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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, 2005
 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)
  Title of each class
    
    Name of each exchange on which registered
  
 o þ
 o þ
 þ o
 o
  o o þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS  PART IItem 1. BUSINESSItem 1A. RISK FACTORSItem 1B. UNRESOLVED STAFF COMMENTSItem 2. PROPERTIESItem 3. LEGAL PROCEEDINGSItem 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIItem 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESItem 6. SELECTED CONSOLIDATED FINANCIAL DATAItem 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSItem 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAItem 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREItem 9A. CONTROLS AND PROCEDURESItem 9B. OTHER INFORMATIONPART IIIItem 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTItem 11. EXECUTIVE COMPENSATIONItem 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSItem 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSItem 14. PRINCIPAL AUDITOR FEES AND SERVICESPART IVItem 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-KSIGNATURESIndex to ExhibitsEXHIBIT 4.22EXHIBIT 10.32EXHIBIT 10.33EXHIBIT 10.34EXHIBIT 10.35EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1    Table of Contents  
 PART I
 
 Item 1. BUSINESS
 General
 
   Business Segments
  Research Division/Vermont Operations
    Microelectronics Division
  2




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Sensor Products Group
  Products and Services
  BriteLight  Lasers
     Compact Soft X-ray Sources
  Compact X-ray Microscope
   3




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Compact X-ray Nano Probe
    Collimated Plasma Lithography (CPL)
   BioSentry
  4




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Microelectronics Process Integration Services
  READ Sensor Systems
  Markets
 BriteLight Lasers
  5




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Compact Soft X-ray Source
  Compact X-ray Microscope
   Compact X-ray Nano Probe
  Collimated Plasma Lithography (CPL)
   BioSentry
   6




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Microelectronics Process Integration Services
  READ Sensor Systems
  Competition
 BriteLight Laser
  Soft X-ray Source
  Compact X-ray Microscope
  7




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X-ray Nano Probe
  BioSentry
  Microelectronics Process Integration Services
  Customers and End Users
  BriteLight Laser
  BioSentry
  Advanced Semiconductor Lithography
   8




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Microelectronics Process Integration Services
  READ Sensor Systems
  Manufacturing
         9




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Sales and Marketing
  Research and Development
    Intellectual Property Rights
    10




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Employees
  INFORMATION REGARDING INDUSTRY SEGMENTS, SIGNIFICANT CUSTOMERS AND EXPORT SALES
  11




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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 if we do not generate sufficient funds from operations or
obtain additional financing we may be unable to continue our present product development
activities.
   You will experience additional dilution if the Company is not successful in selling its new
products in 2006 and 2007.
  The failure to maintain shareholders equity above $2.5 million or market capitalization of $35
million or to sustain a minimum share price of $1.00 per share could result in delisting of our
shares on the NASDAQ Stock Market.
  12




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Our outstanding preferred stock has a liquidation preference of $7,850,000, which is in excess of
our total stockholders equity.
  If our product development programs are not successful, it will harm our business.
    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.
    14




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Declines in our operating performance and other factors adversely affecting the valuation of our
business units could ultimately result in an impairment of our goodwill.
  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.
  15




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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.
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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.
  
 Item 1B. UNRESOLVED STAFF COMMENTS
  
 Item 2. PROPERTIES
     
 Item 3. LEGAL PROCEEDINGS
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  17




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PART II
 
 Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
  Common Stock Price
 High
    
    Low2005First Quarter
    
    
    1.77
    
    
    
    1.29Second Quarter
    
    
    1.48
    
    
    
    1.10Third Quarter
    
    
    1.59
    
    
    
    1.17Fourth Quarter
    
    
    1.48
    
    
    
    1.002004First Quarter
    
    
    4.72
    
    
    
    1.96Second Quarter
    
    
    3.70
    
    
    
    1.75Third Quarter
    
    
    2.14
    
    
    
    1.03Fourth Quarter
    
    
    2.13
    
    
    
    1.27
   18




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Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
  Consolidated Statements of Operations Data  For the Years Ended December 31,
 2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Revenues
    
    $
    9,163,520
    
    
    $
    10,059,839
    
    
    $
    17,296,508
    
    
    $
    18,383,810
    
    
    $
    12,903,811Gross profit
    
    
    2,378,561
    
    
    
    1,998,740
    
    
    
    3,964,627
    
    
    
    3,413,492
    
    
    
    3,499,243Operating
expenses
    
    
    10,321,734
    
    
    
    6,932,671
    
    
    
    5,554,609
    
    
    
    6,571,505
    
    
    
    4,989,402Loss from
operations
    
    
    (7,943,173
    )
    
    
    (4,933,931
    )
    
    
    (1,589,982
    )
    
    
    (3,158,013
    )
    
    
    (1,490,159
    )Realized gain on
sale of marketable
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,349,721
    
    
    
    1,189,273Interest and other
income
    
    
    171,521
    
    
    
    158,144
    
    
    
    63,225
    
    
    
    67,404
    
    
    
    252,282Interest and other
expense
    
    
    (261,151
    )
    
    
    (641,460
    )
    
    
    (559,957
    )
    
    
    (236,015
    )
    
    
    (107,950
    )Loss from continuing
operations before
income
taxes
    
    
    (8,032,803
    )
    
    
    (5,417,247
    )
    
    
    (2,086,714
    )
    
    
    (1,976,903
    )
    
    
    (156,554
    )Income tax
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (484,423
    )
    
    
    Loss from continuing
operations
    
    
    (8,032,803
    )
    
    
    (5,417,247
    )
    
    
    (2,086,714
    )
    
    
    (2,461,326
    )
    
    
    (156,554
    )Loss from operations
of discontinued
operations
    
    
    
    
    
    
    (214,893
    )
    
    
    (1,396,749
    )
    
    
    (5,839,367
    )
    
    
    (14,544,980
    )Gain (loss) on
disposal of
discontinued
operations
    
    
    
    
    
    
    
    
    
    
    205,000
    
    
    
    (3,200,000
    )
    
    
    Net
loss
    
    
    (8,032,803
    )
    
    
    (5,632,140
    )
    
    
    (3,278,463
    )
    
    
    (11,500,693
    )
    
    
    (14,701,534
    )Preferred stock
dividends
    
    
    (2,091,232
    )
    
    
    (2,247,876
    )
    
    
    (942,903
    )
    
    
    
    
    
    
    Loss applicable to
common
stockholders
    
    
    (10,124,035
    )
    
    
    (7,880,016
    )
    
    
    (4,221,366
    )
    
    
    (11,500,693
    )
    
    
    (14,701,534
    )Basic loss per share:Loss per share
from continuing
operations
    
    $
    (0.29
    )
    
    $
    (0.25
    )
    
    $
    (0.12
    )
    
    $
    (0.11
    )
    
    $
    (0.01
    )Loss per share
from discontinued
operations
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.04
    )
    
    
    (0.38
    )
    
    
    (0.64
    )Loss per share
applicable to
common
stock
    
    $
    (0.29
    )
    
    $
    (0.26
    )
    
    $
    (0.16
    )
    
    $
    (0.49
    )
    
    $
    (0.65
    )Basic shares used in
computation of loss
per
share
    
    
    34,924,561
    
    
    
    30,758,689
    
    
    
    25,618,296
    
    
    
    23,618,169
    
    
    
    22,484,905
 Consolidated Balance Sheet Data  December 31,
 2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Working capital
(deficit)
    
    $
    4,036,601
    
    
    $
    7,180,382
    
    
    $
    2,427,166
    
    
    $
    (780,117
    )
    
    $
    7,843,465Total
assets
    
    
    16,317,944
    
    
    
    17,426,098
    
    
    
    13,493,183
    
    
    
    15,121,660
    
    
    
    26,618,625Short-term
debt
    
    
    162,351
    
    
    
    145,019
    
    
    
    2,395,445
    
    
    
    1,556,405
    
    
    
    3,007,152Long-term
liabilities
    
    
    773,222
    
    
    
    465,492
    
    
    
    449,873
    
    
    
    1,708,804
    
    
    
    1,419,632Redeemable
preferred
stock
    
    
    6,969,341
    
    
    
    8,087,274
    
    
    
    2,217,150
    
    
    
    
    
    
    
    Stockholders
equity
    
    
    4,555,228
    
    
    
    5,101,925
    
    
    
    5,277,800
    
    
    
    3,677,994
    
    
    
    14,299,655
 
 Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
    
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Sources of Revenue
 Contract Research and Development, Technical Support, and Production Programs
      Standard Products
 
 
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New Products Under Development
   Results of Operations
 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
    
    
    
    2,785,929Microelectronics Division
    
    
    3,399,268
    
    
    
    3,698,277Sensor Products Group
    
    
    1,599
    
    
    
    $
    9,163,520
    
    
    $
    10,059,839
  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 $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 $3,395,683 and $1,722,329 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.
   22




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Discontinued Operations
 Interest and Other Expense
 Preferred Stock Dividends
 Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
 Revenues.
 2004
    
    
    2003Research Division
    
    $
    3,575,633
    
    
    $
    6,206,123Vermont Operations
    
    
    2,785,929
    
    
    
    6,561,372Microelectronics Division
    
    
    3,698,277
    
    
    
    4,529,013Sensor Products Group
    
    
    
    
    
    
    $
    10,059,839
    
    
    $
    17,296,508
  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 $3,993,862 and $9,606,745
for the fiscal years ended December 31, 2004 and 2003, respectively. The decrease in
customer-funded RD&E expenditures for 2004 consists of a decrease of $2,502,495 related to
the NAVAIR Contract, a decrease of $2,398,252 related to the DARPA Contract and decreases in
two contracts completed in 2004 at the Vermont Operations of $712,136.
    
    Company-funded RD&E costs associated with product development are shown in Operating
Expenses and totaled $1,722,329 and $529,039 for the fiscal years ended December 31, 2004
and 2003, respectively. The increase in 2004 is due to product development started in 2004
for our BioSentry, XRM and XNP new products.
   Discontinued Operations.
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Interest and Other Expense.
 Preferred Stock Dividends.
 Liquidity and Financial Condition
 General.
  Sales of Common Stock.
   25




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Issuances of Preferred Stock
 OriginalConversionIssuance Date
    
    Series
    
    
    Amount
    
    
    Dividend
    
    
    PriceJanuary, 2004
    
    
    E
    
    
    $
    1,500,000
    (3)
    
    
    8
    %
    
    $
    2.85
    (1)February, 2004
    
    
    F
    
    
    $
    2,000,000
    
    
    Prime (2)
    
    $
    3.11
    (1)February, 2004
    
    
    G
    
    
    $
    2,000,000
    
    
    Prime (2)
    
    $
    3.28
    (1)February, 2004
    
    
    H
    
    
    $
    4,000,000
    
    
    Prime (2)
    
    $
    3.47
    (1)
 
 (1)
    
    Reduced to $2.00 pursuant to February 1, 2005 agreement and reduced further pursuant to
March 28, 2006 agreement (see below)(2)
    
    Prime rate at December 31, 2005 was 7.25 percent(3)
    
    A total of $500,000 of Series E Preferred Stock was subsequently converted or redeemed     26




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Working Capital Line
   Cash Used in Continuing Operations
 Cash Used in Discontinued Operations
 Cash Used in Investing Activities
 27




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Cash Provided by Financing Activities
 Stockholders Equity
 Commitments
  2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    TotalLeases
    
    $
    739,412
    
    
    $
    715,054
    
    
    $
    530,495
    
    
    $
    373,797
    
    
    $
    371,233
    
    
    $
    715,514
    
    
    $
    3,445,505Deferred compensation
    
    
    267,175
    
    
    
    275,297
    
    
    
    185,955
    
    
    
    56,003
    
    
    
    
    
    
    
    
    
    
    
    784,430$
    1,006,587
    
    
    $
    990,351
    
    
    $
    716,450
    
    
    $
    429,800
    
    
    $
    371,233
    
    
    $
    715,514
    
    
    $
    4,229,935
  Preferred Stock Redemption Obligations
  Gross AmountOutstanding at
    
    
    Scheduled RedemptionsDescription
    
    December 31, 2005
    
    
    2007
    
    
    2008
    
    
    TotalSeries F Preferred
    
    $
    1,962,500
    
    
    $
    187,500
    
    
    $
    1,775,000
    
    
    $
    1,962,500Series G Preferred
    
    $
    1,962,500
    
    
    
    354,432
    
    
    
    1,608,068
    
    
    
    1,962,500Series H Preferred
    
    $
    3,925,000
    
    
    
    375,000
    
    
    
    3,550,000
    
    
    
    3,925,000$
    916,932
    
    
    $
    6,933,068
    
    
    $
    7,850,000
  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 Option Plans
  Recent Accounting Pronouncements
     
 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  31




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Item 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 Item 9A. CONTROLS AND PROCEDURES
     
 Item 9B. OTHER INFORMATION
  
 PART III
 
 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
   
 Item 11. EXECUTIVE COMPENSATION
  32




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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
  33




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PART IV
 
 Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
   Report of Independent Registered Public Accounting Firm
    
    
    35Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    
    36Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004 and 2003
    
    
    37Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2005, 2004 and 2003
    
    
    38Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003
    
    
    39Notes to Consolidated Financial Statements
    
    
    40
  34




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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, 2005 and 2004
 2005
    
    
    2004ASSETSCurrent Assets:Cash and cash
equivalents
    
    $
    5,490,789
    
    
    $
    6,599,588Accounts
receivable
    
    
    1,640,369
    
    
    
    3,090,922Inventories
    
    
    435,905
    
    
    
    335,336Prepaid expenses and
other
    
    
    489,691
    
    
    
    925,943Total current
assets
    
    
    8,056,754
    
    
    
    10,951,789Property and equipment,
net
    
    
    1,756,452
    
    
    
    879,012Intangible assets,
net
    
    
    1,708,038
    
    
    
    537,191Other
assets
    
    
    380,768
    
    
    
    642,174Goodwill
    
    
    4,415,932
    
    
    
    4,415,932TOTAL
ASSETS
    
    $
    16,317,944
    
    
    $
    17,426,098LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts
payable
    
    $
    1,393,272
    
    
    $
    943,027Accrued
liabilities
    
    
    574,652
    
    
    
    673,869Accrued payroll and related
costs
    
    
    914,195
    
    
    
    731,718Billings in excess of cost
incurred
    
    
    774,675
    
    
    
    861,383Deferred rent
    
    
    201,008
    
    
    
    Current portion of notes payable
and other
liabilities
    
    
    162,351
    
    
    
    145,019Current liabilities of discontinued
operations, including notes
payable
    
    
    
    
    
    
    416,391Total current
liabilities
    
    
    4,020,153
    
    
    
    3,771,407Notes payable and other long-term
liabilities, net of current
portion
    
    
    773,222
    
    
    
    465,492Redeemable convertible preferred
stock, 785,000 shares issued and
outstanding as of December 31, 2005
and 908,333 shares issued and
outstanding as of December 31, 2004,
net of unamortized discount of
$880,659 and $996,059,
respectively
    
    
    6,969,341
    
    
    
    8,087,274Commitments and
contingencies
    
    
    
    
    
    
    Stockholders equity:Preferred stock, $.01 par value;
5,000,000 shares authorized;
785,000 issued and outstanding as
of December 31, 2005 included in
redeemable convertible preferred
stock above, and 908,333 issued and
outstanding as of December 31,
2004
    
    
    
    
    
    
    Common stock, $.01 par value;
80,000,000 shares authorized;
38,823,158 shares issued and
outstanding as of December 31, 2005
and 31,376,735 shares issued and
outstanding as of December 31,
2004
    
    
    388,231
    
    
    
    313,767Additional paid-in
capital, net of stock subscription receivable of $855,001
    
    
    79,589,931
    
    
    
    70,087,057Accumulated
deficit
    
    
    (75,422,934
    )
    
    
    (65,298,899
    )Total stockholders
equity
    
    
    4,555,228
    
    
    
    5,101,925TOTAL LIABILITIES AND
STOCKHOLDERS
EQUITY
    
    $
    16,317,944
    
    
    $
    17,426,098
  36




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##### Table of Contents



JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2005, 2004 and 2003
 2005
    
    
    2004
    
    
    2003Revenues
    
    $
    9,163,520
    
    
    $
    10,059,839
    
    
    $
    17,296,508Costs of revenues
    
    
    6,784,959
    
    
    
    8,061,099
    
    
    
    13,331,881Gross profit
    
    
    2,378,561
    
    
    
    1,998,740
    
    
    
    3,964,627Operating expenses:Selling, general and administrative
    
    
    6,707,819
    
    
    
    5,018,767
    
    
    
    4,679,510Research and development
    
    
    3,395,683
    
    
    
    1,722,329
    
    
    
    529,039Asset write-downs
    
    
    218,232
    
    
    
    191,575
    
    
    
    346,060Total operating expenses
    
    
    10,321,734
    
    
    
    6,932,671
    
    
    
    5,554,609Loss from operations
    
    
    (7,943,173
    )
    
    
    (4,933,931
    )
    
    
    (1,589,982
    )Interest and other income
    
    
    171,521
    
    
    
    158,144
    
    
    
    63,225Interest and other expense
    
    
    (261,151
    )
    
    
    (641,460
    )
    
    
    (559,957
    )Loss from continuing operations
    
    
    (8,032,803
    )
    
    
    (5,417,247
    )
    
    
    (2,086,714
    )Discontinued operations:Loss from operations of discontinued
operations
    
    
    
    
    
    
    (214,893
    )
    
    
    (1,396,749
    )Gain on disposal of discontinued operations
    
    
    
    
    
    
    
    
    
    
    205,000Net loss
    
    
    (8,032,803
    )
    
    
    (5,632,140
    )
    
    
    (3,278,463
    )Deemed preferred stock dividends
    
    
    (2,091,232
    )
    
    
    (2,247,876
    )
    
    
    (942,903
    )Loss applicable to common stockholders
    
    $
    (10,124,035
    )
    
    $
    (7,880,016
    )
    
    $
    (4,221,366
    )Basic and diluted loss per share:Loss per share from continuing operations
    
    $
    (0.29
    )
    
    $
    (0.25
    )
    
    $
    (0.12
    )Loss per share from discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.04
    )Basic and diluted loss per share applicable to common
stockholders
    
    $
    (0.29
    )
    
    $
    (0.26
    )
    
    $
    (0.16
    )Shares used in computation of basic and diluted loss per
share
    
    
    34,924,561
    
    
    
    30,758,689
    
    
    
    25,618,296
  37




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##### Table of Contents



JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the Years Ended December 31, 2005, 2004 and 2003
 Common Stock
    
    
    Preferred Stock
    
    
    Additional
    
    
    Accumulated
    
    
    TotalShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Paid-in
    
    
    Deficit
    
    
    EquityBalance, December 31, 2002
    
    
    23,852,024
    
    
    $
    238,520
    
    
    
    
    
    
    $
    
    
    
    $
    56,636,991
    
    
    $
    (53,197,517
    )
    
    $
    3,677,994Issuance of stock and warrants for
services
    
    
    11,026
    
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    42,512
    
    
    
    
    
    
    
    42,622Issuance of common stock from
preferred stock conversions (net of
costs of $46,267)
    
    
    2,272,727
    
    
    
    22,727
    
    
    
    
    
    
    
    
    
    
    
    1,931,006
    
    
    
    
    
    
    
    1,953,733Issuance of common stock from working
capital line conversions
    
    
    1,275,000
    
    
    
    12,750
    
    
    
    
    
    
    
    
    
    
    
    1,160,250
    
    
    
    
    
    
    
    1,173,000Beneficial conversion feature of
preferred stock and working capital
line, and fair value of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,262,240
    
    
    
    
    
    
    
    2,262,240Issuance of common stock and warrants
for cash
    
    
    100,000
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    99,000
    
    
    
    
    
    
    
    100,000Stock issued upon exercise of warrant
    
    
    144,068
    
    
    
    1,441
    
    
    
    
    
    
    
    
    
    
    
    288,136
    
    
    
    
    
    
    
    289,577Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (942,903
    )
    
    
    (942,903
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,278,463
    )
    
    
    (3,278,463
    )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
    )
    
    $
    4,555,228
  38




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##### Table of Contents



JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2005, 2004 and 2003
 2004
    
    
    2003(Revised, see
    
    
    (Revised, see2005
    
    
    Note 2o)
    
    
    Note 2o)Cash flows from operating activities:Loss from continuing
operations
    
    $
    (8,032,803
    )
    
    $
    (5,417,247
    )
    
    $
    (2,086,714
    )Adjustments to reconcile loss from
continuing operations to net cash
used in continuing operations:Depreciation, amortization and
debt discount
    
    
    585,685
    
    
    
    1,013,571
    
    
    
    938,718Services received in exchange for
common stock or
warrants
    
    
    121,445
    
    
    
    142,083
    
    
    
    42,622Asset
write-downs
    
    
    218,232
    
    
    
    191,575
    
    
    
    346,060Change in assets and liabilities:Accounts
receivable
    
    
    1,450,553
    
    
    
    (288,897
    )
    
    
    92,368Inventories
    
    
    (100,569
    )
    
    
    18,597
    
    
    
    82,315Prepaid expenses and
other
    
    
    461,549
    
    
    
    (475,924
    )
    
    
    (133,233
    )Customer
deposits
    
    
    
    
    
    
    
    
    
    
    (832,607
    )Billings in excess of costs
incurred
    
    
    (86,708
    )
    
    
    791,587
    
    
    
    (853,698
    )Lease incentives received from
landlords
    
    
    540,444
    
    
    
    
    
    
    
    Accounts payable and accrued
liabilities
    
    
    596,643
    
    
    
    261,548
    
    
    
    (1,175,069
    )Net cash used in continuing
operations operating
activities
    
    
    (4,245,529
    )
    
    
    (3,763,107
    )
    
    
    (3,579,238
    )Loss from discontinued
operations
    
    
    
    
    
    
    (214,893
    )
    
    
    (1,191,749
    )Changes in net assets and liabilities
of discontinued operations
    
    
    (358,645
    )
    
    
    (480,323
    )
    
    
    (770,887
    )Net cash used in
discontinued
operations
    
    
    (358,645
    )
    
    
    (695,216
    )
    
    
    (1,962,636
    )Net cash used in operating
activities
    
    
    (4,604,174
    )
    
    
    (4,458,323
    )
    
    
    (5,541,874
    )Cash flows from investing activities:Capital
expenditures
    
    
    (1,225,734
    )
    
    
    (408,038
    )
    
    
    (123,393
    )Additions of intangible assets, other
assets and goodwill
    
    
    (172,264
    )
    
    
    (359,347
    )
    
    
    (272,304
    )Payments of note payable of
discontinued
operations
    
    
    (37,444
    )
    
    
    (83,711
    )
    
    
    (53,845
    )Payments received on notes
receivable
    
    
    19,856
    
    
    
    62,500
    
    
    
    Net cash used in investing
activities
    
    
    (1,415,586
    )
    
    
    (788,596
    )
    
    
    (449,542
    )Cash flows from financing activities:Net proceeds from the issuance of
preferred stock
    
    
    
    
    
    
    9,070,870
    
    
    
    5,202,333Cash payments of preferred stock
dividends
    
    
    (669,359
    )
    
    
    (249,760
    )
    
    
    (78,479
    )Payments of notes payable and other
long-term liabilities
    
    
    
    
    
    
    (868,642
    )
    
    
    Preferred stock
redemptions
    
    
    (233,333
    )
    
    
    (416,667
    )
    
    
    Repurchase of
stock
    
    
    
    
    
    
    (17,747
    )
    
    
    Net proceeds from the issuance of
common stock
    
    
    5,813,653
    
    
    
    
    
    
    
    1,238,899Net payments under line of
credit
    
    
    
    
    
    
    
    
    
    
    (285,999
    )Decrease in restricted
cash
    
    
    
    
    
    
    
    
    
    
    1,550,000Net proceeds from the exercise of
options and warrants
    
    
    
    
    
    
    157,274
    
    
    
    289,577Net cash provided by
financing
activities
    
    
    4,910,961
    
    
    
    7,675,328
    
    
    
    7,916,331Net increase (decrease) in cash and cash
equivalents
    
    
    (1,108,799
    )
    
    
    2,428,409
    
    
    
    1,924,915Cash and cash equivalents, beginning of
period
    
    
    6,599,588
    
    
    
    4,171,179
    
    
    
    2,246,264Cash and cash equivalents, end of
period
    
    $
    5,490,789
    
    
    $
    6,599,588
    
    
    $
    4,171,179Cash paid during the year for
interest
    
    $
    33,596
    
    
    $
    62,139
    
    
    $
    142,860
   39




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004
 1. Description of the Company and Financial Condition
     2. Summary of Significant Accounting Policies
 a. Cash and Cash Equivalents
  b. Fair Value of Financial Instruments
  c. Pervasiveness of Estimates
  40




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
  d. Inventories
  e. Income Taxes
    f. Property and Equipment
  g. Goodwill and Other Intangible Assets
   41




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
    h. Intangible Assets
  i. Long-Lived Assets
   j. Revenues
  k. Beneficial Conversion Feature and Warrant Valuation
  42




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
   l. Allowances for Doubtful Accounts
  m. Earnings Per Share
  n. Stock Options
   2005
    
    
    2004
    
    
    2003Loss applicable to common
stockholders:
    
    As Reported
    
    $
    (10,124,035
    )
    
    $
    (7,880,016
    )
    
    $
    (4,221,366
    )Stock based compensation expense
    
    
    
    
    
    
    (541,881
    )
    
    
    (816,710
    )
    
    
    (1,028,140
    )Pro Forma
    
    $
    (10,665,916
    )
    
    $
    (8,696,726
    )
    
    $
    (5,249,506
    )Basic and diluted loss per share:
    
    As Reported
    
    $
    (0.29
    )
    
    $
    (0.26
    )
    
    $
    (0.16
    )Stock based compensation expense
    
    
    
    
    
    
    (0.02
    )
    
    
    (0.02
    )
    
    
    (0.04
    )Pro Forma
    
    $
    (0.31
    )
    
    $
    (0.28
    )
    
    $
    (0.20
    )
  43




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
 o. Reclassifications and Revisions
  p. Recent Accounting Pronouncements
  ,
   3. Acquisitions
   44




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
   Goodwill
    
    $
    3,790,907Identifiable intangibles
    
    
    785,000Fair value of tangible assets acquired
    
    
    671,593Liabilities assumed
    
    
    (950,086
    )$
    4,297,414
   4. Accounts Receivable
  2005
    
    
    2004Billed
    
    $
    1,240,922
    
    
    $
    944,046Unbilled
    
    
    399,447
    
    
    
    2,146,876$
    1,640,369
    
    
    $
    3,090,922
  5. Inventories
  45




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
 2005
    
    
    2004Raw materials, components and sub-assemblies
    
    $
    194,539
    
    
    $
    88,684Work-in-process
    
    
    77,692
    
    
    
    245,498Finished goods and demonstration units
    
    
    163,674
    
    
    
    1,154$
    435,905
    
    
    $
    335,336
  6. Property and Equipment
  2005
    
    
    2004Equipment and machinery
    
    $
    2,919,640
    
    
    $
    2,751,128Software
    
    
    590,446
    
    
    
    405,124Furniture and fixtures
    
    
    388,234
    
    
    
    440,990Leasehold improvements
    
    
    862,050
    
    
    
    283,2184,760,370
    
    
    
    3,880,460Less-Accumulated depreciation
    
    
    (3,003,918
    )
    
    
    (3,001,448
    )$
    1,756,452
    
    
    $
    879,012
  7. Commitments and Contingencies
 a. Leases
  Year Ending December 31,2006
    
    $
    739,4102007
    
    
    715,0522008
    
    
    530,4952009
    
    
    373,7962010
    
    
    371,234Thereafter
    
    
    715,514$
    3,445,501
  b. Deferred Compensation
   46




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
   8. Notes Payable and Other Long-term Obligations
  2005
    
    
    2004Working capital line with Laurus in the
amount of $3,000,000. Advances bear
interest at the prime rate (7.25% and
5.25% at December 31, 2005 and 2004,
respectively) plus .75%, but not less
than 5%. Interest on the line is
payable monthly. Advances are secured
by all assets of the Company.
Borrowings may be converted to common
stock
    
    $
    
    
    
    $
    Lease incentives received from
landlords
    
    
    540,444
    
    
    
    Deferred compensation, less discount of
$280,000 and $451,107 at December 31,
2005 and 2004, respectively (see Note
7)
    
    
    504,439
    
    
    
    610,5111,044,883
    
    
    
    610,511Less: Current
portion
    
    
    (271,661
    )
    
    
    (145,019
    )$
    773,222
    
    
    $
    465,492
  47




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
    %
   9. Discontinued Operations/Assets Held for Sale
  48




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
      December 31,2005
    
    
    2004Current Liabilities:Facility lease accrual
    
    $
    
    
    
    $
    275,221Accounts payable and accruals
    
    
    
    
    
    
    103,726Note payable
    
    
    
    
    
    
    37,444$
    
    
    
    $
    416,391
 10. Income Taxes
  2005
    
    
    2004Deferred tax assets:Net operating loss carryforwards
    
    $
    20,753,000
    
    
    $
    18,224,000Capital loss carryforward
    
    
    6,843,000
    
    
    
    6,843,000Other
    
    
    1,059,000
    
    
    
    1,268,000Total gross deferred tax assets
    
    
    28,655,000
    
    
    
    26,335,000Less valuation reserve
    
    
    (28,655,000
    )
    
    
    (26,335,000
    )Net deferred tax asset
    
    $
    
    
    
    $
    
 49




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
   2005
    
    2004
    
    2003Statutory federal income tax
rate
    
    
    (34
    )%
    
    
    (34
    )%
    
    
    (34
    )%State income
tax
    
    
    (6
    )
    
    
    (6
    )
    
    
    (6
    )Benefit recorded due to net
operating loss carryforward
position
    
    
    40
    
    
    
    40
    
    
    
    40
    %
    
    
    
    %
    
    
    
    %
   11. Equity Transactions
 a. Laurus Preferred Stock and Warrants
  OriginalConversionIssuance Date
    
    Series
    
    
    Amount
    
    
    Dividend
    
    
    PriceJanuary, 2004
    

    E
    
    
    $
    1,500,000
    
    
    
    8
    %
    
    $
    2.85
    (1)February, 2004
    

    F
    
    
    
    2,000,000
    
    
    Prime (2)
    
    $
    3.11
    (1)February, 2004
    

    G
    
    
    
    2,000,000
    
    
    Prime (2)
    
    $
    3.28
    (1)February, 2004
    

    H
    
    
    
    4,000,000
    
    
    Prime (2)
    
    $
    3.47
    (1)$
    9,500,000
 50




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
 
 (1)
    
    Reduced to $2.00 pursuant to February 1, 2005 agreement
and reduced to $1.16 for all of the Series F and H and
$506,480 of the Series G, pursuant to March 28, 2006 agreement.(2)
    
    Prime rate at December 31, 2005 was 7.25 percent.      51




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
   GrossAmountOutstandingat December
    
    
    Scheduled RedemptionsDescription
    
    31, 2005
    
    
    2007
    
    
    2008
    
    
    TotalSeries F Preferred
    
    $
    1,962,500
    
    
    $
    187,500
    
    
    $
    1,775,000
    
    
    $
    1,962,500Series G Preferred
    
    $
    1,962,500
    
    
    
    354,432
    
    
    
    1,608,068
    
    
    
    1,962,500Series H Preferred
    
    $
    3,925,000
    
    
    
    375,000
    
    
    
    3,550,000
    
    
    
    3,925,000$
    916,932
    
    
    $
    6,933,068
    
    
    $
    7,850,000
    FinancingNetBalance at
    
    
    
    
    
    
    
    
    
    
    Fair
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Balance atDecember
    
    
    Gross
    
    
    
    
    
    
    Value of
    
    
    Fees and
    
    
    Discount
    
    
    
    
    
    
    
    
    
    
    December 31,Series
    
    31, 2003
    
    
    Amount
    
    
    BCF
    
    
    Warrants
    
    
    Costs
    
    
    Amortization
    
    
    Conversions
    
    
    Redemptions
    
    
    2004C
    
    $
    875,223
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    624,777
    
    
    $
    1,500,000
    
    
    $
    
    
    
    $
    D
    
    
    1,341,927
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    658,073
    
    
    
    2,000,000
    
    
    
    
    
    
    
    E
    
    
    
    
    
    
    1,500,000
    
    
    
    381,609
    
    
    
    218,451
    
    
    
    62,000
    
    
    
    331,033
    
    
    
    
    
    
    
    416,667
    
    
    
    752,306F
    
    
    
    
    
    
    2,000,000
    
    
    
    54,250
    
    
    
    144,282
    
    
    
    72,062
    
    
    
    82,686
    
    
    
    
    
    
    
    
    
    
    
    1,812,092G
    
    
    
    
    
    
    2,000,000
    
    
    
    
    
    
    
    151,571
    
    
    
    72,062
    
    
    
    68,332
    
    
    
    
    
    
    
    
    
    
    
    1,844,699H
    
    
    
    
    
    
    4,000,000
    
    
    
    
    
    
    
    319,301
    
    
    
    144,125
    
    
    
    141,603
    
    
    
    
    
    
    
    
    
    
    
    3,678,177$
    2,217,150
    
    
    $
    9,500,000
    
    
    $
    435,859
    
    
    $
    833,605
    
    
    $
    350,249
    
    
    $
    1,906,504
    
    
    $
    3,500,000
    
    
    $
    416,667
    
    
    $
    8,087,274
  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
 52




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
    b. Sales of Common Stock and Warrants
     53




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
 c. Issuance of Warrants
  2005
    
    
    2004
    
    
    2003Wtd Avg
    
    
    
    
    
    
    Wtd Avg
    
    
    
    
    
    
    Wtd AvgShares
    
    
    Ex Price
    
    
    Shares
    
    
    Ex Price
    
    
    Shares
    
    
    Ex PriceOutstanding at beg. of year
    
    
    2,268,970
    
    
    $
    1.94
    
    
    
    1,830,720
    
    
    $
    1.42
    
    
    
    1,422,643
    
    
    $
    2.49Granted
    
    
    4,407,308
    
    
    
    1.53
    
    
    
    440,000
    
    
    
    4.09
    
    
    
    1,100,000
    
    
    
    1.62Exercised
    
    
    
    
    
    
    
    
    
    
    (1,750
    )
    
    
    1.00
    
    
    
    (144,068
    )
    
    
    2.01Forfeited
    
    
    (25,000
    )
    
    
    5.00
    
    
    
    
    
    
    
    
    
    
    
    (547,855
    )
    
    
    4.45Outstanding at end of year
    
    
    6,651,278
    
    
    
    1.65
    
    
    
    2,268,970
    
    
    
    1.94
    
    
    
    1,830,720
    
    
    
    1.42Exercisable at end of year
    
    
    3,937,309
    
    
    
    
    
    
    
    2,240,345
    
    
    
    
    
    
    
    1,780,720Weighted average fair value of warrants granted
    
    
    0.88
    
    
    
    
    
    
    
    2.94
    
    
    
    
    
    
    
    1.19
  Warrants Outstanding
    
    
    Warrants ExercisableNumber
    
    
    Weighted-Average
    
    
    Weighted-
    
    
    Number
    
    
    Weighted-Range of
    
    Outstanding
    
    
    Remaining
    
    
    Average
    
    
    Exercisable
    
    
    AverageExercise Prices
    
    at 12/31/05
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    at 12/31/05
    
    
    Exercise Price$0.43 to $0.50
    
    
    517,470
    
    

3.0 Years


    $
    0.43
    
    
    
    517,470
    
    
    $
    0.431.00 to 1.80
    
    
    5,114,808
    
    


5.0
    
    
    
    1.47
    
    
    
    2,429,464
    
    
    
    1.502.05 to 2.64
    
    
    574,000
    
    

    3.4
    
    
    
    2.40
    
    
    
    574,000
    
    
    
    2.403.13 to 3.88
    
    
    255,000
    
    

    4.9
    
    
    
    3.56
    
    
    
    226,375
    
    
    
    3.625.00 to 5.15
    
    
    190,000
    
    

    6.0
    
    
    
    5.08
    
    
    
    190,000
    
    
    
    5.08$0.43 to $5.15
    
    
    6,651,278
    
    
    
    
    
    
    
    
    
    
    
    3,937,309
 d. Settlement of SAL Earn-out Obligations
  e. Other Equity Transactions
    12. Stock-Based Compensation Plans
  54




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
   2005
    
    
    2004
    
    
    2003Wtd Avg
    
    
    
    
    
    
    Wtd Avg
    
    
    
    
    
    
    Wtd AvgShares
    
    
    Ex Price
    
    
    Shares
    
    
    Ex Price
    
    
    Shares
    
    
    Ex PriceOutstanding at beg. of year
    
    
    2,927,838
    
    
    $
    2.27
    
    
    
    3,028,247
    
    
    $
    2.43
    
    
    
    3,214,834
    
    
    $
    2.93Granted
    
    
    569,628
    
    
    
    1.37
    
    
    
    263,500
    
    
    
    1.68
    
    
    
    489,500
    
    
    
    1.05Exercised
    
    
    (33,856
    )
    
    
    0.60
    
    
    
    (66,183
    )
    
    
    2.25
    
    
    
    
    
    
    
    Forfeited
    
    
    (301,000
    )
    
    
    1.91
    
    
    
    (297,726
    )
    
    
    3.34
    
    
    
    (676,087
    )
    
    
    3.50Outstanding at end of year
    
    
    3,162,610
    
    
    
    2.11
    
    
    
    2,927,838
    
    
    
    2.27
    
    
    
    3,028,247
    
    
    
    2.43Exercisable at end of year
    
    
    2,354,384
    
    
    
    
    
    
    
    2,073,462
    
    
    
    
    
    
    
    1,945,969Weighted average fair value of options granted
    
    
    1.13
    
    
    
    
    
    
    
    1.69
    
    
    
    
    
    
    
    0.92
  Options Outstanding
    
    
    Options ExercisableNumber
    
    
    Weighted-Average
    
    
    Weighted-
    
    
    Number
    
    
    Weighted-Range of
    
    Outstanding
    
    
    Remaining
    
    
    Average
    
    
    Exercisable
    
    
    AverageExercise Prices
    
    at 12/31/05
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    at 12/31/05
    
    
    Exercise Price$0.87 to
$ 0.90
    
    
    328,000
    
    
    
    6.8 Years
    
    
    $
    0.90
    
    
    
    219,668
    
    
    $
    0.901.02 to 1.44
    
    
    1,334,828
    
    
    
    7.3
    
    
    
    1.33
    
    
    
    743,536
    
    
    
    1.301.66 to 2.44
    
    
    555,463
    
    
    
    4.2
    
    
    
    2.06
    
    
    
    465,061
    
    
    
    2.102.63 to 3.00
    
    
    553,545
    
    
    
    2.7
    
    
    
    2.94
    
    
    
    541,445
    
    
    
    2.943.13 to 9.50
    
    
    390,774
    
    
    
    3.8
    
    
    
    4.66
    
    
    
    384,674
    
    
    
    4.68$0.87 to
$ 9.50
    
    
    3,162,610
    
    
    
    
    
    
    
    
    
    
    
    2,354,384
 13. Segment Information
  Research Division/Vermont Operations
  55




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
   Microelectronics Division
  Sensor Products Group
   56




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
  SensorResearch
    
    
    Vermont
    
    
    Microelectronics
    
    
    ProductsDivision
    
    
    Operations
    
    
    Division
    
    
    Group
    
    
    Corporate
    
    
    Total2005:Revenues
    
    $
    1,901,246
    
    
    $
    3,861,407
    
    
    $
    3,399,268
    
    
    $
    1,599
    
    
    $
    
    
    
    $
    9,163,520Asset writedowns
    
    
    (161,174
    )
    
    
    
    
    
    
    (57,058
    )
    
    
    
    
    
    
    
    
    
    
    (218,232
    )Operating loss
    
    
    (2,372,867
    )
    
    
    (849,489
    )
    
    
    (1,382,377
    )
    
    
    (3,129,883
    )
    
    
    (208,557
    )
    
    
    (7,943,173
    )Total assets
    
    
    1,165,835
    
    
    
    5,927,113
    
    
    
    1,318,509
    
    
    
    1,505,906
    
    
    
    6,400,581
    
    
    
    16,317,944Goodwill
    
    
    
    
    
    
    4,415,932
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,415,932Capital expend
    
    
    44,735
    
    
    
    54,334
    
    
    
    301,927
    
    
    
    33,681
    
    
    
    791,057
    
    
    
    1,225,734Depreciation & amortization
    
    
    90,774
    
    
    
    34,037
    
    
    
    105,825
    
    
    
    9,207
    
    
    
    345,842
    
    
    
    585,6852004:Revenues
    
    
    3,575,633
    
    
    
    2,785,929
    
    
    
    3,698,277
    
    
    
    
    
    
    
    
    
    
    
    10,059,839Asset writedowns
    
    
    (191,575
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (191,575
    )Operating loss
    
    
    (1,306,568
    )
    
    
    (1,757,025
    )
    
    
    (600,759
    )
    
    
    (1,089,453
    )
    
    
    (180,126
    )
    
    
    (4,933,931
    )Total assets
    
    
    3,239,951
    
    
    
    5,210,423
    
    
    
    1,895,020
    
    
    
    17,636
    
    
    
    7,063,068
    
    
    
    17,426,098Goodwill
    
    
    
    
    
    
    4,415,932
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,415,932Capital expend
    
    
    15,920
    
    
    
    18,978
    
    
    
    160,845
    
    
    
    17,636
    
    
    
    194,659
    
    
    
    408,038Depreciation & amortization
    
    
    163,314
    
    
    
    189,112
    
    
    
    50,337
    
    
    
    1,748
    
    
    
    609,060
    
    
    
    1,013,5712003:Revenues
    
    
    6,206,123
    
    
    
    6,561,372
    
    
    
    4,529,013
    
    
    
    
    
    
    
    
    
    
    
    17,296,508Asset writedowns
    
    
    (346,060
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (346,060
    )Oper. income (loss)
    
    
    152,738
    
    
    
    (1,455,035
    )
    
    
    151,242
    
    
    
    
    
    
    
    (438,927
    )
    
    
    (1,589,982
    )Total assets
    
    
    3,119,115
    
    
    
    4,626,299
    
    
    
    1,708,504
    
    
    
    
    
    
    
    4,039,265
    
    
    
    13,493,183Goodwill
    
    
    
    
    
    
    3,790,907
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,790,907Capital expend
    
    
    38,349
    
    
    
    13,449
    
    
    
    61,767
    
    
    
    
    
    
    
    9,828
    
    
    
    123,393Depreciation & amortization
    
    
    226,995
    
    
    
    311,857
    
    
    
    24,427
    
    
    
    
    
    
    
    375,439
    
    
    
    938,718
  Significant Customers
  Export Sales
  57




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
 14. Quarterly Financial Information (Unaudited)
  Loss
    
    Loss per
    
    WeightedYear Ended
    
    
    
    
    
    
    
    
    
    Applicable to
    
    Share from
    
    AverageDecember 31,
    
    
    
    
    
    Gross
    
    Common
    
    Continuing
    
    Shares2005
    
    Revenues
    
    Profit
    
    Stockholders
    
    Operations
    
    OutstandingDecember 31
    
    $
    2,247,677
    
    
    $
    445,815
    
    
    $
    (3,280,723
    )
    
    $
    (0.09
    )
    
    
    35,420,118September 30
    
    
    2,333,832
    
    
    
    700,631
    
    
    
    (2,580,263
    )
    
    
    (0.07
    )
    
    
    35,209,761June 30
    
    
    2,714,680
    
    
    
    671,659
    
    
    
    (2,189,982
    )
    
    
    (0.06
    )
    
    
    35,199,784March 31
    
    
    1,867,331
    
    
    
    560,456
    
    
    
    (2,073,067
    )
    
    
    (0.06
    )
    
    
    33,856,817$
    9,163,520
    
    
    $
    2,378,561
    
    
    $
    (10,124,035
    )
    
    
    (0.29
    )
    
    
    34,924,561
 Gain (Loss)
    
    Loss
    
    
    
    
    
    
    
    
    
    WeightedYear Ended
    
    
    
    
    
    
    
    
    
    from
    
    Applicable to
    
    Loss Per Share
    
    AverageDecember 31,
    
    
    
    
    
    Gross
    
    Discontinued
    
    Common
    
    Continuing
    
    Discontinued
    
    Shares2004
    
    Revenues
    
    Profit
    
    Operations
    
    Stockholders
    
    Operations
    
    Operations
    
    OutstandingDecember 31
    
    $
    1,755,289
    
    
    $
    448,626
    
    
    $
    (174,793
    )
    
    $
    (2,504,241
    )
    
    $
    (0.07
    )
    
    $
    (0.01
    )
    
    
    31,374,439September 30
    
    
    2,257,737
    
    
    
    214,819
    
    
    
    (52,549
    )
    
    
    (1,929,816
    )
    
    
    (0.06
    )
    
    
    
    
    
    
    31,088,814June 30
    
    
    3,011,437
    
    
    
    669,842
    
    
    
    74,546
    
    
    
    (1,322,001
    )
    
    
    (0.04
    )
    
    
    
    
    
    
    30,885,182March 31
    
    
    3,035,376
    
    
    
    665,453
    
    
    
    (62,097
    )
    
    
    (2,123,958
    )
    
    
    (0.07
    )
    
    
    
    
    
    
    29,660,437$
    10,059,839
    
    
    $
    1,998,740
    
    
    $
    (214,893
    )
    
    $
    (7,880,016
    )
    
    
    (0.25
    )
    
    
    (0.01
    )
    
    
    30,758,689
  15. Intangible Assets
  December 31, 2005
    
    
    December 31, 2004Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Intangible
    
    
    Carrying
    
    
    Accumulated
    
    
    IntangibleAmount
    
    
    Amortization
    
    
    Assets
    
    
    Amount
    
    
    Amortization
    
    
    AssetsPatents
    
    $
    968,768
    
    
    $
    498,626
    
    
    $
    470,142
    
    
    $
    908,032
    
    
    $
    489,174
    
    
    $
    418,858Unpatented Technology
    
    
    450,000
    
    
    
    450,000
    
    
    
    
    
    
    
    450,000
    
    
    
    450,000
    
    
    
    Licenses
    
    
    1,256,925
    
    
    
    19,029
    
    
    
    1,237,896
    
    
    
    126,250
    
    
    
    7,917
    
    
    
    118,333$
    1,708,038
    
    
    
    
    
    
    
    
    
    
    $
    537,191
   58




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##### Table of Contents



JMAR TECNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2005 and 2004
  For the Year Ending
    
    Estimated AmortizationDecember 31
    
    Expense2006
    
    $
    392,4732007
    
    
    392,4732008
    
    
    392,4732009
    
    
    248,5322010
    
    
    47,014Thereafter
    
    
    235,073$
    1,708,038
 16.
Concentration of Customers Risk
  17. Research
and Development Costs
  
 
  18. Subsequent Events
   59




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##### Table of Contents



SIGNATURES
  JMAR TECHNOLOGIES, INC.Date: April 7, 2006
    By:
    /s/ Ronald A. WalrodChief Executive Officer  Signature
    
    Title
    
    Date/s/ Vernon H. Blackman

Vernon H. Blackman
    
    Chairman of the Board and Director
    
    April 7, 2006/s/ Ronald A. Walrod

Ronald A. Walrod
    
    Chief Executive Officer and Director
    
    April 7, 2006/s/ Dennis E. Valentine

Dennis E. Valentine
    
    Chief Financial Officer
and Chief Accounting Officer
    
    April 7, 2006/s/ C. Neil Beer

C. Neil Beer
    
    Director
    
    April 7, 2006/s/ Charles A. Dickinson

Charles A. Dickinson
    
    Director
    
    April 7, 2006/s/ J. Paul Gilman

J. Paul Gilman
    
    Director
    
    April 7, 2006/s/ Edward P. OSullivan II

Edward P. OSullivan II
    
    Director
    
    April 7, 2006/s/ Barry Ressler

Barry Ressler
    
    Director
    
    April 7, 2006
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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(+)
    
    Stock Option Agreement, dated October 14, 2002, between the Company and Ronald A. Walrod (Incorporated by
reference to Exhibit 4.4 filed with the Companys Form 10-K for the year ended December 31, 2002).4.5
    
    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).4.6
    
    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).4.7
    
    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).4.8
    
    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).4.9
    
    Certificate to set forth Designations, Voting Powers, Preferences, Limitations, Restrictions and Relative
Rights of Series F Convertible Preferred Stock, $0.01 Par Value Per Share (Incorporated by reference to
Exhibit 4.14 filed with the Companys Form S-3 filed February 9, 2004).4.10
    
    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).
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##### Table of Contents



ExhibitNo.
    
    Description4.11
    
    Certificate to set forth Designations, Voting Powers, Preferences, Limitations, Restrictions and Relative
Rights of Series H Convertible Preferred Stock, $0.01 Par Value Per Share (Incorporated by reference to
Exhibit 4.16. filed with the Companys Form S-3 filed February 9, 2004).4.12
    
    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).4.13
    
    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).4.14
    
    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).4.15
    
    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).4.16
    
    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).4.17
    
    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).4.18
    
    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).4.19
    
    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).4.20
    
    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).4.21
    
    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).4.22
    
    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.4.23
    
    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).
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##### Table of Contents



ExhibitNo.
    
    Description10.1(+)
    
    The Companys 1991 Stock Option Plan, as amended (Incorporated by reference to Exhibit 10. 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 Exhibit 10. 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(+)
    
    Employment Agreement between the Company and Ronald A. Walrod, dated October 14, 2002 (Incorporated by
reference to Exhibit 10.2 filed with the Companys Form 8-K filed October 15, 2002).10.5
    
    Purchase and Security Agreement dated March 21, 2003 between the Company, JMAR Research, Inc., JMAR/SAL
NanoLithography, Inc., JSI Microelectronics, Inc. and JMAR Precision Systems, Inc., and Laurus Master Fund,
Ltd. (Incorporated by reference to Exhibit 10.11 filed with the Companys Form 10-K for the year ended
December 31, 2002)10.6
    
    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).10.7
    
    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).10.8(+)
    
    JMAR Balanced Scorecard Performance Based Compensation Plan, as amended (Incorporated by reference to
Exhibit 10.1 filed with the Companys Form 8-K filed February 18, 2005).10.9(+)
    
    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).10.10(+)
    
    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).10.11
    
    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).10.12
    
    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).10.13
    
    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).
 64




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##### Table of Contents



ExhibitNo.
    
    Description10.14
    
    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 Master
Fund, Ltd. 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).10.15
    
    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 Master
Fund, Ltd. (Incorporated by reference to Exhibit 10.2 filed with the Companys Form 8-K filed February 7,
2005).10.16
    
    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 Master Fund, Ltd. (Incorporated by reference to Exhibit
10.4 filed with the Companys Form 8-K filed February 7, 2005).10.17
    
    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).10.18
    
    Consulting Agreement for Technical and Other Services, effective as of January 31, 2005 (but executed on
February 21, 2005), between JMAR Technologies, Inc. and The LXT Group (Incorporated by reference to Exhibit
10.2 filed with the Companys Form 8-K filed February 25, 2005).10.19
    
    Technology Transfer and Contingent Purchase Agreement, dated March 4, 2005, between the Company and
Olivenhain Municipal Water District (Incorporated by reference to Exhibit 10.19 filed with the Companys
Form 10-K for the year ended December 31, 2004).10.20
    
    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).10.21
    
    Purchase Orders, dated March 2, 2004, March 2, 2004, January 11, 2005 and March 14, 2005, issued by General
Dynamics Advanced Information Services (Incorporated by reference to Exhibit 10.21 filed with the Companys
Form 10-K for the year ended December 31, 2004).10.22
    
    Order for Supply and Services, dated September 23, 2004, issued by Naval Air Warfare Center AD (PAX)
(Incorporated by reference to Exhibit 10.22 filed with the Companys Form 10-K for the year ended December
31, 2004).10.23
    
    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).10.24
    
    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)10.25
    
    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).
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##### Table of Contents



ExhibitNo.
    
    Description10.26
    
    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).10.27
    
    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).10.28
    
    Letter Subcontract, dated July 6, 2005, between General Dynamics Advanced Information Systems, Inc. and JMAR
Technologies, Inc.s Microelectronics Division (Incorporated by reference to Exhibit 10.2 filed with the Companys
Form 10-Q for the quarter ended September 30, 2005).10.29
    
    Third Amendment to McClellan Park Standard Form Gross Lease Agreement, dated July 7, 2005, between MP Holdings, LLC
and JMAR Technologies, Inc.s Microelectronics Division (Incorporated by reference to Exhibit 10.3 filed with the
Companys Form 10-Q for the quarter ended September 30, 2005).10.30
    
    Purchase Order, dated September 21, 2005 between General Dynamics Advanced Information Systems, Inc. and JMAR
Technologies, Inc.s Microelectronics Division (Incorporated by reference to Exhibit 10.4 filed with the Companys
Form 10-Q for the quarter ended September 30, 2005).10.31
    
    Certificates of Amendment of Designations of Series E, F, G and H Convertible Preferred Stock, each dated October 20,
2005, between Laurus Master Fund, Ltd. 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).10.32
    
    Phase I SBIR Grant, dated November 8, 2005, between the U.S. Army and JMAR Technologies, Inc.10.33
    
    Purchase Order, dated November 16, 2005, between Kimpen, S.A. de C.V. and JMAR Technologies, Inc.10.34
    
    Contract, dated November 29, 2005, between U.S. city and JMAR Technologies, Inc.10.35
    
    Securities Purchase Agreement, dated December 22, 2005, between Laurus Master Fund, Ltd. and JMAR Technologies, Inc.10.36
    
    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).10.37
    
    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).
 66




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##### Table of Contents



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.31.1
    
    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. 67