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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 September 30, 1997
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 (November 10, 1997).
Common Stock, $.01 par value: 16,890,656 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, 1996 and
September 30, 1997 2
Consolidated Statements of Operations - Three months ended
September 30, 1997 and 1996 and nine months ended September
30, 1997 and 1996 3
Consolidated Statements of Cash Flows - Nine months ended
September 30, 1997 and 1996 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II OTHER INFORMATION
Item 1. N/A
Item 2. Changes in Securities 12
Item 3. N/A
Item 4. N/A
Item 5. N/A
Item 6. Reports on Form 8-K 12
</TABLE>
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JMAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents ..................... $ 2,212,263 $ 2,629,286
Accounts receivable, net ...................... 3,159,962 2,994,762
Notes and other receivable (Note 8) ........... 214,548 902,005
Inventories (Note 2) .......................... 4,554,829 3,855,312
Prepaid expenses and other .................... 1,102,155 721,685
------------ ------------
Total current assets ...................... 11,243,757 11,103,050
Notes receivable .................................. 47,530 54,667
Receivable from employees (Note 7) ................ 180,324 73,824
Property and equipment, net (Note 3) .............. 2,860,912 2,704,460
Other assets, net (Note 4) ........................ 600,654 347,627
Goodwill, net (Note 7) ............................ 1,037,984 1,111,890
------------ ------------
TOTAL ASSETS .............................. $ 15,971,161 $ 15,395,518
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .............................. $ 1,217,303 $ 914,272
Accrued liabilities ........................... 532,331 535,885
Accrued payroll and related costs ............. 740,054 849,072
Customer deposits ............................. 7,184 742,213
Convertible notes payable (Note 9) ............ 130,000 589,631
Notes payable and capital lease obligations ... 1,541,644 1,728,230
------------ ------------
Total current liabilities ................. 4,168,516 5,359,303
------------ ------------
Notes payable and capital lease obligations,
net of current portion ........................... 598,172 667,310
------------ ------------
Stockholders' equity (Notes 6, 7, 9 and 10):
Preferred stock, $.01 par value;
5,000,000 shares authorized; None issued and
outstanding as of September 30, 1997 and
December 31, 1996 ........................... -- --
Common stock, $.01 par value; 40,000,000 shares
authorized; Issued and outstanding 17,331,633
shares as of September 30, 1997 and 16,760,269
shares as of December 31, 1996 ............... 173,316 167,603
Additional-paid in capital .................... 36,418,282 35,274,959
Accumulated deficit ........................... (25,387,125) (26,073,657)
------------ ------------
Total stockholders' equity ............... 11,204,473 9,368,905
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,971,161 $ 15,395,518
============ ============
</TABLE>
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JMAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales .............................. $ 5,583,611 $ 4,577,362 $ 16,397,718 $ 11,068,868
Costs of sales ..................... 3,294,495 2,885,486 9,852,212 6,788,793
------------ ------------ ------------ ------------
Gross profit ................... 2,289,116 1,691,876 6,545,506 4,280,075
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and
administrative ................. 1,582,770 1,287,267 4,631,299 3,409,492
Research, development and
engineering .................... 445,283 333,653 1,325,796 867,030
------------ ------------ ------------ ------------
Total operating expenses ......... 2,028,053 1,620,920 5,957,095 4,276,522
------------ ------------ ------------ ------------
Income from operations ............. 261,063 70,956 588,411 3,553
Interest and other
income (expense), net ............. 19,456 17,354 78,475 (23,239)
Interest expense ................... (45,466) (77,292) (145,354) (231,956)
------------ ------------ ------------ ------------
Income (loss) before income taxes .. 235,053 11,018 521,532 (251,642)
Income tax benefit ................. 65,000 -- 165,000 --
------------ ------------ ------------ ------------
Net income (loss) .................. $ 300,053 $ 11,018 $ 686,532 $ (251,642)
============ ============ ============ ============
Primary and fully diluted net income
(loss) per common and common
equivalent share (Note 5) .......... $ .02 $ .00 $ .04 $ (.02)
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding:
Primary ........................ 19,344,309 17,387,712 18,652,345 15,197,530
============ ============ ============ ============
Fully diluted .................. 19,400,909 17,401,943 19,356,820 15,197,530
============ ============ ============ ============
</TABLE>
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JMAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
Sept. 30, 1997 Sept. 30, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................ $ 686,532 $ (251,642)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization ............................ 725,200 412,444
Services received in exchange for common stock or warrants 607 --
Change in assets and liabilities, net of effects
from acquisition:
Increase in:
Accounts receivable .................................... (165,200) (1,253,495)
Inventories ............................................ (699,517) (866,865)
Prepaid expenses and other ............................. (402,623) (299,362)
Other assets ........................................... (407,194) (95,558)
Increase (decrease) in:
Customer deposits ...................................... (724,325) --
Accounts payable and accrued liabilities ............... 179,753 691,899
----------- -----------
Net cash used in operating activities .................... (806,767) (1,662,579)
----------- -----------
Cash flows from investing activities:
Capital expenditures ..................................... (589,072) (526,371)
Increase in notes receivable ............................. (306,500) --
Payments received on notes receivable .................... 894,594 927,300
Acquisition costs, net of cash acquired .................. -- (84,285)
Patent costs ............................................. (21,099) (10,940)
----------- -----------
Net cash provided by (used in)
investing activities .............................. (22,077) 305,704
----------- -----------
Cash flows from financing activities:
Net payments of short-term debt .......................... (169,280) (199,100)
Net borrowing (payments) of notes payable ............... (86,443) 500,000
Net proceeds from the issuance of common stock ........... -- 156,000
Net proceeds from the exercise of options and warrants .. 667,544 615,734
----------- -----------
Net cash provided by financing activities ............ 411,821 1,072,634
----------- -----------
Net decrease in cash and cash equivalents .................... (417,023) (284,241)
Cash and cash equivalents, beginning of period ............... 2,629,286 1,837,647
----------- -----------
Cash and cash equivalents, end of period ..................... $ 2,212,263 $ 1,553,406
=========== ===========
</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 subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared by
the Company and are unaudited except for the balance sheet as of December 31,
1996. 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, 1996. The results of operations for the three and nine
months ended September 30, 1997 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>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Raw materials, components and sub-assemblies....... $2,602,977 $2,695,803
Work-in-process.................................... 1,842,132 913,403
Finished goods..................................... 109,720 246,106
-------------- -------------
$4,554,829 $3,855,312
============== =============
</TABLE>
(3) PROPERTY AND EQUIPMENT
As of September 30, 1997 and December 31, 1996, property and equipment
consist of the following:
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JMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Equipment and machinery............................ $ 4,725,179 $ 4,243,555
Furniture and fixtures............................. 400,825 313,909
Leasehold improvements............................. 82,912 62,380
----------- -----------
5,208,916 4,619,844
Less-accumulated depreciation...................... (2,348,004) (1,915,384)
=========== ===========
$ 2,860,912 $ 2,704,460
=========== ===========
</TABLE>
(4) CAPITALIZED SOFTWARE
Costs of software sold as part of the Company's products are capitalized
in accordance with Statement of Financial Accounting Standards No. 86. During
the three and nine months ended September 30, 1997, $153,582 and $296,311,
respectively, was capitalized. Such costs are amortized over not more than three
years. As of September 30, 1997 and December 31, 1996, capitalized software was
$432,619 and $177,327, respectively.
(5) 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.
In March, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share", which changes the method of calculating earnings per share. SFAS 128 is
effective for financial statements issued after December 15, 1997. The earnings
per share of the Company for the three and nine months ended September 30, 1997
and 1996 would not differ materially under SFAS 128 as that presented herein.
(6) EQUITY TRANSACTIONS
During the nine months ended September 30, 1997, the Company received
net proceeds of approximately $668,000 from the exercise of warrants and options
into 406,990 shares of common stock.
(7) ACQUISITION OF CALIFORNIA ASIC, 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, (subsequently renamed 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 1,427,526 shares of its Common
Stock. The purchase price was negotiated at arm's length.
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In addition, concurrent with the closing, the Company loaned $400,000 of
its funds to Cal ASIC (in addition to $100,000 previously loaned), $500,000 was
loaned in 1996, and $842,000 was loaned in the nine months ended September 30,
1997, to be used by Cal ASIC for equipment purchases and working capital
purposes. In addition, the Company agreed to loan (the "Loan") the two majority
shareholders of Cal ASIC up to $250,000, of which $100,000 was loaned in the
nine months ended September 30, 1997, secured by the JMAR stock they received in
the Acquisition. The Loan was repaid in October 1997.
Cal ASIC is engaged in the design, fabrication, assembly and testing of
application specific integrated circuits for the electronics industry and is
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 based upon an independent
appraisal of certain of the acquired assets and using management's estimate of
fair value for the remaining net assets. Goodwill related to this acquisition is
being amortized over five years.
The following unaudited pro forma information gives effect to the
acquisition of Cal ASIC as if the acquisition occurred on January 1, 1996. 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, 1996 or which may be expected to occur in the future.
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1996
--------------------------------------------
Proforma Actual
-------- ------
<S> <C> <C>
Total revenues ..................... $ 11,081,000 $ 11,068,868
============ ============
Loss from continuing operations..... $ (657,000) $ (251,642)
============ ============
Loss per share ..................... $ (.04) $ (.02)
============ ============
</TABLE>
(8) SANTA FE LASER CO.
On August 13, 1997, the Company signed a letter of intent ("LOI") to
acquire Santa Fe Laser Co. ("SFL"). Pursuant to the LOI, the Company loaned SFL
$200,000, secured by a security interest in all of SFL's assets and by the grant
of a Warrant exercisable at a nominal price into 51% of the capital stock of
SFL. In mid September 1997, the Company terminated the LOI. The loan's scheduled
due date is 90 days following termination of the LOI, however, the Company
believes, on advice from its attorneys, that it has grounds for an acceleration
of the due date. The Company is taking action to exercise its rights to be
repaid from the collateral securing the loan.
(9) CONVERTIBLE NOTES PAYABLE
During October 1993 the Company issued $2,500,000 of convertible
promissory notes (the "Notes") of which $600,000 remained outstanding at June
30, 1997. The Notes bear interest at 8.25 percent, were initially convertible
into shares of Common Stock of the Company at $3.75 per share and were due
October 7, 1997. Subsequent to June 30, 1997, the Company entered into an
agreement to amend the terms of the Notes, whereby the conversion price for a
pro-rata share of the Notes (80 percent) was lowered to $3.00 per share.
Pursuant to these amended terms, holders of $470,000 in Notes converted the
Notes.
7
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(10) SUBSEQUENT EVENT
Subsequent to September 30, 1997, the Company received approximately
716,000 in freely tradable shares of Company common stock (approximately $3.0
million) from the former principal shareholders of Cal ASIC as settlement (the
"Settlement") of certain claims under the terms of the original purchase
agreement. These shares were retired by the Company. JMAR's ownership position
in Cal ASIC will remain unchanged as a result of the Settlement.
The Company is currently evaluating alternatives to capitalize on its
investment in Cal ASIC. These alternatives include joint ventures with
semiconductor companies and other organizations which could benefit from Cal
ASIC's existing semiconductor processing and direct write laser capabilities,
sale of all or a portion of its ownership interest in Cal ASIC, and third party
direct investment into that operation.
8
<PAGE> 10
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 approximately 94 percent of the
outstanding common stock of California ASIC ("Cal ASIC"). JMAR's Operating and
Net Income for the nine months ended September 30, 1997 of $588,411 and
$686,532, respectively, include operating and net losses of $797,971 and
$831,275, respectively, generated from Cal ASIC's startup operations.
Accordingly, JMAR's operating income and net income, excluding the startup loss
from Cal ASIC, were $1,386,382 and $1,517,807, respectively, for the nine months
ended September 30, 1997. Operating and Net Income for the three months ended
September 30, 1997, $261,063 and $300,053, respectively, include operating and
net losses of $330,864 and $344,392, respectively, related to Cal ASIC.
Accordingly, JMAR's operating income and net income, excluding the startup loss
from Cal ASIC were $591,927 and $644,445, respectively, for the three months
ended September 30, 1997. The Company expects a continuing adverse impact on
profits in the near term from Cal ASIC, including a non-cash charge of
approximately $200,000 per year for goodwill amortization. The Company is
currently evaluating alternatives to fund Cal ASIC beyond December 31, 1997,
including joint ventures with semiconductor companies and other organizations
which could benefit from Cal ASIC's existing semiconductor processing and direct
write laser capabilities, sale of all or a portion of its ownership interest in
Cal ASIC, and third party direct investment into that operation. Furthermore,
certain of the Company's revenues are from a limited number of customers. As a
result, the timing of receipt and shipment of orders for these customers could
have a material impact on quarterly results.
Revenues for the three months ended September 30, 1997 and 1996 were
$5,583,611 and $4,577,362, respectively, and were $16,397,718 and $11,068,868
for the nine month periods ending September 30, 1997 and 1996, respectively. The
increase in 1997 for the three and nine month periods is primarily attributable
to the overall increased volume of orders for computer Hard Disk Drive Head
Inspection Workstations and new products, primarily the Mirage tabletop video
measurement system, offset in part by the inclusion in 1996 of revenues related
to the Company's laser hermetic sealing systems. The Company anticipates that
revenues in the fourth quarter may be somewhat less than revenues in the third
quarter, with the actual difference dependent upon timing of the receipt and
shipment of orders during the remaining portion of the fourth quarter. However,
revenues for the entire year are expected to be at least 30 percent greater than
1996.
Gross margins for the three months ended September 30, 1997 and June 30,
1997 were 41.0% and 40.0%, respectively. The higher gross margin for the three
months ended September 30, 1997 versus the three months ended June 30, 1997 is
primarily due to continued lower material costs due to higher volume purchases
of inventory related to certain product orders. There is no assurance that the
Company will be able to obtain such volume discounts in the future.
Selling, general and administrative ("SG&A") expenses for the three
months ended September 30, 1997 and 1996 were $1,582,770 and $1,287,267,
respectively. The increase in SG&A expenses in 1997 is due to (i) SG&A expenses
of $264,007 related to Cal ASIC in 1997 compared to $156,029 in 1996; (ii)
higher sales and marketing costs related to the Company's increased sales
volume; and (iii) higher payroll costs.
The Company's research, development and engineering program (RD&E)
consists of two types: Customer-Funded RD&E (U.S. government and other
companies) and Company-Funded RD&E. Both types of RD&E are expensed when
incurred. Customer-Funded RD&E costs incurred, included in "Costs of Sales",
totaled $324,759 and $264,339 for the three months ended September 30, 1997 and
1996,
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respectively, and $903,344 and $818,073 for the nine month periods ended
September 30, 1997 and 1996, respectively. Company-Funded RD&E costs are shown
in "Operating Expenses" and totaled $445,283 and $333,653 for the three months
ended September 30, 1997 and 1996, respectively, and $1,325,796 and $867,030 for
the nine month periods ended September 30, 1997 and 1996, respectively. Hence,
total RD&E expenses for the three month periods were $770,042 and $597,992 for
1997 and 1996, respectively, and $2,229,140 and $1,685,103 for the nine month
periods in 1997 and 1996, respectively. Capitalized software costs of $153,582
and $296,311 for the three and nine months ended September 30, 1997 are not
included in the above amounts. The increase in RD&E is primarily related to the
engineering development of a new generation of disk drive inspection systems,
the development of new software for the Company's test and measurement systems,
continued development of the Microlight 1000 micromachining demonstration
center, continued development of advanced lithography for semiconductor
manufacturing and further development of the Company's Light Knife products.
Interest expense was $45,466 and $77,292 for the three months ended
September 30, 1997 and 1996, respectively, and $145,354 and $231,956 for the
nine months ended September 30, 1997 and 1996, respectively. The decrease in
interest expense in 1997 versus 1996 is primarily due to the conversion of
$1,000,000 and $470,000 of convertible notes into JMAR common stock in October
1996 and August 1997, respectively.
CONSOLIDATED LIQUIDITY AND FINANCIAL CONDITION
Cash and cash equivalents at September 30, 1997 and December 31, 1996
were $2,212,263 and $2,629,286, respectively. The decrease in cash and cash
equivalents for the nine months ended September 30, 1997 was $417,023 as
compared to a decrease of $284,241 for the nine months ended September 30,
1996. The decrease in cash for the nine months ended September 30, 1997 resulted
from cash used in operations of $806,767, capital expenditures of $589,072,
payments of short-term debt of $169,280 and increase in notes receivable of
$306,500 offset in part by payments received on notes and other receivables of
$894,594 and proceeds from the exercise of options and warrants of $667,544. The
Company anticipates that its capital expenditures for the fourth quarter of 1997
will be less than the average quarterly expenditures experienced during the nine
months ended September 30, 1997. Cash from net income (loss) plus non-cash
operating items improved from a provision of cash of $160,802 for the nine
months ended September 30, 1996 to a provision of cash of $1,412,339 for the
nine months ended September 30, 1997.
JMAR operations will continue to require the use of working capital. The
working capital of PPL is generally funded through its $3,500,000 working
capital line (the "Line") with a bank (the "Bank"). The operations of JTC are
currently funded through third party contracts. As of September 30, 1997 PPL's
availability pursuant to the Line was approximately $3,000,000 of which
approximately $1,250,000 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 loaned an additional $500,000 in 1996, and loaned $842,000 in the
nine months ended September 30, 1997, used by Cal ASIC for equipment purchases
and working capital purposes. In addition, the Company agreed to loan the two
majority shareholders of Cal ASIC up to $250,000, of which $100,000 was loaned
in the nine months ended September 30, 1997, secured by the JMAR stock they
received in the Acquisition. This loan was repaid subsequent to September 30,
1997. During 1996, the Company entered into a $950,000 lease financing agreement
(the "Lease Line") with Leasing Technologies International, Inc., the proceeds
of which are used to finance Cal ASIC equipment and software requirements. As of
September 30, 1997, approximately $500,000 is available pursuant to the Lease
Line. Management believes that the Company has existing resources to adequately
fund operations and working capital requirements at least through September 30,
1998 based on the current
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<PAGE> 12
level of operations and business conditions. However, the working capital needs
of Cal ASIC may be greater than that which the Company has currently committed
to fund. The Company is currently evaluating alternatives to fund Cal ASIC
beyond December 31, 1997, including joint ventures with semiconductor companies
and other organizations which could benefit from Cal ASIC's existing
semiconductor processing and direct write laser capabilities, sale of all or a
portion of its ownership interest in Cal ASIC, and third party direct investment
into that operation.
In addition, the Company may require additional outside financing for
some of its emerging products including 1) the continued development of advanced
lithography light sources and workstations for the manufacture of new
generations of higher performance semiconductor chips; 2) the ultra-precision
manufacturing programs featuring the Britelight and Microlight systems that
utilize the Company's patented, new short-pulse laser technology for a range of
near term advanced manufacturing applications; and 3) the Company's emerging
Light Knife series of hand-held lasers designed primarily for medical
applications such as needle-less blood sampling but which the Company believes
can also be utilized in the dental and ophthalmic markets, as well. In
connection with the above financing needs along with financing that may be
required for future acquisitions and general working capital, the Company has
retained Baytree Associates, Incorporated to arrange financing (the "Offering")
for the Company consisting of the private offering, on a "best efforts" basis,
of up to 772,059 Units at a price of $13.60 per Unit. Each Unit consists of four
shares of common stock and one Warrant to purchase one additional share of
common stock at a price of $4.40 per share. As of November 11, 1997, the Company
has received subscriptions to purchase 251,838 Units for $3,425,000. The sale of
these Units has not been completed and no proceeds from the Offering have been
received by the Company. There is no assurance that all or any portion of the
Offering will be completed.
At December 31, 1996, the Company had in excess of $26 million of
Federal net operating loss carryforwards, subject to certain annual limitations.
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.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Certain statements contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations which are not related
to historical results are forward-looking statements that necessarily are based
on certain assumptions and are subject to certain risks and uncertainties that
could cause actual future performance and results to differ materially from
those stated or implied in the forward-looking statements. These risks and
uncertainties include concentration of sales to markets and customers, delays or
cancellations in orders, fluctuations in margins, timing of specific orders,
customer reorganizations, demand fluctuations, timely development, introduction
and acceptance of new products, technical obsolescence of existing products,
technical problems in the development or modification of current products or
manufacturing processes, the impact of competitive products and pricing, shifts
in demand for the Company's products, the degree of success of technology
transfer (e.g., advanced lithography sources, laser blood sampler,
micromachining, etc.) to commercial products, availability of working capital to
support growth, continued government funding of advanced lithography, inability
of the Company to timely complete one or more of its alternatives to fund Cal
ASIC beyond December 31, 1997, successful integration of acquisitions, other
competitive factors, temporary cessation of operations at one or more of its
division facilities due to acts of nature such as floods, earthquakes and fires,
and other risks detailed in the Company's Form 10-K for the year ended December
31, 1996 and in the Company's other filings with the Securities and Exchange
Commission.
11
<PAGE> 13
JMAR INDUSTRIES, INC.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
(c) Pursuant to the Board Member Compensation Program adopted by the Company in
August, 1997, the Company issued a total of 240 shares of Common Stock to
its outside directors as compensation for services as a director in August,
1997. This transaction was exempt under Section 4(2) of the Securities Act
of 1933.
Item 6. Reports on Form 8-K
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the three months ended
September 30, 1997.
12
<PAGE> 14
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.
November 11, 1997 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
13
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