<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
____________________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1996
Commission File Number 1-10515
JMAR INDUSTRIES, INC.
-------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 68-0131180
------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
</TABLE>
3956 Sorrento Valley Blvd.
San Diego, CA 92121
(619) 535-1706
-------------------------
(Address, including zip code and telephone number including
area code of registrant's principal executive office)
Indicate by check mark whether the registrant has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and has been subject to the filing requirements for at
least the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date (August 5, 1996).
Common Stock, $.01 par value: 16,190,639 shares
================================================================================
<PAGE> 2
JMAR INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE #
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 1995 and
June 30, 1996 2
Consolidated Statements of Operations - Three months ended
June 30, 1996 and 1995 and six months ended June 30, 1996 3
and 1995
Consolidated Statements of Cash Flows - Six months ended
June 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
PART II. OTHER INFORMATION
Item 1. N/A
Item 2. N/A
Item 3. N/A
Item 4. N/A
Item 5. N/A
Item 6. Reports on Form 8-K 11
</TABLE>
1
<PAGE> 3
JMAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
ASSETS (Unaudited)
------
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $2,216,961 $ 1,837,647
Accounts receivable, net . . . . . . . . . . . . . . . . . . 2,690,111 1,742,484
Notes receivable . . . . . . . . . . . . . . . . . . . . . . 23,167 979,165
Inventories (Note 2) . . . . . . . . . . . . . . . . . . . . 3,424,864 2,585,575
Prepaid expenses and other . . . . . . . . . . . . . . . . 201,499 137,736
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . 8,556,602 7,282,607
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . 118,734 129,502
Receivable from officer . . . . . . . . . . . . . . . . . . . . . 71,197 69,524
Property and equipment, net (Note 3) . . . . . . . . . . . . . . 2,229,903 571,622
Equity securities, at cost (Note 8) . . . . . . . . . . . . . . . 621,000 621,000
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . 357,578 290,208
Goodwill, net (Note 7) . . . . . . . . . . . . . . . . . . . . . 1,056,914 284,532
----------- -----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . $13,011,928 $ 9,248,995
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . $978,932 $ 455,715
Accrued liabilities . . . . . . . . . . . . . . . . . . . . 655,162 215,768
Accrued payroll and related costs . . . . . . . . . . . . . 536,394 423,845
Customer deposits . . . . . . . . . . . . . . . . . . . . . 779,318 5,263
Notes payable . . . . . . . . . . . . . . . . . . . . . . . 1,048,198 1,526,929
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . 3,998,004 2,627,520
----------- -----------
Convertible notes payable . . . . . . . . . . . . . . . . . . . . 1,554,481 1,536,273
----------- -----------
Notes payable, net of current portion . . . . . . . . . . . . . . 186,368 -
----------- -----------
Contingencies (Note 6)
Stockholders' equity (Notes 5 and 7):
Preferred stock, $.01 par value;
5,000,000 shares authorized; None issued and outstanding
as of June 30, 1996 and December 31, 1995 . . . . . . . . . - -
Common stock, $.01 par value; 40,000,000 shares authorized;
Issued and outstanding 16,185,285 shares as of June 30,
1996 and 14,228,585 shares as of December 31, 1995 . . . . 161,853 142,286
Additional-paid in capital . . . . . . . . . . . . . . . . . 34,227,107 31,796,142
Accumulated deficit . . . . . . . . . . . . . . . . . . . . (27,115,885) (26,853,226)
----------- -----------
Total stockholders' equity . . . . . . . . . . . . . . 7,273,075 5,085,202
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . $13,011,928 $ 9,248,995
=========== ===========
</TABLE>
2
<PAGE> 4
JMAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995 AND SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30,1995
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . $4,034,111 $3,327,501 $6,491,506 $6,227,435
Costs of sales . . . . . . . . . . . . . . . . . . . 2,484,279 2,015,991 3,903,307 3,705,538
---------- ---------- ---------- ----------
Gross profit . . . . . . . . . . . . . . . . 1,549,832 1,311,510 2,588,199 2,521,897
---------- ---------- ---------- ----------
Operating expenses:
Selling, general and
administrative . . . . . . . . . . . . . . . . . 1,138,494 983,736 2,122,225 1,945,516
Research, development and
engineering . . . . . . . . . . . . . . . . . . . 259,517 228,852 533,377 470,395
---------- ---------- ---------- ----------
Total operating expenses . . . . . . . . . . . . . 1,398,011 1,212,588 2,655,602 2,415,911
---------- ---------- ---------- ----------
Income (loss) from operations . . . . . . . . . . . . 151,821 98,922 (67,403) 105,986
Interest and other income (expense), net . . . . . . 22,095 64,668 (40,593) 87,148
Interest expense . . . . . . . . . . . . . . . . . . (80,463) (92,499) (154,664) (173,604)
---------- ---------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . . . $93,453 $ 71,091 $(262,660) $ 19,530
========== ========== ========= ==========
Primary and fully diluted net income (loss) per
common and common equivalent share (Note 4): . . . $ .01 $ .01 $ (.02) $ .00
========== ========== ========= ==========
Weighted average common and common
equivalent shares outstanding:
Primary . . . . . . . . . . . . . . . . . . . . 16,369,990 13,871,525 14,846,177 12,677,768
========== ========== ========== ==========
Fully diluted . . . . . . . . . . . . . . . . . 16,632,965 14,494,808 14,846,177 13,301,051
========== ========== ========== ==========
</TABLE>
3
<PAGE> 5
JMAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
--------------------
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ (262,660) $ 19,530
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 230,705 307,112
Issuance of common stock . . . . . . . . . . . . . . . . . . - 21,056
Change in assets and liabilities net of effects from
acquisition:
(Increase) decrease in:
Accounts receivable . . . . . . . . . . . . . . . . . . . (933,393) (226,617)
Inventories . . . . . . . . . . . . . . . . . . . . . . . (877,489) (252,839)
Prepaid expenses and other . . . . . . . . . . . . . . . . (63,765) 5,942
Other assets . . . . . . . . . . . . . . . . . . . . . . . (76,002) (53,324)
Increase (decrease) in:
Accounts payable and accrued liabilities . . . . . . . . . 1,412,852 (676,903)
---------- ----------
Net cash used in operating activities . . . . . . . . . . . (569,752) (856,043)
---------- ----------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . (89,342) (99,388)
Increase in notes receivable . . . . . . . . . . . . . . . . (5,833) (4,211)
Payments received on notes receivable . . . . . . . . . . . 930,501 500,000
Acquisition costs, net of cash acquired . . . . . . . . . . . (79,984) -
Proceeds from sale of assets . . . . . . . . . . . . . . . . - 39,995
Patent costs . . . . . . . . . . . . . . . . . . . . . . . . (6,802) (5,891)
Receivable from officer . . . . . . . . . . . . . . . . . . (1,673) (2,028)
---------- ----------
Net cash provided by investing activities . . . . . . . . 746,867 428,477
---------- ----------
Cash flows from financing activities:
Net borrowings (payments) of short-term debt . . . . . . . . (527,783) 50,551
Payments of notes payable . . . . . . . . . . . . . . . . . - (312,060)
Net proceeds from the issuance of common stock . . . . . . . 156,000 29,488
Net proceeds from the exercise of warrants . . . . . . . . 573,982 59
---------- ----------
Net cash provided by (used in) financing activities . . 202,199 (231,962)
---------- ----------
Net increase (decrease) in cash and cash equivalents . . . . . . 379,314 (659,528)
Cash and cash equivalents, beginning of period . . . . . . . . . 1,837,647 1,945,378
---------- ----------
Cash and cash equivalents, end of period . . . . . . . . . . . . $2,216,961 $1,285,850
========== ==========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON CASH ACTIVITY:
On May 23, 1996, the Company acquired approximately 94 percent of the
outstanding common stock of California ASIC. As consideration for the
acquisition, the Company issued the sellers an aggregate of 1,357,869
shares of its common stock (see Note 7).
4
<PAGE> 6
JMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of JMAR Industries, Inc. (the "Company") and its subsidiaries. All
significant intercompany transactions have been eliminated.
The accompanying consolidated financial statements have been prepared
by the Company and are unaudited except for the balance sheet as of December
31, 1995. The financial statements have been prepared in accordance with
generally accepted accounting principles, pursuant to the rules and regulations
of the Securities and Exchange Commission. In the opinion of management, the
accompanying consolidated financial statements include all adjustments of a
normal recurring nature which are necessary for a fair presentation of the
results for the interim periods presented. Certain information and footnote
disclosures normally included in financial statements have been condensed or
omitted pursuant to such rules and regulations. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates. Although the Company believes that the disclosures are
adequate to make the information presented not misleading, it is suggested that
these consolidated financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's Form 10-K
for the year ended December 31, 1995. The results of operations for the three
and six months ended June 30, 1996 are not necessarily indicative of the
results to be expected for the full year.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock- Based
Compensation, which provides companies the option to account for equity
instrument awards based on their estimated fair value at the date of grant
resulting in a charge to income in the periods the awards are expected to vest.
However, companies are permitted to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity award.
The Company will continue to apply APB Opinion No. 25 and will present pro
forma footnote disclosure describing the effect to the Company's net income and
net income per share data as permitted by SFAS 123.
(2) INVENTORIES
Inventories are carried at the lower of cost on the first-in,
first-out basis or market and are comprised of materials, direct labor and
applicable manufacturing overhead. Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . . . . . $1,849,819 $1,333,163
Work in process . . . . . . . . . . . . . . . . . . . . . 976,760 725,109
Finished goods . . . . . . . . . . . . . . . . . . . . . 598,285 527,303
---------- ----------
$3,424,864 $2,585,575
========== ==========
</TABLE>
The increase in inventories between December 31, 1995 and June 30, 1996 is
primarily related to raw material and component purchases to support the
Company's increase in orders and higher level of production planned for the
remainder of 1996.
5
<PAGE> 7
JMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(3) PROPERTY AND EQUIPMENT
As of June 30, 1996 and December 31, 1995, property and equipment
consist of the following:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Equipment and machinery . . . . . . . . . . . . . . . . . $3,598,974 $1,815,406
Furniture and fixtures . . . . . . . . . . . . . . . . . 288,627 253,211
Leasehold improvements . . . . . . . . . . . . . . . . . 44,850 43,775
---------- -----------
3,932,451 2,112,392
Less-accumulated depreciation (1,702,548) (1,540,770)
---------- -----------
$2,229,903 $ 571,622
========== ===========
</TABLE>
The increase in equipment and machinery between December 31, 1995 and
June 30, 1996 is primarily related to assets obtained in the acquisition of
California ASIC (see Note 7).
(4) INCOME (LOSS) PER SHARE
Income (loss) per common and common equivalent share is based on the
weighted average number of shares of common stock outstanding and dilutive
common equivalent shares from stock options, warrants and convertible notes
using the treasury method. Common stock equivalents are not included in the
calculation of loss per share as their effect would be antidilutive.
(5) EQUITY TRANSACTIONS
During the six months ended June 30, 1996, the Company received net
proceeds of $729,982 from the exercise of warrants into 330,000 shares of
common stock and private placements of 200,000 shares of common stock.
(6) CONTINGENCIES
In July, 1995, a lawsuit was filed against Benchmark (a subsidiary of
the Company which no longer has any assets or operations) and Raytheon Company
by two individuals in the U.S. District Court for New Hampshire for an incident
which occurred prior to the Company's acquisition of Benchmark in September,
1992. The lawsuit alleges duty to warn, strict product liability, negligence
and ultrahazardous activity and loss of consortium. The plaintiff seeks general
and compensatory damage in the amount of $3,000,000. Benchmark believes that
it has valid defenses to this action. Benchmark has submitted the lawsuit to
its insurance carrier and believes that coverage is available for this lawsuit.
Benchmark's insurance company is currently paying the cost of defense of this
lawsuit. In addition, Benchmark is investigating whether any other parties are
responsible for the claims that are asserted in the lawsuit. JMAR has not been
named as a party to this suit and does not believe that there are any grounds
for the plaintiff to assert this claim against JMAR directly.
6
<PAGE> 8
(7) ACQUISITION OF CALIFORNIA ASIC TECHNICAL SERVICES, INC.
On May 23, 1996, the Company acquired (the "Acquisition")
approximately 94 percent of the outstanding common stock of California ASIC
Technical Services, Inc., a Nevada corporation, and renamed it California ASIC
("Cal ASIC"). The Acquisition involved a private tender offer to the
shareholders of Cal ASIC (the "Sellers"). As consideration for the Acquisition,
the Company issued to the Sellers an aggregate of 1,357,869 shares of its
Common Stock. The shares issued by the Company are unregistered, however, the
Company agreed to use its best efforts to register the shares in the future.
The purchase price was negotiated at arm's length.
In addition, concurrent with the closing, the Company loaned $400,000
of its funds to Cal ASIC (in addition to $100,000 previously loaned) and agreed
to loan an additional $1,000,000 over an eighteen month period to be used by
Cal ASIC for equipment purchases and working capital purposes. In addition, the
Company agreed to loan the two largest shareholders of Cal ASIC up to $250,000,
secured by the JMAR stock they received in the Acquisition.
Cal ASIC is engaged in the design, fabrication, assembly and testing
of application specific integrated circuits for the electronics industry and
will be operated as a division of the Company.
The Company has accounted for the acquisition as a purchase effective
June 1, 1996. The allocation of the purchase price of Cal ASIC reflected in the
accompanying financial statements has been prepared on the basis of
management's preliminary estimates. The Company will continue to review its
allocation of the purchase price to the acquired assets and liabilities. The
increase in goodwill on the accompanying balance sheet is related to the
acquisition of Cal ASIC and will be amortized over five years.
The following unaudited proforma information gives effect to the
acquisition of Cal ASIC as if the acquisition occurred on January 1 of each
respective pro forma period. In connection with the Acquisition, Cal ASIC
entered into agreements with several of its creditors which reduced the related
liabilities due those creditors by approximately $850,000. Such debt reductions
will not be reflected in the statement of operations of the Company. The pro
forma loss from continuing operations excludes any impact from the debt
settlements of Cal ASIC directly attributable to the Acquisition. These
statements do not purport to be indicative of the results of operations which
actually would have occurred had the acquisition of Cal ASIC occurred on
January 1 of each respective period or which may be expected to occur in the
future.
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
-----------------------------------
1996 1995
---------- -----------
<S> <C> <C>
Total revenues . . . . . . . . . . . . . . . . . $6,503,000 $ 6,283,000
========== ===========
Loss from continuing operations . . . . . . . . . $ (651,000) $ (351,000)
========== ===========
Loss per share . . . . . . . . . . . . . . . . . $ (.04) $ (.02)
========== ===========
</TABLE>
(8) EQUITY SECURITIES
During 1995, the Company issued 1,000,000 shares of common stock in
exchange for preferred stock of Atlantic American Holding Company Limited
("Atlantic"), a newly formed insurance company. As a newly formed insurance
company, Atlantic has not yet generated significant operations. This investment
has been recorded in the accompanying financial statements, at cost, in the
amount of $621,000. If the operations of Atlantic are determined in the future
to be unsuccessful or insufficient, a writedown or writeoff of all or a portion
of the Company's investment in Atlantic may be necessary. Management of the
Company will continue to evaluate the realizability of the investment and will
make appropriate adjustments to the investment, if warranted.
7
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.
Results of Consolidated Operations
On May 23, 1996, the Company acquired 94 percent of the outstanding
common stock of California ASIC ("Cal ASIC"). The Company has accounted for the
acquisition as a purchase effective June 1, 1996. Included in the results of
operations of the Company for the three and six months ended June 30, 1996 is a
loss of $77,655, including goodwill amortization of $13,399, related to Cal
ASIC. Accordingly, the income from operations and net income for the three
months ended June 30, 1996 excluding the loss from Cal ASIC were $226,767 and
$171,108, respectively. Including the losses of Cal ASIC, the operating income
for the quarter was $151,821 and net income for the quarter was $93,453.
The Company's current outlook for the rest of fiscal year 1996 for the
Company's operations that existed prior to the acquisition of Cal ASIC is
positive. However, the Company expects to experience an adverse impact on
profits in the near term from Cal ASIC, including a non- cash charge of
approximately $160,000 per year of goodwill amortization. It is management's
belief that Cal ASIC will make a positive contribution to Company profit in
subsequent years. Manufacturing equipment product backlog as of June 30, 1996
was approximately $4,086,000. Reference is made to the "Factors That May
Affect Future Results" in the Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's Form 10-K for the year
ended December 31, 1995 for factors which may cause the Company's actual
results to differ from management's current expectations.
Revenues for the three months ended June 30, 1996 and 1995 were
$4,034,111 and $3,327,501, respectively, and were $6,491,506 and $6,227,435 for
the six month periods ending June 30, 1996 and 1995, respectively. The increase
of $706,610 for the three months ended June 30, 1996 compared to the three
months ended June 30, 1995 is attributable to the introduction of certain new
products, primarily the Mirage tabletop video measurement system; products that
were delayed in shipping in the first quarter of 1996 due to the incorporation
of certain customer engineering upgrades; and the overall increase in volume in
orders that the Company has experienced in 1996. Inventories have increased
from $2,585,575 at December 31, 1995 to $3,424,864 at June 30, 1996 primarily
due to raw material and component purchases to support the Company's increase
in orders and higher level of production planned for the remainder of 1996.
Gross margins for the three months ended June 30, 1996 and March 31,
1996 were 38.4% and 42.3%, respectively. The lower gross margins for the three
months ended June 30, 1996 versus the three months ended March 31, 1996 is
primarily due to (i) competitive pressures on certain products; (ii) increase
in the cost of materials as the result of changes in certain product designs
that could not all be passed on to the customer; (iii) higher costs incurred on
the initial production run of Mirages; and (iv) lower margins at JTC. The
Company expects some of the above conditions to continue into the future,
primarily the existence of competitive pressures keeping prices of the
Company's products from increasing.
Selling, general and administrative ("SG&A") expenses for the three
months ended June 30, 1996 and 1995 were $1,138,494 and $983,736, respectively.
The increase in SG&A expenses in 1996 is due to (i) an increase in amortization
related to demonstration equipment due to the increase in such equipment
required to support the Company's increased marketing efforts, primarily
related to the Mirage; and (ii) higher customer service costs due to the hiring
of three new customer service personnel needed to support the increased sales
volume experienced throughout 1996.
8
<PAGE> 10
The Company's research, development and engineering program consists
of two components: that which is paid for by customers such as the U.S.
government ("Customer-Funded RD&E"); and that which is paid for by the Company.
The costs incurred by the Customer-Funded RD&E are included in the "Costs of
Sales" category of expenses and totaled $286,915 and $305,809 for the three
months ended June 30, 1996 and 1995, respectively, and $553,734 and $717,055
for the six month periods ended June 30, 1996 and 1995, respectively. The
decrease in Customer-Funded RD&E is primarily due to the delay in receipt of
additional contract funding from the U.S. government. During May, 1996, the
Company received an additional $1.2 million of contract funding from the U.S.
Army Research Laboratory, sponsored by the Defense Advanced Research Projects
Agency ("DARPA") to continue development of the Company's Picosecond X-ray
Lithography System ("PXS") for advanced semiconductor manufacturing. In
addition, the U.S. Army Research Laboratory and DARPA jointly agreed to deliver
to the Company a government-owned X-ray Stepper, formerly located at Bell
Laboratories. The Stepper, developed over several years at an estimated cost of
in excess of $25 million, will be integrated with the PXS to provide the
foundation for a leading-edge X-ray lithography workstation. The cost of the
Company-funded RD&E is included in "Operating Expenses." Those operating RD&E
expenses were $259,517 and $228,852 for the three months ended June 30, 1996
and 1995, respectively, and $533,377 and $470,395 for the six month periods
ended June 30,1996 and 1995, respectively. Therefore, total RD&E expenses for
the three month periods were $546,432 and $534,661 for 1996 and 1995,
respectively, and $1,087,111 and $1,187,450 for the six month periods in 1996
and 1995, respectively. Some of the more significant research and development
projects the Company is working on in 1996 include (i) continued development of
a miniature laser lancet system for needle-less extraction of blood from the
body; (ii) continued development of an x-ray lithography source and novel
advanced optical lithography sources; (iii) continued development of a fully
integrated tabletop unit used in the microelectronics industry for non-contact
high precision measurement of electronic component dimensions; (iv) continued
development of a disk inspection system for failure analysis for the disk drive
industry; (v) continued development of a standard platform for laser machining
and welding applications; and (vi) continued development of the Microlight 1000
micromachining demonstration center.
Interest and other income (expense) for 1996 includes a non-recurring
charge recorded in the first quarter of $80,000 relating to an investment
disposed of in a prior year.
Interest expense was $80,463 and $92,499 for the three months ended
June 30, 1996 and 1995, respectively, and $154,664 and $173,604 for the six
months ended June 30, 1996 and 1995, respectively. The decrease in interest
expense in 1996 is due to the conversion of $700,000 of convertible notes in
1995, offset in part by an increase in interest expense related to the
Company's working capital line of credit with Comerica Bank.
CONSOLIDATED LIQUIDITY AND FINANCIAL CONDITION
The Company's working capital as of June 30, 1996 and December 31,
1995 was $4,558,598 and $4,655,087, respectively.
The Company had cash and cash equivalents at June 30, 1996 and
December 31, 1995 of $2,216,961 and $1,837,647, respectively. The increase in
cash and cash equivalents for the six months ended June 30, 1996 was $379,314
as compared to a decrease in cash of $659,528 for the six months ended June 30,
1995. The increase in cash during the six months ended June 30, 1996 resulted
from cash provided by investing activities of $746,867 (primarily cash received
from the collection of a note receivable related to the sale of Surgilase) and
cash provided by financing activities of $202,199 (net proceeds from the
exercise of warrants and issuances of common stock, less net payments of
short-term debt) offset in part by cash used in operations of $569,752. The
cash used in operations was primarily used to finance inventory purchases (see
previous discussion) and accounts receivable offset in part by an increase in
accounts payable and accrued liabilities. Accounts receivable increased
primarily due to the Company's increase in revenues for the three months ended
June 30, 1996. Accounts payable and accrued liabilities increased primarily due
to (i) an increase in deposits and progress payments the Company obtained in
connection with customer orders; (ii) an increase in the Company's inventory
9
<PAGE> 11
purchases to support planned production increases; (iii) reduction of $527,783
in the Company's borrowings under its working capital line of credit; (iv)
higher payroll accruals due to the timing of payment; and (v) accruals
associated with the Cal ASIC acquisition.
The Company anticipates that its operations will continue to require
the use of working capital. The working capital of PPL is generally funded
through its working capital line (the "Line") with a bank (the "Bank") and the
operations of JTC are currently funded through third party contracts. During
1995 and most of the first quarter of 1996, advances pursuant to the Line were
based on 80 percent of eligible accounts receivable and 25 percent of eligible
inventories up to $1,000,000. The Bank increased the Line from $1,500,000 in
the second quarter of 1995 to $3,000,000 in March, 1996, allowed certain
foreign receivables (up to $250,000) to be eligible receivables and increased
the percent of eligible inventories to 35 percent. As of June 30, 1996 PPL's
availability pursuant to the Line was approximately $2,881,000 of which
approximately $999,000 was borrowed at that time by PPL. The Line contains
several covenants relating to, among other matters, the maintenance of certain
minimum income levels and financial ratios, which if not met by the Company
could impact the availability of advances pursuant to the Line. Concurrent with
the closing of the acquisition (the "Acquisition") of Cal ASIC, the Company
loaned $400,000 of its funds to Cal ASIC (in addition to $100,000 previously
loaned) and agreed to loan an additional $1,000,000 over an eighteen month
period to be used by Cal ASIC for equipment purchases and working capital
purposes. In addition, the Company agreed to loan the two largest shareholders
of Cal ASIC up to $250,000, secured by the JMAR stock they received in the
Acquisition. Management believes that the Company has existing resources to
adequately fund operations and working capital requirements as well as the Cal
ASIC obligations at least for the next twelve months based on the current level
of operations and current business conditions.
At December 31, 1995, the Company had in excess of $24 million of
Federal net operating loss carryforwards. To the extent the Company has taxable
income in the future, these carryforwards will be used by the Company to reduce
its cash outlay for taxes.
During 1995, the Company issued 1,000,000 shares of common stock in
exchange for preferred stock of Atlantic American Holding Company Limited
("Atlantic"), a newly formed insurance company. As a newly formed insurance
company, Atlantic has not yet generated significant operations. This investment
has been recorded in the accompanying financial statements, at cost, in the
amount of $621,000. Atlantic through its wholly owned subsidiary, Condor
Insurance Limited (collectively, with Atlantic, "Atlantic"), commenced
operations prior to the Company's investment in Atlantic. Based on information
provided by Atlantic, during 1995 Atlantic entered into surety bond agreements,
generating in excess of $500,000 in insurance premium revenues. If the
operations of Atlantic are determined in the future to be unsuccessful or
insufficient, a writedown or writeoff of all or a portion of the Company's
investment in Atlantic may be necessary. Management of the Company will
continue to evaluate the realizability of the investment and will make
appropriate adjustments to the investment, if warranted.
10
<PAGE> 12
JMAR INDUSTRIES, INC.
PART II. OTHER INFORMATION
Item 6. Reports on Form 8-K
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K dated May 23, 1996, indicating
that the Company had acquired approximately 94 percent of the outstanding
shares of capital stock of California ASIC Technical Services, Inc.
11
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JMAR INDUSTRIES, INC.
August 13, 1996 By: /s/ John S. Martinez
----------------------------------------------
John S. Martinez, Chief Executive Officer
and Authorized Officer
By: /s/ Dennis E. Valentine
----------------------------------------------
Dennis E. Valentine, Chief Accounting Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000857953
<NAME> JMAR INDUSTRIES, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,216,961
<SECURITIES> 0
<RECEIVABLES> 2,832,012
<ALLOWANCES> 0
<INVENTORY> 3,424,864
<CURRENT-ASSETS> 8,556,602
<PP&E> 3,932,451
<DEPRECIATION> 1,702,548
<TOTAL-ASSETS> 13,011,928
<CURRENT-LIABILITIES> 3,998,004
<BONDS> 1,554,481
0
0
<COMMON> 161,853
<OTHER-SE> 7,111,222
<TOTAL-LIABILITY-AND-EQUITY> 13,011,928
<SALES> 6,491,506
<TOTAL-REVENUES> 6,491,506
<CGS> 3,903,307
<TOTAL-COSTS> 3,903,307
<OTHER-EXPENSES> 2,655,602
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 154,664
<INCOME-PRETAX> (262,660)
<INCOME-TAX> 0
<INCOME-CONTINUING> (262,660)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (262,660)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
