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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996
Commission File Number 1-10515
JMAR INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 68-0131180
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
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 (May 1, 1996).
Common Stock, $.01 par value: 14,428,585 shares
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JMAR INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE #
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 1995 and
March 31, 1996 2
Consolidated Statements of Operations - Three months ended
March 31, 1996 and 1995 3
Consolidated Statements of Cash Flows - Three months ended
March 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceeding 10
Item 2. N/A
Item 3. N/A
Item 4. N/A
Item 5. N/A
Item 6. Reports on Form 8-K 10
</TABLE>
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JMAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
As of March 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
===================================================================================================================
March 31, 1996 December 31, 1995
ASSETS -------------- -----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents......................................... $ 1,853,833 $ 1,837,647
Accounts receivable, net.......................................... 1,875,018 1,742,484
Notes receivable.................................................. 539,183 979,165
Inventories (Note 2).............................................. 2,992,861 2,585,575
Prepaid expenses and other ....................................... 236,508 137,736
------------ ------------
Total current assets.......................................... 7,497,403 7,282,607
Notes receivable....................................................... 226,069 129,502
Receivable from officer................................................ 70,360 69,524
Property and equipment, net (Note 3)................................... 500,300 571,622
Equity securities, at cost............................................. 621,000 621,000
Other assets, net...................................................... 306,418 290,208
Goodwill, net.......................................................... 275,451 284,532
------------ ------------
TOTAL ASSETS.................................................. $ 9,497,001 $ 9,248,995
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................. $ 810,336 $ 455,715
Accrued liabilities............................................... 401,758 215,768
Accrued payroll and related costs................................. 371,591 423,845
Customer deposits ............................................. 310,085 5,263
Notes payable..................................................... 1,180,767 1,526,929
------------ ------------
Total current liabilities..................................... 3,074,537 2,627,520
------------ ------------
Convertible notes payable.............................................. 1,545,377 1,536,273
------------ ------------
Contingencies (Note 6)
Stockholders' equity (Note 5):
Preferred stock, $.01 par value;
5,000,000 shares authorized; None issued and outstanding
as of December 31, 1995 and March 31, 1996................... - -
Common stock, $.01 par value; 40,000,000 shares authorized; Issued and
outstanding 14,228,585 shares as of December 31, 1995
and 14,428,585 shares as of March 31, 1996...................... 144,286 142,286
Additional-paid in capital........................................ 31,942,142 31,796,142
Accumulated deficit............................................... (27,209,341) (26,853,226)
------------ ------------
Total stockholders' equity................................... 4,877,087 5,085,202
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................... $ 9,497,001 $ 9,248,995
============ ============
=================================================================================================================
</TABLE>
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JMAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
==================================================================================================================
Three Months Ended
---------------------------------
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Sales.................................................................. $ 2,457,395 $ 2,899,934
Costs of sales......................................................... 1,419,028 1,689,547
-----------
-----------
Gross profit...................................................... 1,038,367 1,210,387
----------- -----------
Operating expenses:
Selling, general and administrative.................................. 983,731 961,780
Research, development and engineering................................ 273,860 241,543
----------- -----------
Total operating expenses ............................................ 1,257,591 1,203,323
----------- -----------
Income (loss) from operations.......................................... (219,224) 7,064
Interest and other income (expense), net............................... (62,688) 22,480
Interest expense....................................................... (74,201) (81,105)
----------- -----------
Net loss............................................................... $ (356,113) $ (51,561)
=========== ===========
Net loss per common share (Note 4).................................... $ (0.02) $ (0.00)
=========== ===========
Weighted average common shares
outstanding ......................................................... 14,270,893 12,243,970
=========== ===========
=================================================================================================================
</TABLE>
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JMAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
===================================================================================================================
Three Months Ended
----------------------------------
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................................... $ (356,113) $ (51,561)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................................... 123,269 176,353
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable............................................. (132,534) (401,542)
Inventories..................................................... (407,286) (401,104)
Prepaid expenses and other...................................... (98,772) 15,690
Other assets.................................................... (23,816) (55,019)
Increase in:
Accounts payable and accrued liabilities........................ 793,178 82,264
---------- ----------
Net cash used in operating activities............................. (102,074) (634,919)
---------- ----------
Cash flows from investing activities:
Capital expenditures.............................................. (22,246) (53,681)
Increase in notes receivable...................................... (100,000) -
Payments received on notes receivable............................. 443,414 500,000
Patent costs...................................................... (3,910) -
Receivable from officer........................................... (836) (3,092)
---------- ----------
Net cash provided by investing activities.................... 316,422 443,227
---------- ----------
Cash flows from financing activities:
Net borrowings (payments) of short-term debt...................... (346,162) 134,738
Payments of notes payable......................................... - (109,155)
Net proceeds from the issuance of common stock.................... 148,000 59
---------- ----------
Net cash provided by (used in) financing activities........... (198,162) 25,642
---------- ----------
Net increase (decrease) in cash and cash equivalents................... 16,186 (166,050)
Cash and cash equivalents, beginning of period......................... 1,837,647 1,945,378
---------- ----------
Cash and cash equivalents, end of period............................... $1,853,833 $1,779,328
========== ==========
=================================================================================================================
</TABLE>
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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 wholly owned 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 months
ended March 31, 1996 are not necessarily indicative of the results to be
expected for the full year.
(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>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Raw materials................................................. $1,189,628 $1,333,163
Work in process............................................... 1,007,024 725,109
Finished goods................................................ 796,209 527,303
---------- ----------
$2,992,861 $2,585,575
========== ==========
</TABLE>
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JMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(3) PROPERTY AND EQUIPMENT
As of March 31, 1996 and December 31, 1995, property and equipment
consist of the following:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Equipment and machinery....................................... $ 1,835,562 $ 1,815,406
Furniture and fixtures........................................ 254,223 253,211
Leasehold improvements........................................ 44,851 43,775
----------- -----------
2,134,636 2,112,392
Less-accumulated depreciation (1,634,336) (1,540,770)
----------- -----------
$ 500,300 $ 571,622
=========== ===========
</TABLE>
(4) LOSS PER SHARE
Loss per share is computed based on the weighted average number of
common shares outstanding during each period. Common stock equivalents are not
included in the calculation of loss per share as their effect would be
antidilutive.
(5) EQUITY TRANSACTIONS
During the three months ended March 31, 1996, the Company received
$160,000 from private placements 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.
Results of Consolidated Operations
Revenues for the three months ended March 31, 1996 and 1995 were
$2,457,395 and $2,899,934, respectively. The decrease of $442,539 for the three
months ended March 31, 1996 compared to the three months ended March 31, 1995 is
primarily attributable to, among other things, delays in the introduction of
certain new products due to certain technical issues, delays in shipping certain
products in order to incorporate certain customer engineering upgrades to an
existing product, a different mix related to the Company's U.S. Government
contract at JTC and the dilution of senior management's time as a result of the
ongoing negotiations and due diligence activities in connection with the
proposed acquisition of California ASIC Technical Services, Inc. ("CATS") which
was announced in early February 1996. Because of the first two factors discussed
above as well as the high book-to-bill ratio discussed below, the Company's
inventories increased from $2,585,575 at December 31, 1995 to $2,992,861 at
March 31, 1996. In addition, because the majority of the Company's 1996 sales
occurred in February and March, receivables were higher at March 31, 1996 than
at March 31, 1995. Although introduction of the new products was initially
delayed, they started to be shipped late in the first quarter. In addition, the
shipments delayed due to customer engineering upgrades are expected to be
shipped in the second quarter.
The Company's current outlook for the rest of fiscal year 1996 is
positive, although if the Company successfully completes the acquisition of CATS
it expects to experience an adverse impact on profits in the near term followed
by contribution to Company profit in subsequent years. Product book-to-bill
ratio for the first four months of 1996 was approximately 1.9 and manufacturing
equipment product backlog as of April 30, 1996 was approximately $4,209,000.
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.
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 $266,819 and $411,246 for the three months
ended March 31, 1996 and 1995, respectively. The cost of the company - funded
RD&E is included in "Operating Expenses." Those operating RD&E expenses were
$273,860 and $241,543 for the three months ended March 31, 1996 and 1995,
respectively. Therefore, total RD&E expenses for the three month periods were
$540,679 and $652,789 for 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
needleless 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 media defect
inspection system for failure analysis for the disk drive industry; and (v)
continued development of a standard platform for laser machining and welding
applications.
Interest and other income (expense) for 1996 includes a non-recurring
charge of $80,000 relating to an investment disposed of in a prior year.
Interest expense was $74,201 and $81,105 for the three months ended
March 31, 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.
In November 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting for
Stock-Based Compensation", which establishes a fair-value-based method of
accounting for stock compensation plans with employees and others. The Company
is not required to adopt, and has not adopted, the recognition and measurement
aspects of SFAS No.123. The Company is required to adopt the disclosure
requirements of SFAS No. 123 in its year end financial statements.
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CONSOLIDATED LIQUIDITY AND FINANCIAL CONDITION
The Company's working capital as of March 31, 1996 and December 31,
1995 was $4,422,866 and $4,655,087, respectively.
The Company had cash and cash equivalents at March 31, 1996 and
December 31, 1995 of $1,853,833 and $1,837,647, respectively. The increase in
cash and cash equivalents for the three months ended March 31, 1996 was $16,186
as compared to a decrease in cash of $166,050 for the three months ended March
31, 1995. The increase in cash during the three months ended March 31, 1996
resulted from cash provided by investing activities of $316,422 (primarily cash
received from the note receivable related to the sale of Surgilase less a loan
to CATS of $100,000 (see below) and capital expenditures) offset in part by cash
used in operations of $102,074 and cash used in financing activities of $198,162
(primarily net payments of short-term debt less net proceeds from the issuance
of common stock). The decrease in cash during the three months ended March 31,
1995 resulted from cash used in operations of $634,919 (primarily to finance
inventory purchases and accounts receivable) offset in part by cash provided by
investing activities of $443,227 (primarily cash received from the note
receivable related to the sale of Surgilase less capital expenditures) and cash
provided by financing activities of $25,642.
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. In March, 1996, the Bank increased the Line to
$3,000,000, allowed certain foreign receivables (up to $250,000) to be eligible
receivables and increased the percent of eligible inventories to 35 percent. As
of March 31, 1996 PPL's availability pursuant to the Line was approximately
$1,828,000 of which approximately $1,181,000 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. Management believes that the Company has existing resources to adequately
fund operations and working capital requirements at least for the next twelve
months based on the current level of operations and current business conditions.
On February 7, 1996, the Company signed a letter of intent ("LOI") to
acquire 80 percent (3,264,292 shares) of the outstanding common stock of
California ASIC Technical Services, Inc. ("CATS") for a price of approximately
$0.80 per CATS share outstanding as of that date. The price is subject to
adjustment and is payable in common stock of the Company valued at a recent
trading price, subject to the completion of the Company's due diligence and
other customary conditions to closing. CATS is a non-reporting publicly-held
company, the trading of whose shares are reported on the National Association of
Securities Dealers Bulletin Board. It is engaged in the design, fabrication,
assembly and testing of application specific integrated circuits ("ASIC") for
the electronics industry. As part of the LOI, the Company loaned $100,000 to
CATS and agreed, subject to its completion of the acquisition of a minimum of 80
percent of CATS, to advance up to an additional $1.4 million to CATS over an
eighteen month period to be used by CATS for equipment purchases and working
capital purposes. The Company believes that sources of funding for this
commitment are available to it primarily through private debt or equity
offerings to individual investors.
In January 1994, the Company received a $3.6 million contract, with an
option exercisable by the U.S. government (the "Customer") for an additional
$3.3 million, to develop to full scale the Company's laser-plasma Picosecond
X-ray Source ("PXS") for use in an advanced x-ray lithography process for
manufacture of high performance semiconductor chips. On September 30, 1995,
$585,000 of incremental funding (from the $3.3 million option) was added to this
contract. The work being performed pursuant to the contract based on the current
funding will be completed during the second quarter of 1996. If the Customer
does not exercise any of the options on the current contract or award additional
8
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contract funding prior to the time that the currently available funds are
exhausted, the Company may seek additional sources of funding for part or all of
the activities of JTC, including: (1) contracts from industrial companies for
research and development services and equipment deliveries; (2) funding from
joint venture partners; (3) sales of lasers and related equipment to the
commercial marketplace; (4) private offerings to individual investors; (5)
private offerings to companies having a business interest in utilizing the
Company's technology; and (6) additional debt or equity sales in the public
market.
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.
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JMAR INDUSTRIES, INC.
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
1. Footnote 6 of the Notes to Consolidated Financial Statements describes
the status of a legal proceeding and is incorporated by reference
herein.
Item 6. Reports on Form 8-K
(a) Reports on Form 8-K
There were no reports filed on Form 8-K during the three months ended March 31,
1996.
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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 9, 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
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