50 to $0.87
    
    
    
    362,500
    
    
    9.4 Years
    
    $
    0.71
    
    
    
    12,500
    
    
    $
    0.87$
    1.03 to $1.75
    
    
    
    664,723
    
    
    7.0 Years
    
    
    1.38
    
    
    
    418,957
    
    
    
    1.41$
    1.94 to $2.96
    
    
    
    562,304
    
    
    2.0 Years
    
    
    2.42
    
    
    
    537,522
    
    
    
    2.43$
    3.00 to $3.87
    
    
    
    576,533
    
    
    2.2 Years
    
    
    3.18
    
    
    
    573,319
    
    
    
    3.18$
    4.56 to $9.50
    
    
    
    162,994
    
    
    2.8 Years
    
    
    6.30
    
    
    
    162,994
    
    
    
    6.302,329,054
    
    
    
    
    
    
    
    
    
    
    
    1,705,292
  Weighted Avggrant-dateShares
    
    fair valueNonvested at December 31, 2005
    
    
    815,657
    
    
    $
    1.21Granted
    
    
    394,095
    
    
    $
    0.54Vested
    
    
    (294,325
    )
    
    $
    1.33Forfeited
    
    
    (291,665
    )
    
    $
    1.02Non-vested at December 31, 2006
    
    
    623,762
    
    
    $
    1.02
  1 2
  13. Segment Information
  58




---



##### Table of Contents



Research Division/Vermont Operations
    Sensor Products Group
    SensorResearch
    
    Vermont
    
    ProductsDivision
    
    Operations
    
    Group
    
    Corporate
    
    Total2006:Revenues
    
    $
    1,898,497
    
    
    $
    2,858,909
    
    
    $
    99,686
    
    
    $
    
    
    
    $
    4,857,092Asset writedowns
    
    
    (82,395
    )
    
    
    
    
    
    
    (5,450
    )
    
    
    
    
    
    
    (87,845
    )Operating loss
    
    
    (1,470,887
    )
    
    
    (5,932,313
    )
    
    
    (3,820,103
    )
    
    
    (1,260,110
    )
    
    
    (12,483,413
    )Total assets
    
    
    1,205,312
    
    
    
    1,226,390
    
    
    
    1,737,118
    
    
    
    1,756,033
    
    
    
    5,924,853Goodwill writeoff
    
    
    
    
    
    
    4,415,932
    
    
    
    
    
    
    
    
    
    
    
    4,415,932Capital expend
    
    
    
    
    
    
    3,690
    
    
    
    12,360
    
    
    
    17,237
    
    
    
    33,287Depreciation & amortization
    
    
    96,451
    
    
    
    27,934
    
    
    
    30,588
    
    
    
    451,647
    
    
    
    606,6202005:Revenues
    
    
    1,901,246
    
    
    
    3,861,407
    
    
    
    1,599
    
    
    
    
    
    
    
    5,764,252Asset writedowns
    
    
    (161,174
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (161,174
    )Operating loss
    
    
    (2,491,673
    )
    
    
    (849,489
    )
    
    
    (3,011,077
    )
    
    
    (1,398,786
    )
    
    
    (7,751,025
    )Total assets
    
    
    1,165,835
    
    
    
    5,927,113
    
    
    
    1,505,906
    
    
    
    6,400,580
    
    
    
    14,999,434Goodwill
    
    
    
    
    
    
    4,415,932
    
    
    
    
    
    
    
    
    
    
    
    4,415,932Capital expend
    
    
    44,735
    
    
    
    54,334
    
    
    
    33,681
    
    
    
    791,057
    
    
    
    923,807Depreciation & amortization
    
    
    90,774
    
    
    
    34,037
    
    
    
    9,207
    
    
    
    345,842
    
    
    
    479,8602004:Revenues
    
    
    3,575,633
    
    
    
    2,785,929
    
    
    
    
    
    
    
    
    
    
    
    6,361,562Asset writedowns
    
    
    (191,575
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (191,575
    )Operating loss
    
    
    (1,340,874
    )
    
    
    (1,757,025
    )
    
    
    (1,055,147
    )
    
    
    (833,279
    )
    
    
    (4,986,325
    )Total assets
    
    
    3,239,951
    
    
    
    5,210,423
    
    
    
    17,636
    
    
    
    7,063,068
    
    
    
    15,531,078Goodwill
    
    
    
    
    
    
    4,415,932
    
    
    
    
    
    
    
    
    
    
    
    4,415,932Capital expend
    
    
    15,920
    
    
    
    18,978
    
    
    
    17,636
    
    
    
    194,659
    
    
    
    247,193Depreciation & amortization
    
    
    163,314
    
    
    
    189,112
    
    
    
    1,748
    
    
    
    609,060
    
    
    
    963,234
 59




---



##### Table of Contents



Significant Customers
  Export Sales
  14. Quarterly Financial Information (Unaudited)
  Gain (Loss)
    
    
    Loss
    
    
    
    
    
    
    
    
    
    
    WeightedYear Ended
    
    
    
    
    
    
    
    
    
    from
    
    
    Applicable to
    
    
    Loss Per Share
    
    
    AverageDecember 31,
    
    
    
    
    
    Gross
    
    
    Discontinued
    
    
    Common
    
    
    Continuing
    
    
    Discontinued
    
    
    Shares2006
    
    Revenues
    
    
    Profit (Loss)
    
    
    Operations
    
    
    Stockholders
    
    
    Operations
    
    
    Operations
    
    
    OutstandingDecember 31
    
    $
    1,387,564
    
    
    $
    307,173
    
    
    $
    17,957
    
    
    $
    (5,830,152
    )
    
    $
    (0.15
    )
    
    $
    (0.00
    )
    
    
    39,470,697September 30
    
    
    962,101
    
    
    
    (165,308
    )
    
    
    (45,230
    )
    
    
    (3,056,287
    )
    
    
    (0.08
    )
    
    
    (0.00
    )
    
    
    39,402,008June 30
    
    
    1,289,902
    
    
    
    154,704
    
    
    
    (161,422
    )
    
    
    (2,894,726
    )
    
    
    (0.07
    )
    
    
    (0.00
    )
    
    
    39,340,328March 31
    
    
    1,217,525
    
    
    
    125,797
    
    
    
    (64,101
    )
    
    
    (2,609,184
    )
    
    
    (0.07
    )
    
    
    (0.00
    )
    
    
    39,285,564$
    4,857,092
    
    
    $
    422,366
    
    
    $
    (252,796
    )
    
    $
    (14,390,349
    )
    
    
    (0.36
    )
    
    
    (0.01
    )
    
    
    39,417,421
 Gain (Loss)
    
    
    Loss
    
    
    
    
    
    
    
    
    
    
    WeightedYear Ended
    
    
    
    
    
    
    
    
    
    from
    
    
    Applicable to
    
    
    Loss Per Share
    
    
    AverageDecember 31,
    
    
    
    
    
    Gross
    
    
    Discontinued
    
    
    Common
    
    
    Continuing
    
    
    Discontinued
    
    
    Shares2005
    
    Revenues
    
    
    Profit (Loss)
    
    
    Operations
    
    
    Stockholders
    
    
    Operations
    
    
    Operations
    
    
    OutstandingDecember 31
    
    $
    1,431,594
    
    
    $
    281,373
    
    
    $
    (88,036
    )
    
    $
    (3,280,723
    )
    
    $
    (0.09
    )
    
    $
    (0.00
    )
    
    
    35,420,118September 30
    
    
    1,478,105
    
    
    
    516,049
    
    
    
    (87,980
    )
    
    
    (2,580,263
    )
    
    
    (0.07
    )
    
    
    (0.00
    )
    
    
    35,209,761June 30
    
    
    1,737,867
    
    
    
    421,521
    
    
    
    34,658
    
    
    
    (2,189,982
    )
    
    
    (0.06
    )
    
    
    (0.00
    )
    
    
    35,199,784March 31
    
    
    1,116,686
    
    
    
    406,769
    
    
    
    (54,414
    )
    
    
    (2,073,067
    )
    
    
    (0.06
    )
    
    
    (0.00
    )
    
    
    33,856,817$
    5,764,252
    
    
    $
    1,625,712
    
    
    $
    (195,772
    )
    
    $
    (10,124,035
    )
    
    
    (0.28
    )
    
    
    (0.01
    )
    
    
    34,924,561
 15. Intangible Assets
  December 31, 2006
    
    
    December 31, 2005Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Intangible
    
    
    Carrying
    
    
    Accumulated
    
    
    IntangibleAmount
    
    
    Amortization
    
    
    Assets
    
    
    Amount
    
    
    Amortization
    
    
    AssetsPatents
    
    $
    995,924
    
    
    $
    473,566
    
    
    $
    522,358
    
    
    $
    968,496
    
    
    $
    498,354
    
    
    $
    470,142Unpatented Technology
    
    
    450,000
    
    
    
    450,000
    
    
    
    0
    
    
    
    450,000
    
    
    
    450,000
    
    
    
    0Licenses
    
    
    1,237,896
    
    
    
    800
    
    
    
    1,237,096
    
    
    
    1,237,896
    
    
    
    0
    
    
    
    1,237,896$
    1,759,454
    
    
    
    
    
    
    
    
    
    
    $
    1,708,038
 60




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##### Table of Contents



For the Year Ending
    
    Estimated AmortizationDecember 31
    
    Expense2007
    
    $
    93,5572008
    
    
    182,6622009
    
    
    529,7612010
    
    
    647,0222011
    
    
    51,075Thereafter
    
    
    255,377$
    1,759,454
 16. Concentration of Customers Risk
  17. Research and Development Costs
  
    
    Customer-funded R&D costs incurred, primarily related to the DARPA Contract and the
NAVAIR Contract, are included in Costs of Revenues and totaled $3,572,484, $2,877,012 and
$3,993,862 for the fiscal years ended December 31, 2006, 2005 and 2004, respectively.
    
    Company-funded R&D costs associated with product development are shown in Operating
Expenses and totaled $2,703,257, $3,049,439 and $1,642,781 for the fiscal years ended
December 31, 2006, 2005 and 2004, respectively.
 61




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##### Table of Contents



18. Subsequent Events
   62




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##### Table of Contents



SIGNATURES
  JMAR TECHNOLOGIES, INC.Date: March 29, 2007
    
    By:
    
    /s/ C. Neil BeerChief Executive OfficerBy:
    
    /s/ I. Michael SweatmanChief Financial Officer
  Signature
    
    Title
    
    Date/s/ C. Neil Beer
    
    Chief Executive Officer, Chief
Accounting Officer
    
    March 29, 2007C. Neil Beer
    
    and Director/s/ I. Michael Sweatman
    
    Chief Financial Officer
    
    March 29, 2007I. Michael Sweatman/s/ Charles A. Dickinson
    
    Director
    
    March 29, 2007Charles A. Dickinson/s/ J. Paul Gilman
    
    Director
    
    March 29, 2007J. Paul Gilman/s/ Edward P. OSullivan II
    
    Director
    
    March 29, 2007Edward P. OSullivan II/s/ Barry Ressler
    
    Director
    
    March 29, 2007Barry Ressler
 63




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##### Table of Contents



Index to Exhibits
 ExhibitNo.
    
    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).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).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
    
    Amendment, dated April 28, 2003, between Laurus Master Fund, Ltd. and the
Company (Incorporated by reference to Exhibit 4.1 filed with the Companys
Form 8-K filed May 1, 2003).4.7
    
    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).4.8
    
    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).4.9
    
    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).4.10
    
    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).4.11
    
    Common Stock Purchase Warrant for 100,000 shares dated January 7, 2004 issued
to Laurus in connection with the
 64




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##### Table of Contents



ExhibitNo.
    
    Descriptionamendment of the Convertible Notes
(Incorporated by reference to Exhibit 4.14 filed with the Companys Form S-3
filed January 16, 2004).4.12
    
    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).4.13
    
    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).4.14
    
    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).4.15
    
    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).4.16
    
    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).4.17
    
    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).4.18
    
    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).4.19
    
    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)4.20
    
    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).4.21
    
    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).4.22
    
    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).4.23
    
    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).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).
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##### Table of Contents



ExhibitNo.
    
    Description10.4
    
    Secured Promissory Note, dated July 18, 2003, executed by Chandu Vanjani in
favor of the Company in the principal amount of $150,000 (Incorporated by
reference to Exhibit 10.1 filed with the Companys Form 8-K filed July 31,
2003).10.5
    
    Secured Promissory Note, dated July 18, 2003, executed by Veena Kaul in favor
of the Company in the principal amount of $100,000 (Incorporated by reference
to Exhibit 10.2 filed with the Companys Form 8-K filed July 31, 2003).10.6(+)
    
    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).10.7(+)
    
    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).10.8
    
    Securities Purchase Agreement, dated as of January 25, 2005, between the
Company and PointSource Technologies, LLC, related to entry into License
Agreement (Incorporated by reference to Exhibit 4.4 filed with the Companys
Form S-3 filed February 9, 2005).10.9
    
    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).10.10
    
    Registration Rights Agreement, dated as of January 25, 2005, between the
Company and PointSource Technologies, LLC. (Incorporated by reference to
Exhibit 4.8 filed with the Companys Form S-3 filed February 9, 2005).10.11
    
    Securities Purchase Agreement, dated February 1, 2005, among the Company and
Portside Growth & Opportunity Fund, Smithfield Fiduciary LLC, Bluegrass Growth
Fund, LP, Bluegrass Growth Fund, Ltd., and Laurus related to a $4 million
financing (Incorporated by reference to Exhibit 10.1 filed with the Companys
Form 8-K filed February 7, 2005).10.12
    
    Registration Rights Agreement, dated February 1, 2005, among the Company and
Portside Growth & Opportunity Fund, Smithfield Fiduciary LLC, Bluegrass Growth
Fund, LP, Bluegrass Growth Fund, Ltd., and Laurus (Incorporated by reference
to Exhibit 10.2 filed with the Companys Form 8-K filed February 7, 2005).10.13
    
    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).10.14
    
    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).10.15
    
    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).10.16
    
    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).10.17
    
    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)10.18
    
    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).
 66




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##### Table of Contents



ExhibitNo.
    
    Description10.19
    
    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).10.20
    
    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).10.21
    
    Third Amendment to McClellan Park Standard Form Gross Lease Agreement, dated
July 7, 2005, between MP Holdings, LLC and JSI Microelectronics, Inc.
(Incorporated by reference to Exhibit 10.3 filed with the Companys Form 10-Q
for the quarter ended September 30, 2005).10.22
    
    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).10.23
    
    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)10.24
    
    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)10.25
    
    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)10.26
    
    Securities Purchase Agreement, dated December 22, 2005, between Laurus Master
Fund, Ltd. and JMAR Technologies, Inc. (Incorporated by reference to Exhibit
10.35 filed with the Companys Form 10-K for the year ended December 31, 2005)10.27
    
    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).10.28
    
    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).10.29
    
    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).10.30
    
    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).10.31(+)
    
    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).10.32
    
    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).10.33
    
    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).10.34(+)
    
    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).
 67




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ExhibitNo.
    
    Description14.1
    
    Code of Business Conduct and Ethics for all employees and directors
(Incorporated by reference to Exhibit 14.1 filed with the Companys Form 10-K
for the year ended December 31, 2003).14.2
    
    Code of Ethics for CEO, General Managers and Senior Financial Officers
(Incorporated by reference to Exhibit 14.2 filed with the Companys Form 10-K
for the year ended December 31, 2003).21.1
    
    Subsidiaries of the Company include JMAR Research, Inc. (a California
corporation), JSI Microelectronics, Inc. (a California corporation) and
JMAR/SAL NanoLithography, Inc. (a California corporation).23.1
    
    Consent of Independent Registered Public Accounting Firm.23.2
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 
 (+) These contracts are management compensation contracts required to be separately identified
pursuant to Item 15 (a) of Form 10-K. 68




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Schedule II
 
 AdditionsBalance at
    
    
    Charged toBeginning of
    
    
    Costs and
    
    
    
    
    
    
    
    
    
    
    Balance atDescription
    
    Year
    
    
    Expenses
    
    
    Other
    
    
    Deductions
    
    
    End of YearFor 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
    
    
    
    
    
    
    
    
    
    
    
    428,067For the year ended December 31, 2005:Warranty reserve
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Reserve for inventory excess and obsolescence
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Allowance for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    For the year ended December 31, 2004:Warranty reserve
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Reserve for inventory excess and obsolescence
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Allowance for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 69